[RM Motorsports]

The Indian aviation community is abuzz with the news of a new airline being added to the fleet. Akasa airline has raised significant amount of funds, including a multi-crore investment by billionaire stock market investor Rakesh Jhunjhunwala. In a short span, the airline has appeared on everybody’s radar. Preliminary reports suggest a focus on the Ultra-Low Cost Carrier (ULCC) model and majority of aircraft to be based in Bengaluru with headquarters in Mumbai.

Apart from Mr Jhunjhunwala -- locally known as India's Warren Buffett for his successful stock picking -- Akasa is backed by Aditya Ghosh, a former head of market leader IndiGo, and Vinay Dube, a former executive at Delta Air Lines Inc. and a former chief of Jet Airways.

Mr Jhunjhunwala's new airline is looking at operating a fleet of 70 aircraft in four years. An order for 70 units of 737 Max-8 jets -- the most popular model -- would be valued at $8.5 billion. Rakesh Jhunjhunwala, held discussions with Airbus for its best-selling A320neo jets, but that model isn't available for delivery until several years down track, tilting equation in Boeing's favor.

https://www.livemint.com/news/india/...461599140.html

[V.Narayan]

The glamour and sexiness of the aviation world and the allure of handsome jets attracts many investors who while very intelligent and competent otherwise fail to grasp that passenger air transport as a service is a low margin business. But there is no doubt about the glamour quotient or the swell of pride you experience when one of your planes takes off or docks. Ask me!

Aditya Ghosh and Vinay Dube are both very competent people. But neither built the airline - Indigo and Jet Airways respectively. To their credit they ran the airlines well though after someone else had built it and laid down the standards, culture, eye for quality etc. I also wonder, knowing both somewhat, about two swords in a sheath. Nevertheless I wish them well.

Airlines are gargantuan swallowers of financial capital be it for acquisition of an aircraft, or maintenance or training of personnel. The only way to stay truly profitable in a fully competitive market is to - (i) lease all machines on the tightest terms possible; (ii) place very large orders with the OEM with the discount being recognized by you over the years after you do your sale and lease back with the lessor; (iii) lease the engines separately on a with maintenance warranty & service {easier said than done}. Do the massive order and discount + sale and lease back thingy on engines as well; (iii) run your own maintenance and provide that service to others to subsidize your own maintenance costs - invest massive amounts to do so; (iv) and grow big very fast. (v) stay a low cost carrier (vi) carry lots of cargo. Cargo pays, passengers don't.

The airline industry has the following characteristics - (a) highly highly regulated. In India that often translates to an anal, not so enlightened and a not so honest regulator; (b) extremely high standards of both operations and engineering all the time. It is truly a 6.5-sigma/ 7.0-sigma industry for the most part; (c) massive liabilities with insurance covers that are multiples of your revenue (d) your biggest variable cost input {fuel} gyrates all the time. (e) like a newspaper or hotel room the unsold seat is inventory written off the moment the doors shut.

But if you love aircraft {as I do} you cannot resist being in aviation.

If I were Rakesh J I wouldn't invest in an airline. But these are only my personal opinions. If the end consumer benefits it will be good for all of us.

[xcentrk]

Originally Posted by V.Narayan

The glamour and sexiness of the aviation world and the allure of handsome jets attracts many investors who while very intelligent and competent otherwise fail to grasp that passenger air transport as a service is a low margin business. ......
If I were Rakesh J I wouldn't invest in an airline. But these are only my personal opinions. If the end consumer benefits it will be good for all of us.

Well said Narayan! As an IT guy who worked with an firm who planned to start an airline(VoLK Airlines around 2012-13), I knew the hurdles the owners went through, the betrayals and hardship. The owners were lost all their wealth and end up with just few assets and little cash in their bank. The regulations are really strict, getting approvals is an himalayan task in itself, and I heard a lot about DGCA and their "stricter" processes.

Unless, you have a huge backup and contacts and knew how to play it right, airlines business will be a gamble. I commend Indigo & Spicejet for their success and that is something they should take it as a lesson before stepping into the chaos filled industry.

[dailydriver]

Even the bravest soul will have his Waterloo.

Aviation, as it exists now, is an everyone eats everyone world. It is a battle that would demand a thousand sacrifices but would give very little in return.

Perhaps the Big Bull wishes to offload a tiny portion of his massive wealth into the business of taking the common man to the skies via the UDAN route (Ude Desh Ka Aam Nagrik).

Perhaps he had his eureka moment while watching Soorarai Pottru.

Perhaps he knows/senses something significant (like always!) about the direction that the aviation policy will take in the near future.

While being skeptical of the sanity behind and the profitability of Akasa Air, I wholeheartedly wish RJ the best of luck - he would need it in abundance.

Won't he?

[AZT]

RJ is probably just the front and there's someone else bankrolling it. Kind of like Ramdev being a front for Patanjali and other investors in the shadow.

[RedTerrano]

Competition drives up quality.
I am old enough to still remember (with a shudder), to have flown when only Govt airline monopolised the skies. The apathy, callousness and unprofessional attitude. I remember all of it.
For this one reason I wish Shri Jhunjhunwala the very best of success in his new venture. New players can set higher benchmarks and the consumer profits.

Originally Posted by V.Narayan

(vi) carry lots of cargo. Cargo pays, passengers don't.

Back in 2015, MEHAIR decided to launch a service to connect Nashik with Pune. Their plan was to use amphibious planes to make the most of dam waters, especially in the Nashik area. Also, Nashik had become an upcoming destination thanks to the wineries in that area.

Their thinking was certainly out of the box, but I think nothing came out of it. It could be because, like you said, they did not pay more attention to cargo.

https://www.hindustantimes.com/mumba...dLOtZ9g3I.html

[GTO]

Originally Posted by V.Narayan

The glamour and sexiness of the aviation world and the allure of handsome jets attracts many investors who while very intelligent and competent otherwise fail to grasp that passenger air transport as a service is a low margin business.

I fail to understand the glamour in today's aviation, V.Narayan. Most people who think there is still some glamour & sexiness in aviation have lived the 70s, 80s & 90s where commercial flights were still just for the rich and had a certain charm. Today, "low cost" airlines are rudimentary and "cattle class" is an appropriate term for them. There are trains more comfortable & luxurious than the economy class of airlines!! Flying is something no one really looks forward to anymore. It is mostly an ordinary, forgettable experience unless you are a one-percenter flying business class.

I simply cannot grasp what people like Mallya, Wadia etc saw in the aviation business, taking a risk big enough to lose their entire fortunes. As a wise man once said, if you want to end up a millionaire, start off as a billionaire and launch an airline.

[saisree]

Wish Rakesh J all the best. Hope he has Vijay Malya's photo opposite to his chair with straight vision on to it.

[speedmiester]

Originally Posted by GTO

I fail to understand the glamour in today's aviation, V.Narayan. Most people who think there is still some glamour & sexiness in aviation have lived the 70s, 80s & 90s where commercial flights were still just for the rich and had a certain charm. Today, "low cost" airlines are rudimentary and "cattle class" is an appropriate term for them. There are trains more comfortable & luxurious than the economy class of airlines!! Flying is something no one really looks forward to anymore. It is mostly an ordinary, forgettable experience unless you are a one-percenter flying business class.

Have to agree with you. Unless you are flying in business or first class, the glamour quotient of aviation is pretty much non-existent.
The seats in the economy section are not much comfortable than some of the buses. The long waits for security, checkin, baggage really adds to the misery of air traveler. The pandemic has not been kind on aviation as well.

I have made it a point to drive down rather than take flights for distances up to 1500KMs.

RJ is a shrewd investor and he is not taking this plunge without due diligence. Wishing him all the best in this venture.

[ABHI_1512]

Agree with GTO somewhat, the glitz and glamour of the aviation industry no longer exists anymore. Besides, Air travel these days feel like a monotonous torture routine which is hardly enjoyable anymore. Gone are the days when the flyer would be treated as a king and pampered, even the lounges have become so boring. But yes, the concept of low cost has been turned on its head by the likes of Indigo and Spicejet.

When a full service airline like Vistara and Air India charges the same amount or lower than the supposedly low cost airlines, then you know some things will never come back.

Having said that, Indian skies are full of uncertainty. When a competent airlines like Jet Airways can go kaput due to bad and whimsical decisions, it’s brave of Rakesh Jhunjhunwala to enter the space. But knowing the man, I was wondering what made him decide to do that. Well, for a start, got from today’s newspapers that Boeing 737 Max will be allowed to fly with Akasa. The planes have been grounded since March 2019 due to technical glitches and safety issues and after two crashes resulted in almost 340 lives lost.

Akasa will be ordering 100 737 Max and this news kind of coincided with the announcement. Low cost is what they are targeting and why not, when you can make do without any form of services rendered apart from flying passengers from one point to other. Suddenly, the aviation regulator is satisfied when Akasa approached them for clearance. All low cost airlines charge for the seat choice and take user convenience fee for booking online, I mean that kind of explains the cut throat nature of the business. I wish the new airlines all the best and hope that they are able to sustain the model of business and not shut down abruptly again like so many past examples !!

Adding the link for further clarity:
https://www.theweek.in/news/biz-tech...fly-again.html

[nitkel]

Originally Posted by GTO

I fail to understand the glamour in today's aviation, V.Narayan.
I simply cannot grasp what people like Mallya, Wadia etc saw in the aviation business, taking a risk big enough to lose their entire fortunes. As a wise man once said, if you want to end up a millionaire, start off as a billionaire and launch an airline.

I think setting up an airline for a billionaire is akin to driving for Ferrari F1 team! You know you will rarely benefit from doing it, but you gotta do it just for the prestige/legacy!

[no_fear]

Originally Posted by ABHI_1512

Well, for a start, got from today’s newspapers that Boeing 737 Max will be allowed to fly with Akasa.

There is no way I will set foot on a 737 Max after reading the FAA reports on the lapses Boeing committed, and the cost cutting done by the accountants.

Good luck to RJ on this new airline. Guess he forgot the oft repeated mantra in aviation

How does a billionaire become a millionaire - invest in an airline

[srini1785]

I'm at 666 posts and to break off the devil's influence i will write this post:

Its a bad time to start any business especially an airline business which does so-so even on a good day. The Vacuum left by the folding of Jet and Kingfisher has largely been filled by Indigo and GoAir. With Vistara and Air Asia also joining in the race and Jet eyeing a revival, there's already too many cooks. We have had a really bad example of a Budget airline earlier too called Deccan Aviation and i hope he does not follow that model.

RJ is a speculator and a typical bull on the market and so far his bets have paid off. This however is very risky bet. There's nothing more perishable than an airline ticket. However, a successful bull like RJ usually boasts of a great deal of "inside Info" and probably he has some inside info?? (Psst : Air india is folding up and AirAsia is counting days).

[Durango Dude]

Airline business makes millionaires of billionaires . I wouldn't trust Rakesh or his market insights after this step~

[TKMCE]

Originally Posted by xcentrk

Well said Narayan! As an IT guy who worked with an firm who planned to start an airline(VoLK Airlines around 2012-13), I knew the hurdles the owners went through, the betrayals and hardship. The owners were lost all their wealth and end up with just few assets and little cash in their bank. The regulations are really strict, getting approvals is an himalayan task in itself, and I heard a lot about DGCA and their "stricter" processes.

I heard about this so called VOLK Airlines. Was this really a start up? No professionalism, promoters who appeared to know NOTHING, and going back on joining dates after people quit their jobs and even relocated. Well that is what I heard anyway,