Serial entrepreneur Richard Branson once remarked, “The easiest way to become a millionaire is to start out a billionaire and then go into the airline business.” Branson’s acerbic observation is not without reason. The world over, value has been consistently destroyed in the airline business and those who have struck gold can be counted on fingertips. Among the colourful exceptions are Herb Kelleher at Southwest, Michael O’Leary at Ryanair, Tony Fernandes at AirAsia and Branson himself with Virgin Atlantic. All these outspoken mavericks owe a debt to Freddie Laker, the original low-cost pioneer whose Laker Airways reduced free baggage allowance and sold meals on board before being muscled out by full-service carriers. Many of the strategies used by low-cost guerillas such as Southwest, Ryanair or AirAsia have come from Laker’s copybook.
Pricing and costing are opposite ends of a pole and nowhere is this more starkly felt than in the airline business. Pricing is decided by the market while costing is more internal and determined by one’s overheads. The common factor, therefore, among those who have succeeded is a maniacal obsession with keeping costs under control. In the airline business, it is very hard to cut fixed costs in order to adjust to a fall in demand and this is what makes the business extremely punishing. Then, if you are caught in the throes of a downturn, as seems the case with the economy right now, it has even more of a pincer effect since you want to hold on to passengers by not hiking fares and that acts as a double whammy when you are flying a less than optimum load.
The high cost of operating an airline in India has not deterred AirAsia’s Fernandes and he now aims to do an encore, having appointed Mittu Chandilya to spearhead the airline’s foray into the domestic market. While Chandilya is astute enough to understand that high overheads and an efficient low-cost carrier cannot co-exist, the stars have to align perfectly for him to succeed in an inherently inhospitable market. His preparation and the challenges that await Chandilya is the focus of this issue’s cover story: Low-cost warriors . AirAsia India’s flight trajectory from here on will be worth watching.
