Smaller cities key to AirAsia's aggressive flight plan for India

"The fact that the government is upgrading smaller airports to handle Airbus A320s will also help us," he added.

AirAsia's entry with the focus on smaller cities comes at a time when the government is focussed on increasing connectivity for them. The Airports Authority of India is due to complete the modernisation programme of 25 airports in smaller cities by the end of this year.

Fernandes is so bullish about the tier-II/III market that he is even prepared to give Mumbai and Delhi a miss to adhere to his low-cost structure. "Mumbai and Delhi are clearly high-cost airports that won't be our major focus," he said. "Delhi has a low-cost terminal, but slot congestion is a problem there. Our business plan is not predicated in these two airports."

Meanwhile, AirAsia will be investing Rs 80 crore to start off with, according its FIPB proposal. Tata Sons will invest Rs 48.58 crore while Telestra will invest Rs 34 crore. The airline will also be using its own brand name 'AirAsia'.

"Further funding of the JV company will be undertaken on the basis of business needs," AirAsia's FIPB proposal states. The airline will start off with 3-4 aircraft and have a staff of 300.

Fernandes said that an Indian management team has already been picked. "We have already picked the management team and I was very impressed. We will announce the CEO in two-three weeks," he said.

"Chennai is the obvious place to start off with since we already operate from there and also we know that region better," he said.

For the moment, AirAsia's plans are endorsed by analysts and consultants who say the carrier will be able to replicate its success in India.

"We think this is negative for the Indian carriers, especially SpiceJet given its major presence in Chennai and tier II/III cities exposure," said Corrine Png, analyst at foreign brokerage firm JP Morgan. "With traffic under pressure, it would be challenging to sustain higher yields and the entry of new players could put pressure on pricing."

... contd.

ALSO READ

China's ZTE looking at Indian telecom market for growth

Mahindra and Mahindra shares rise on earnings hopes of Ssangyong Motor

The web of IPL

Gold prices fall by 1.54% in futures trade