The India venture of AirAsia Bhd. (AIRA) starts operations today as airlines in the world’s second-most populous nation offer base fares lower than 2 U.S. cents as they woo 61 million domestic fliers. Jet Airways (India) Ltd. (JETIN) and SpiceJet Ltd. (SJET) have posted annual losses, while Kingfisher Airlines Ltd. (KAIR), saddled with $1.4 billion of debt, has been grounded since 2012.
AirAsia’s entry heightens competition in India, where over the last seven years airlines are estimated to have lost $22 every time a passenger has stepped on board. That’s added up to a $10 billion loss in a market where the number of domestic travelers are forecast to triple in the decade to 159 million by 2021. The challenge is how to make money while fares continue to drop even as costs increase.
“The war in the Indian skies has just become more intense,” said Amber Dubey, partner and India head of aerospace and defense at KPMG. “If an unbridled fare war continues, including, God forbid, peak hour seats, we may see financial distress increasing and probable exit of one or two airlines in the next 12 to 18 months.”