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Finshots

15 Jul, 10 tweets, 2 min read

Will a new airline company take off in #India right in the middle of a pandemic?

A thread.

News flying in from the aviation industry suggests that the big bull of Dalal Street, Rakesh Jhunjhunwala, is planning to invest up to Rs. 260 crores in a new low-cost airline called “Akasa” with Mr. Vinay Dube (ex CEO of Jet Airways and GoAir) as its tentative head.

And you must be wondering - Why would they try to set up a new airline bang in the middle of a pandemic?

Sounds like a terrible idea, no?

Everyone can see how the major players - Indigo, GoAir, and the likes have had a horrid time in dealing with the after-effects of the pandemic.

But this in itself has positioned as an opportunity for new entrants. How?

The thing is, most airlines don't buy aircraft, they take them on lease. And these leasing companies were betting big on 2020, which fell flat on their face. So they already have the aircraft, albeit sitting idle, as no one's buying them.

Which is why they're luring new customers by offering deep discounts. A McKinsey report suggests that while the monthly lease rate of a 2016 vintage Boeing 777–300ER aircraft was around $1.2 million in 2019, the same has now fallen to less than $800,000.

And if you take a closer look, it's not just the aircraft available on a bargain - even pilots and crew are willing to take pay cuts to get work.

More importantly, with boatloads of debt that the incumbents have undertaken to stay afloat, the only way to negate the rising interest cost accruing out of this is to raise ticket prices. And this is something that will make them less competitive compared to a new entrant.

So yeah, it does seem like this could be the best time for Akasa to take off and make a dent in the Indian market soon enough.

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Finshots wants to help people make better financial decisions. We don't want to stop at just financial news. And so, we have introduced Ditto (bit.ly/2TzRPAv), an advisory platform that helps people make better insurance decisions. Do check it out!

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