Akasa Airlines by Rakesh Jhunjhunwala: A Detail Business Case Study Explained

The economy of India is growing rapidly. Even throughout the pandemic time that occurred between 2020 and 2021, the majority of companies have been growing recently. Akasa Air, a newly developing firm in the aviation sector, is mentioned on that list. We shall delve into everything in detail in this Akasa Airlines Case Study.

But first, did you know that the majority of the nation’s businesses incur losses in the aviation sector? Management, government interventions, and other factors might be some of the causes. We have all observed the terrible epidemic scenario over the past two years. Then why would the aviation sector be excluded from it? When there is a pandemic, this sector is most severely impacted.

Despite the circumstances, Rakesh Jhunjhunwala’s Akasa Air is preparing to enter the Indian airlines market. Akasa Airlines was unveiled by the Big Bull of the Indian Stock Market with the intention of giving the public a brand-new airline that provides ultra-low-cost flights.

The aviation industry as a whole lost more than 42000 jobs just as a result of the epidemic in the previous two years alone, while the majority of businesses are battling to even exist and the Indian Airlines suffered an 8 billion dollar loss.

But how can Mr. Jhunjhunwala’s ambitious goal and audacious incentive reinvent air travel in India in the face of all this misery and a dangerous business operate in India?

Here is a quick rundown of the Akasa Airline Details

Airline Name: Akasa Air.
Parent Company: SNV Aviation Private Limited.
Founder: Rakesh Jhunjhunwala.
Co-founder: Aditya Ghosh
Headquartered: Mumbai, Maharashtra, India.
Starting Date: 7 August 2022.
CEO: Vinay Dube.
Airplane Model: Boeing 737 MAX aircraft.
Akasa Airline Website: https://www.akasaair.com/
Akasa Airline Tagline: It’s Your Sky

Before moving further, you have a lot of obvious questions related to the Airline Business, which would be like?

• What is Akasa Air?
• What is the reason behind the business idea?
• What would be Akasa Airline Business Model?
• What would be Akasa Airline Revenue Model?
• Are they going to beat other airlines?
• Would it be a profitable airline business?
• Why is he choosing this apparently terrible time to start such a risky business?
• What are the factors that we need to understand about the aviation market?

Let’s understand first the plan of Mr. Jhunjhunwala’s Airlines, which is named Akasa Air

With a 35 million dollar investment, Rakesh Jhunjhunwala will launch Akasa Air, a carrier in which he would own a 40% ownership position. Vinay Dube, a former CEO of Jet Airways, and Aditya Ghosh, a former president of IndiGo, are just two examples of the veterans he has hired to oversee the airline. Ghosh is anticipated to join the board as Jhunjhunwala’s nomination, while Dube is anticipated to serve as the company’s CEO. He also wants to grow the airline within four years to a fleet of 70 aircraft, according to a report. And this is incredible considering that it took other airlines around 15 to 20 years to reach this milestone.

The business will begin operations on August 7, 2022.

The first aircraft will depart from Mumbai to Ahmadabad on August 7, 2022, with 28 flights per week at rates of between Rs. 500 and 600. You will be given a menu for the meals and snacks served on board, which will be available for pre-order and onboard purchase. Akasa Air is prepared to offer ultra-cheap carriers. Simply put, the cost of the tickets will be even cheaper than what low-cost airlines like Indigo and Spice Jet already charge their customers.

And now you might be thinking that what is an Ultra Low-Cost Carrier in airline or ULCC?

The answer to it is nothing but a low-cost fair with limited facilities. Like an E.g:

• Availability of fewer options.
• Tickets are of Low cost.
• You must pay additional fees for the amenities offered.
• Unbundling certain amenities
• Reduce the weight of the luggage.
• There will be fewer accommodations. There is no seat selection option available.

Existing Scenario of Indian Airline Companies:

The budget airline IndiGo, which is owned by InterGlobe Aviation Ltd, now has a majority of the domestic passenger market in India, with a market share of over 54%. Spicejet, Airasia, GoAir, Vistara, and Air India are the next largest airlines in the country. The remaining carriers are primarily low-cost carriers (LCC), with the exception of Vistara and Air India, which recently changed their name to GoFirst and changed their business strategy to become ultra-low-cost carriers (ULCC).

The turmoil in the Indian aviation business is partly due to massive losses projected in 2020-21 due to pandemic circumstances. The airline firms as a whole reportedly suffered a loss of $15,000,000,000. The worst-hit airlines were Air India (loss of Rs 4,700 crore) and IndiGo (loss of Rs 5,829.7 crore). AirAsia (1,396.0 billion), Vistara (1,609.7 billion), and Go Air (Rs 1,333.5 crore).

There is hardly any direct assistance coming from the Indian government. Lessors will soon be forced to start putting pressure on defaulting airlines since investors have largely stopped supporting airlines, even for restructuring purposes.

Indian Airline Market situation:

India is the world’s second most populated country, with a significant young population. Aside from the US, China, Japan, and Germany, it has the fifth-largest economy in the world. Indians travel more both domestically and internationally than people in many other economies, and this trend is only expected to continue as a result of the enormous demand for air travel.

According to Rakesh Jhunjhunwala, the market’s future need for increased airplane transportation will result in a favorable environment for the industry.

Akasa Airline Business Model:

The Akasa Airline business model, in general, outlines how one should anticipate making money with the airline, much like with any other airline firm. A ULCC is a company that runs airplanes with the intention of undercutting other airlines on price. We have highlighted some of the alternatives that Akasa Airlines is currently utilizing or may employ in the future with regard to the Akasa airline model that operates internationally as a low-cost carrier.

There are several choices, and the ones below only show the whole variety of viable business strategies:

1. To cater to clients on a tight budget by offering economical air travel. They will try to attract customers who would otherwise choose to travel using less expensive options or not at all. The company’s main area of interest is short-haul flights.
2. The business strategy benefits from the deployment of important personnel and government incentives, such as when Mr. Aditya Ghosh, the former president of Indigo, joins Mr. Jhunjhunwala’s endeavor. He will undoubtedly provide some ground-breaking cost-cutting measures for Akasa Air.
3. It emphasizes a point-to-point paradigm, which lowers the expenses associated with client movement. In order to begin flights to the main destinations, the Akasa airline establishes a “base” in one or a few airports.
4. Akasa Air will concentrate on taking direct bookings through their website rather than using the pricey travel agents as a middleman.
5. The vast majority of the workforce would continue to work as independent contractors or on their payroll rather than as salaried employees.
6. In order to lower the cost of Maintenance, Repair, and Overhaul, Akasa Air will adopt a leasing model, which will also boost staffing flexibility and minimize the cost of employee training.
7. One of the most significant ways for a low-cost carrier to minimize costs will be the construction of what is known as secondary airports in the approaching years. A second runway with the triad of slots, night parking, and counters is now accessible at an airport like Bangalore, which is quite uncommon.
8. The company’s working strategy is strengthened by delivering low pricing, which results in huge volumes.
9. The government intends to construct an additional 100 airports as part of the Udaan plan, and it will subsidize residents’ travel, which will ultimately be advantageous for both airlines and passengers.
10. Since the consumers’ facilities are of inferior quality, the business strategy is based on low costs.

Akasa Airline Revenue Model:

More than 300 people died in two Boeing aircraft disasters in just five months in 2018 as a result of terrible Boeing jet crashes, which were later followed by pandemic problems in 2020 and 2021. The business suffered significant losses. With greater negotiating leverage with Boeing as a result, Akasa may purchase airplanes at steep discounts. As an illustration, Imagine that a Boeing plane costs around $100M each unit, but Akasa can purchase them for $50M each at a 50% discount. This prevents the loss of many billions of dollars in the first place.

Use the Sale and Leaseback model wisely, that is (SLB). In the SLB business model, an airline buys an airplane at a good price, sells it to a lessor, hopefully for a profit, and then leases it back for its own use. For instance, if Akasa buys 100 airplanes for $50 million each and sells them to a lessor firm for, say, $55 million each, it essentially makes $500 million for Akasa without ever beginning the business!

When Akasa leases back airplanes from the lessor firm after that the cost of leasing aircraft for the Akasa airline is lowered, as are the maintenance costs as a whole.

They would be able to pass on hefty maintenance visits to lessors, for instance, if they could use a dry lease approach for 5–6 years.

When significant losses are being incurred by other airline businesses like Indigo and SpiceJet. Even if they are functioning at full capacity, they will make an effort to make up for losses. As a result, it will be extremely difficult to offer discounts on tickets, which would eventually lead to a rise in flying costs. However, because Akasa purchased the tickets at a significant discount, they are able to offer far lower rates than other airline firms in order to draw in more customers.

Akasa will ultimately diversify into cargo freight, which will increase its cash flow and make it less dependent on passenger traffic.

The most fundamental aspect of starting a profitable business is to earn without incurring any losses. As a result of the aviation industry’s narrow profit margins and fluctuating demand, every expense must be reduced, from the price of seats and parking to downtime, efficiency, and financing of the aircraft.

Akasa Airlines first Routes and Akasa Air Destinations are all set by the company, which are as follows:

The bookings for Akasa Air’s first locations, which it is ready to explore, have been available since last July. The Akasa airline will launch its maiden scheduled commercial flight between Ahmedabad and Mumbai on August 7.

Country	State	City	Airport	Operation Dates
India	Gujarat	Ahmedabad	Sardar Vallabhbhai Patel International Airport	August 7, 2022
India	Karnataka	Bengaluru	Kempegowda International Airport	August 13, 2022
India	Kerala	Kochi	Cochin International Airport	August 13, 2022
India	Maharashtra	Mumbai	Chhatrapati Shivaji Maharaj International Airport	August 7, 2022

Major Challenges For Akasa Air:

Airlines have been grounded and air travel has been suspended worldwide due to the unforeseen disaster that occurs every year. The issue could be managerial problems, competition, or economic effects. 

Here are several difficulties that airline firms and the aviation sector confront, which Akasa Air may find difficult to overcome. Lists are:

• Aviation fuel prices have been rising steadily throughout the years. Because of the Russia-Ukraine war and the subsequent increase in fuel prices, global inflation has been felt. Although Akasa Airlines strives to provide clients with a cost-effective flight, it is important to consider the cost of fuel.
• Akasa Air will need to develop new technologies to overcome this expense of flying. However, it will be important to note that in order for this new technology to be adopted, the existing technology must not have any flaws and must be both affordable and efficient.
• Due to the fact that Akasa Air is a new aviation firm, it is possible that it may run out of labor and employees because potential employees might be put off by the lack of competitive pay or opulent benefits.
• Due to the fact that AkasaAir would be the first aviation firm to consider such a novel idea, the management of the business may have some difficulties while determining the best course of action.
• Akasa Air must provide fine service to win the attention and confidence of the public in order for a growing number of people to use Akasa Air’s services. The company can initially lose money if they don’t offer decent service while flying.
• The aviation laws and norms of the government must be followed by Akasa Air. They may first encounter a little issue with the same, which may be fixed later.
• The aviation industry is very competitive both domestically and abroad. Due to increasing competition, many of them have closed their doors, much like Kingfisher. Akasa Air may find it challenging to carve out a niche in the industry given how established the competition is.

It’s critical to continue providing the same level of service after making a strong first impression in the airline industry. Due to the innovative concept, Akasa Air will receive positive feedback; but, in order to remain successful in the market, it must continually strive forward.

Wrapping Up:

Akasa Air is a new player in the aviation sector, and its success is important for the industry. If it can succeed in delivering high-quality, affordable air travel, it will pave the way for other players to enter the market and compete. This will create more choices for consumers and drive down prices, making air travel more accessible to everyone.

The aviation industry might use some shaking up, according to the new ultra-low-cost airline Akasa Air. It remains to be seen if the airline can turn a profit despite its promises of affordable flights and a range of services.

It remains to be seen if the airline can overcome its difficulties and create a difference in the aviation sector despite the difficulties it has already endured in its brief history.

The foundation Rakesh Jhunjhunwala laid with Akasa Air is unquestionably groundbreaking, despite its dangers and unpredictability. By democratizing fares, it has the potential to dramatically alter the way people travel by air. They may rely on a highly effective and competent staff, which raises the likelihood that their proposal will materialize successfully. Without a shadow of a doubt, the demise of Kingfisher Airlines, Jet Airways, and SpiceJet causes fear.

So, overall in this Akasa Airline Case Study, we can say that the aviation sector is going through a tough time. However, Akasa Air seems to be a promising new player in the market that might just be able to turn things around.

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