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AirAsia India puts growth on hold while government dallies over reforms

Friday, June 26, 2015 - 17:06
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AirAsia India has halted its expansion plans after just a year in business as it waits for a government decision on whether to change a protectionist measure regulating overseas flights, the budget carrier's chief executive said.

[NEW DELHI] AirAsia India has halted its expansion plans after just a year in business as it waits for a government decision on whether to change a protectionist measure regulating overseas flights, the budget carrier's chief executive said.

The airline, part-owned by Malaysia's AirAsia Bhd, has carved out a one per cent share of a market enjoying double-digit annual growth in passenger numbers. But it has been losing money because of high operating costs and frequent price wars with rivals such as IndiGo Airlines.

The carrier planned to bring in a plane a month from March to build a fleet of at least 10 jets by the end of the year. That would allow it to ply dozens of less-competitive routes to small Indian cities, before starting flights overseas that connect passengers with AirAsia's networks across Asia.

The airline now has five short to mid-range Airbus Group SE A320 jets but will not lease any more until the government decides whether to retain or reform its so-called 5/20 rule, Mittu Chandilya said in an interview this week.

"We've said let's have a wait and see approach," he said.

The rule requires a carrier to be 5 years old with a fleet of 20 planes before it can fly abroad. It is unique to India and was aimed at growing the nascent domestic aviation industry.

"There were promises about getting some clarity on that before we launched," said Mr Chandilya "I haven't seen anything from this government that is about open skies and free markets."

The civil aviation ministry declined to comment.

Earlier this year, the ministry said it was considering scrapping the rule to help airports become international travel hubs. Instead, it proposed a system of credits that airlines would earn on domestic routes and "spend" on foreign ones.

AirAsia India plans to lease a further three A320s at the end of the year, but "that could change" if it was still not clear on when the airline could fly abroad, Chandilya said.

In the meantime, the airline would stick with its strategy of flying to India's "tier two" cities and invest more in marketing, Mr Chandilya said.

The comments come as parent CEO Tony Fernandes this week told staff he would spend more time working on AirAsia after a securities researcher questioned the parent's accounting practices, sending its share price tumbling.

Mr Chandilya said the accounting issue had not had an impact on the growth plans of AirAsia India, whose other stakeholders are Tata Group Inc and investment firm Telestra Tradeplace.

REUTERS