AirAsia Berhad indicates exit from India due to financial stress

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Malaysian airline AirAsia Berhad has indicated its exit from India due to financial stress amid COVID-19 lockdown in a joint venture with Tata Sons, AirAsia India where it owns a 49% stake.

“Our businesses in Japan and India have been draining cash, causing the Group much financial stress. Cost containment and reducing cash burns remain key priorities evident by the recent closure of AirAsia Japan and an ongoing review of our investment in AirAsia India,” the Malaysian airline said in a statement on Tuesday.

“A detailed network and fleet optimization strategy has been implemented across the network, putting the right foundations in place for a sustainable and viable future. We continually review our network to ensure we fly the most popular and profitable routes,” it said, adding that the airline would focus on the Asian region, where its operations are the strongest.

During June, leading investment bank and financial services company Credit Suisse had in a report said that AirAsia Berhad could exit its Indian venture with the Tata Group, quoting the Malaysian company’s chief executive Tony Fernandes.

The Asian region is a core market for AirAsia Berhad, while India and Japan are peripheral markets, Fernandes had said during a global call arranged by Credit Suisse in June. “Thus he shared that while currently growing and committed, ‘we would never say that we would never exit India’, the Credit Suisse report added.

The airline, which started operations in 2014, has never reported an annual net profit despite being very conservative with its growth plans.

During April-June 2020 period primarily due to the lockdown and travel restrictions to contain the COVID-19 pandemic, the airline’s losses widened to ₹332 crore up from ₹15.11 crore loss during the same period of the previous year.

According to the latest passenger traffic data from the Directorate General of Civil Aviation (DGCA), AirAsia India reported a 58.4% load factor and a 6% market share in September. The airline carried 0.24 million passengers during the period. In comparison, market leaders IndiGo, which had a 57.5% market share in September, registered a 65.4% load factor, carrying 2.27 million passengers during the month. Load factor, or passenger load factor, is an aviation industry metric that measures an airline’s passenger-carrying capacity.

According to industry lobby group International Air Transport Association (IATA), airlines in the Asia-Pacific region, including India and Malaysia, are the hardest hit by the COVID-19 pandemic, with losses expected to be around $29 billion for 2020. This is more than a third of the $84.3 billion industry losses globally.