Rakesh Jhunjhunwala backed airline: Akasa business model

Akasa business model

Pandemic has not spared any business and the sector that is worst hit is travel and hospitality. The tourism sector faced severe trouble from the pandemic and is presently facing difficulty to regain its lost position. One of the biggest parts of the travel business is the aviation industry and needs big funds to revive and sustain.

Aviation players are bearing heavy costs in maintaining their loss-making business. But, the believers still hold positive in the sector and have a belief that the sector will rebound with a strong push after everything is back on track.  

With the same hope, India's well-known veteran investor Rakesh Jhunjhunwala is investing in the Akasa airlines business by infusing around 35 million US dollars that secured him 40% of the stake. The big bull and the country's popular aviation personality Vinay Dube (former CEO, Jet airways) are onboard to launch a new rival for the existing airline players.

Akasa airlines claimed to be a low-cost economical air carrier that is planned to launch anytime between April-June, 2022. It is prepared to introduce 70 aircraft under its airline business with a few years. Let us derive a detailed story from the article below and understand the Akasa business model

About: Akasa 

Before studying the Akasa business model it is crucial to realize the business first. So, let us sense some of the vivid details about the company. Akasa aspires to deliver an economical air traveling experience to its passengers and for that, they need to work on their costs and expenses. 

When it comes to one of the major expensive inputs for the airlines business, everyone knows that is the air carrier or the plane. Companies need to spend most of their capital in acquiring aircraft as it is their main asset that will derive profits and run their operations. 

The lesser the cost of acquiring the aircraft, the better it would be and Akasa stands lucky in this case. As this is a hard time for the carrier manufacturing industry, purchasing a fleet at this time will give bargaining power to any acquiring company. 

So, Akasa is achieving a discount of as big as 50%. Suppose if the aircraft costs 100 billion US dollars then they are acquiring it at a price tag of 50 billion US dollars which is an exceptional rebate enjoyed by this company. 

They are securing their fleet at a minimal price and Boeing has achieved the deal of supplying around 70 aircraft. Boeing was underperforming for the last few years and most of the market share was captured by Airbus but after receiving a bulk order perhaps has provided them with a big relief. 

Will Akasa airline be able to position itself in a market dominated by strong players?

Though the aviation industry is less crowded and consists of a few prominent players, but it is not easy to sustain in the industry as companies have to survive with thin margins. 

While bearing huge costs such as operating, labor, leasing, fuel charges, etc. And its leads to a huge fare flactuation if even a minor elevation in the price of the fuel.  So, it would be a tough call for a new entrant to enter the aviation industry. 

Along with this, the existing players are already sitting on a huge market share, leaving no or very little space for the newcomers. Akasa needs to watch out and strategically position itself with alluring offers for attracting more passengers. All in all, it would be tough for a new entrant to achieve a breakeven point in the initial years.

Akasa business model 

Akasa has a competitive advantage in terms of cost as it is willing to provide a relatively economical traveling cost to its passengers. Starting from acquiring a budgeted fleet additionally, they need to work on their operations to maintain the low-cost advantage. Claiming to be a low-cost carrier, Akasa may face stiff competition from its alike companies: Spicejet, Indigo, Vistara, etc. 

But, the best part is that they can avail varied benefits from India's UDAN scheme that promotes subsidizing airfares. To avail affordable air traveling for people. Also, Akasa backed with brilliant minds Vinay Dube and Rajesh Jhunjhunwala collectively will control the cost and manage the working capital in a better manner.

Vijay Dube, a former CEO of Jet airways, will focus on factors that are crucial for deriving great service at an affordable price. Coming from the board of a popular airline company, he already have a tremendous experience generating a healthy revenue without compromizing amenties provided to the passengers. 

Previewing the Akasa business model, then they are planned to start its services in the domestic market initially and maybe with the coming years they will expand their reach. 

Take away

Due to the prevailing conditions, it is quite hard for begaining any new business. Every time their is a fear of uncertainity and variability in the market. But this harshness brings in a golden oppurtunites for various new establisments as now new aquirers have a bargaining capacity that was missing during the boom. 

So, investors believe that this is the right time to start something fresh. As a reason Rakesh Jhunjhunwala is equipped to set this company in the aviation sector with a support of industry experts.

From the article above we got an insight into the Akasa business model and sense crucial facts about it. This reading would be helpful for the readers who are willing to update themselfves with promient points about the Akasa airlines and its business.

Also read: One of the largest food producing company: SWOT Analysis Of Nestle