Rakesh Jhunjhunwala, Akasa Air and Why Budget Airlines are so profitable? 💸🧵👇
Rakesh Jhunjhunwala's Akasa Air takes its first flight in June 2022
RJ has invested $50 Million as initial capital in the company and has hinted at Ryan Air, a low cost airline in Europe as one of his key inspirations behind the business model for Akasa
youtu.be
RJ has invested $50 Million as initial capital in the company and has hinted at Ryan Air, a low cost airline in Europe as one of his key inspirations behind the business model for Akasa
youtu.be
While majority of Airlines around the world either go bankrupt or run their operations at very low margins
Budget Airlines like Ryan Air and Easy Jet have been immensely profitable both to their bottom line and to their shareholders
Budget Airlines like Ryan Air and Easy Jet have been immensely profitable both to their bottom line and to their shareholders
Giant full service airlines like Emirates, Delta and Singapore Airlines have ROE in single digit percentages
The likes of Ryan Air have in past reported ROE as high as 30%+
The likes of Ryan Air have in past reported ROE as high as 30%+
The amazing part
Fares of Budget Airlines can sometimes be cheaper than an intercity taxi service 💲
Fares of Budget Airlines can sometimes be cheaper than an intercity taxi service 💲
This high Return on Capital model isn't just exclusive to European Budget Airlines
Indigo Airlines since its inception has reported an average ROCE of 40%+
Indigo Airlines since its inception has reported an average ROCE of 40%+
So what makes Budget Airlines so profitable and can Akasa replicate the same in India? 🇮🇳
Budget Airlines work on a simple model
Take every expensive part of running an airline and replace it with a cheaper alternate ✈️
Take every expensive part of running an airline and replace it with a cheaper alternate ✈️
The primary expense for an Airline is the Aircraft ✈️
Budget Airlines can buy second hand aircrafts but instead choose to buy brand new models as
🛧 Cost of Repair and Maintenance is Lower
🛧 Newer Airplanes are the more fuel efficient
Budget Airlines can buy second hand aircrafts but instead choose to buy brand new models as
🛧 Cost of Repair and Maintenance is Lower
🛧 Newer Airplanes are the more fuel efficient
They however make a slight differentiation in building their fleet
While a full service carrier has many types of planes in its fleet, a Budget carrier will always have only a single model
Ryan Air files Boeing 737 🛫
EasyJet files Airbus A320 🛫
and
Akasa files Boeing 737 🛫
While a full service carrier has many types of planes in its fleet, a Budget carrier will always have only a single model
Ryan Air files Boeing 737 🛫
EasyJet files Airbus A320 🛫
and
Akasa files Boeing 737 🛫
Because of large orders, Budget Airlines also get a bulk discount from Boeing or Airbus to place the order
This significantly reduces the acquisition cost per plane
This significantly reduces the acquisition cost per plane
One type of planes also mean that pilots, mechanics, ground and service staff only need to be trained on one type of model thereby reducing the cost and time towards training drastically
All other luxury or even the bare basic amenities of a flight are also thrown out the door
💺 Reclining Seats ❌
🍲 Free Food ❌
🧴 Even a bottle of water ❌
🧳 Airport Staff to Check you In ❌
💺 Reclining Seats ❌
🍲 Free Food ❌
🧴 Even a bottle of water ❌
🧳 Airport Staff to Check you In ❌
Reducing the overhead costs and only focusing on getting passengers from point A to point B, helps a Budget Airline keep the costs and fares low and focus on selling every available seat on a flight
But the biggest differentiator between a Budget Airline and a Full Service Airline is the Airport they travel to 🛬
Most budget Airlines will travel to a low traffic secondary airport outskirts of a city hub
They do so as Hub Airports like Heathrow, Delhi IGI etc. have a higher landing and usage fee with a fleet of airline operators to choose from
They do so as Hub Airports like Heathrow, Delhi IGI etc. have a higher landing and usage fee with a fleet of airline operators to choose from
Smaller airports do not have the luxury to set their own fees and since budget airlines take up majority of landing volume, they get to set a price for each landing
RyanAir for example travels to Stanstead Airport, located on the outskirts of London instead of Heathrow
RyanAir for example travels to Stanstead Airport, located on the outskirts of London instead of Heathrow
This part from the playbook of RyanAir is where Akasa may differentiate itself from the likes of Indigo and Spice Jet 🛩️
Indian Govt in 2016 launched UDAN, a regional airport development scheme that incentives air operators to fly to underserved airports across the country
Each flight to an underserved airport is subsidized by the Govt
Each flight to an underserved airport is subsidized by the Govt
There is even a list of 400+ underserved airports in India that is available on the Airport Authority of India's website
aai.aero
aai.aero
UDAN is an acronym for 'Ude Desh ka Aam Naagrik'
English Translation ➡️ 'Common Man Flies'
Govt of India clearly wants every small city in India to be connected and everyone to be able to afford flying
English Translation ➡️ 'Common Man Flies'
Govt of India clearly wants every small city in India to be connected and everyone to be able to afford flying
At the same time GOI is also building new airports and fixing up the old ones
In 2019's Budget, Finance Minister granted an initial investment of 1000cr towards building 100 new airports
Most of these new airports are in Tier 2 and 3 cities
In 2019's Budget, Finance Minister granted an initial investment of 1000cr towards building 100 new airports
Most of these new airports are in Tier 2 and 3 cities
Connecting the dots between GOI plans and business model of Ryan Air, it appears days of Akasa airplanes landing in Tier 2 and 3 cities are not too far away 🛬
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