Air Kerala set to fly solo

TNN, 08-10-2012 19:52:17

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What does a state with three international airports, another in the offing and seven million passengers passing through it annually do next? Open its own airline, of course. And that’s what Kerala is doing. If that sounds audacious and unrealistic at a time when most airlines are in the red, those heading it are unfazed. After all, they ask, didn’t Kerala give India its first airport based on the PPP (public-private participation) model in Cochin in 1999? And it’s running profitably, garnering Rs 100 crore last year alone.

But what compelled this sliver of a state to think of starting its own airline, says Kerala chief minister Oommen Chandy, was the step-motherly treatment meted out by AI Express. "It cancelled flights recently to the Gulf at the drop of a hat. Despite knowing two weeks beforehand, it didn’t inform our passengers. We don’t expect this from a national carrier. Also, the fares of other airlines are too exorbitant for workers in the Gulf." (see box) Interestingly, this is probably the first instance globally when a state/provincial government will hold equity stake in an airline , says an aviation adviser at Ernst & Young. "Globally, there haven’t been any instances of provincial, regional or municipal governments owning carriers. But in June this year, Lithuania’s Vilnius City Municipality announced plans to have an airline, Air Lituanica," he says.

The idea of starting an airline began in 2005 and Air Kerala International Services was registered in 2006. What’s given many the confidence that it will take off is that it’s based on the same business model as Cochin International Airport Limited (CIAL). Both are funded by the people of Kerala, a capital where there will be no exit pressures. Also, the architect of CIAL’s success and its present MD, V J Kurian, will also be heading the proposed Air Kerala. Chandy hopes it will take off by early next year.

However, running an airport and an airline are two different things. But Kurian cites the example of profitable airlines such as Indigo, Air Asia and Air Arabia. "Any company should make its captive audience shareholders in the venture. In CIAL’s case, it received investments from some 10,000 NRIs and those whose lands were acquired were given jobs at the airport, making it as much their airport as the state’s ," he says. "CIAL also has 10% lesser landing charge than other airports in India and no user development fee, making it attractive for airlines."

Air Kerala will be a low-cost carrier (LCC). It’s looking at an initial investment of Rs 200 crore and expects a base of two lakh shareholders, says Kurian. "Shares will be sold at Rs 10,000 each. Discount coupons will be given to the shareholders and is likely to be 10% of the amount invested." Kerala government and CIAL will hold 26% stake, while the rest will come from individuals and NRIs.

Already, M A Yousuf Ali, MD of the LuLu chain of supermarkets in the Gulf and who was part of AI’s board before resigning this year, has pledged that 22,000 of his employees will buy shares. NRI industrialist Ravi Pillai too said 35,000 of his employees will buy the shares, says Kurian, bringing in an investment of Rs 57 cr straightaway.

Speaking to Sunday Times from Dubai, Ali says, "We are not looking at Air Kerala as a 100% business model, but we want many to invest in it." Kurian says that out of the 25 lakh Malayalees in the Gulf, he expects 2-3 lakh to invest here.

A state-owned carrier, in fact, has a lot going for it. The E&Y adviser says it serves a larger purpose of bringing in economic benefits to the region. "Air Kerala will have high volume traffic between Kerala and the Gulf, ready availability of airport infrastructure (Kerala will eventually have five international airports) and ready-made routes," he says. In fact, there are many unexplored routes which this airline can service , says Ali. "This includes Fujairah, an emirate of UAE, which has some 50,000 Indians staying there."

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