Akasa Air, India’s youngest airline, is on the cusp of securing a significant financial boost, with a consortium poised to invest around $125 million into the company. This development marks a pivotal moment for the low-cost carrier, which has rapidly gained market share since its launch two years ago. The investment, led by Bangalore-based Premji Invest and Manipal Group’s venture capital arm Claypond Capital, is expected to value Akasa Air at approximately $350 million, reflecting a four-fold increase from its initial valuation.

Strategic Investment and Expansion Plans

The consortium’s decision to invest in Akasa Air aligns with its strategy to back consumer-oriented startups nearing profitability and possessing substantial market share. Premji Invest, the family office of Wipro’s Azim Premji, and Claypond Capital, associated with Ranjan Pai of the Manipal Group, have engaged Alvarez & Marsal to conduct due diligence on the investment. The deal, while still in the negotiation phase, is progressing steadily and is expected to be finalized soon.

This investment will significantly dilute the stakes of Akasa’s current major shareholders, including the Jhunjhunwala family and CEO Vinay Dube, although the Jhunjhunwala family is expected to remain the largest shareholder with around a 40% stake. The funds will be primarily used for pre-delivery payments of new aircraft and to fuel the airline’s aggressive expansion strategy​.

Growth Trajectory in a Competitive Market

Since its inception, Akasa Air has swiftly captured 4.7% of the domestic market, placing it fourth among Indian carriers, just behind the Tata Group’s Vistara and ahead of competitors like Air-India Express and SpiceJet. Despite facing intense competition from industry giants such as IndiGo, which commands a 62% market share, and the Air India group’s 14.3% share, Akasa Air has managed to carve out a niche in the rapidly growing Indian aviation sector.

The airline’s growth strategy is ambitious, with plans to scale its operations both domestically and internationally. Akasa currently operates 24 Boeing 737-8 aircraft, with an impressive 202 additional Boeing 737 MAX aircraft on order, including 99 B737-10s and 103 B737-8-200s. This substantial order book underscores Akasa’s long-term vision to become a dominant player in the region​.

Challenges and Financial Performance

Despite its rapid growth, Akasa Air has encountered several challenges, including significant financial losses. The airline reported a loss of INR 7.44 billion ($88.7 million) in its first year of operations and is projected to double this loss to INR 16 billion ($190.7 million) for the fiscal year ending March 31, 2024. CEO Vinay Dube attributes these losses to startup costs and the necessary investments to establish a robust market presence. He remains optimistic, however, stating that the airline expects to achieve profitability within the next two years​

Akasa’s financial strategy is also focused on mitigating risks associated with its rapid expansion. The infusion of $125 million will provide the airline with the necessary capital to meet its short-term obligations and continue its growth trajectory. The management’s commitment to being well-capitalized is evident in its strategic decisions, ensuring that Akasa is well-positioned to compete in a market characterized by consolidation and fierce competition.

Future Outlook

The Indian aviation market is currently undergoing significant changes, with major players like IndiGo and the Tata Group airlines (including Air India and Vistara) dominating the landscape. However, the sector is ripe for the entry of a strong, well-funded third player, a gap that Akasa Air aims to fill. The airline’s focus on providing a high-quality, low-cost service model, coupled with its expanding fleet and route network, positions it as a formidable competitor in the industry.

Moreover, the potential investment by Premji Invest and Claypond Capital is not just a financial boost but also a vote of confidence in Akasa’s business model and management team. As the airline continues to expand its domestic and international operations, it will be interesting to see how it navigates the challenges ahead and whether it can achieve its goal of becoming a major player in the Indian and regional aviation markets​. Akasa Air’s journey is a testament to the dynamic nature of India’s aviation sector, where opportunities abound for those willing to innovate and invest in the future. With strong backing and a clear vision, Akasa Air is well on its way to establishing itself as a key player in the region’s skies.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

26th August, 2024