In today’s Finshots, we talk about Akasa Air’s journey so far and what it could take for the airline to fly to the top.

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Now, on to today’s story.

The Story

SNV Aviation, or what you better know as Akasa Air (we’ll just call it Akasa from here on), just celebrated its second birthday last week. And as it blew out its birthday candle, the airline made a wish, a big one ― to turn profitable, and fast.

Now, wishing for profitability in the aviation world isn’t exactly a cakewalk. But Akasa’s wish, though tough, might not be unachievable. Because this young airline has been on a turbocharged growth journey over the past two years.

To break it down for you, Akasa has been racking up impressive numbers, especially when it comes to growth and passenger capacity — an achievement that many airlines struggle to pull off, even with over 120 years of aviation history behind them. And it’s not us saying this. Akasa’s co-founder and CEO, Vinay Dube, boasted that the airline has seen a whopping 300% growth in revenue and Available Seat Kilometres (ASKM) in FY24.

Now, if ASKM seems like a head-scratcher, it’s a metric that calculates the total number of seats available across all flights, multiplied by the distance those seats are flown. Simply put, it tells you how much capacity an airline offers. And this kind of growth could come from adding more planes, opening up new routes or even flying more frequently.

Speaking of planes, Akasa has added 24 shiny new aircraft to its fleet in just 21 months since its first flight. To put things into perspective, IndiGo, the giant in Indian aviation for now, added about 20 planes in the same timeframe after its first flight back in 2006.

That’s not all. Akasa also took to the skies internationally within its first 19 months, a feat no other Indian airline has managed to pull off so quickly. All thanks to a change in Civil Aviation Policy that allows airlines to go international without any domestic experience, as long as they have 20 aircraft in their fleet. Before 2016, the rules were much stricter. Airlines needed 5 years of domestic flying under their belt before they could spread their wings internationally. And this is significant for Akasa because flying international routes can be a goldmine as fuel is cheaper overseas. It makes sense too as fuel alone can make up 40% of an airline’s total costs.

But wait, there’s more. Akasa has also been clocking in the best on-time performance in the industry, with 77% of its flights landing on time. That’s about 6% better than IndiGo, India’s top airline (for now, again). And when it comes to market share, Akasa has gripped about 5%, even surpassing SpiceJet at times.

The cherry on the cake, though?

During last month’s global IT outage that grounded many airlines, Akasa didn’t cancel a single flight. That’s right, not one. It’s a testament to how well their IT operations are humming along.

So, the bottom line is that things are looking pretty bright for Akasa as it eyes another 50% growth in FY25, with even bigger plans for FY26 to hit that profitability mark as soon as possible.

But, before you get too carried away, there’s something you should know. While the takeoff has been smooth, climbing to greater heights might not be so easy for Akasa. Because here’s the catch.

Akasa’s journey in the Indian airline market actually seem great because things may have been a little easy. With the collapse of Go First last year, Akasa found itself in a prime position to snag those vacant flying slots and attract customers. Meanwhile, SpiceJet’s struggles with cash flow and operational issues have only made things easier for Akasa. And that means that its main competition right now are folks like Air India (which will soon absorb Vistara) and the ever-dominant (for now) IndiGo.

But if you go back to the early days of IndiGo you’ll see that the airline had to compete with established giants like Air India, Jet Airways, Go First, SpiceJet and the now-defunct Kingfisher Airlines. And despite the odds, IndiGo managed to capture around 10% of the market within two years and turned a profit in just four.

Akasa’s story though isn’t quite unfolding the same way.

Despite a booming market with air passenger traffic surpassing pre-pandemic levels last year, Akasa has faced mounting losses. In fact, in its first two years, Akasa has piled up a massive ₹2,400 crores in losses, despite bringing in roughly ₹3,900 crores in revenue. And if that’s not alarming enough, its losses surged by 125% in FY24 compared to the previous year.

Sure, you might argue that initial losses are just part of the airline game. But Akasa’s figures are raising some serious red flags when you compare them to how IndiGo fared in its early days. For context, in its first two years, IndiGo lost about ₹400 crores. Even though the revenue details before its 2015 IPO (Initial Public Offering) are a bit murky, that ₹400 crore loss was against revenue of less than ₹1,800 crores. So yeah, you can see where the trouble lies.

And it looks like things could get even trickier. Thanks to a little troublemaker named Boeing.

First off, Akasa uses a Sale and Lease Back (SLB) strategy to generate funds. Essentially, it buys aircraft, sells them at a profit and then leases them back. This helps free up cash that’s tied up in aircraft purchases. However, Boeing’s safety issues, which popped up about five years ago and were recently highlighted again by a door plug flying off mid-air on an Alaska Airlines’ 737 MAX 9, have caused delays in delivering these MAX jets. And the real kicker here is that Akasa has over 200 of these jets on order. So, these delayed deliveries mean that Akasa won’t be able to quickly rake in the cash it was counting on from selling the aircraft it buys under the SLB plan.

With that option off the table, Akasa has to look elsewhere for cash. And the only other way to get the funds it needs to keep running day-to-day, is by bringing in more revenues. This could mean increasing aircraft utilisation, flying more hours each day and expanding routes. Now, Akasa could boost its flying hours, which are currently about 10-12 hours a day. And adding international routes could help too. But if they end up adding fewer flights each year than the planned 12-14 because of Boeing’s delays, it’s going to be tough for them to bring in enough revenue to become profitable quickly.

Besides, even though the Boeing 737 MAX planes are now deemed safe, they’ve left a lingering stigma. Passengers could hesitate to fly on these planes, opting instead for carriers like IndiGo, which operates Airbus planes, or Air India, with its mix of Boeing and Airbus aircraft. Heck, even Ed Pierson, who used to run Boeing’s 737 Max program and now heads the Foundation for Aviation Safety, doesn’t want to fly on one. So, it won’t be surprising if passengers are wary of booking a flight on a 737 Max.

And that’s not the end of it. With Boeing’s delays, half of Akasa’s 800 pilots are over-hired, leading to a shortage of training opportunities and a stagnation in their career progression. This surplus of pilots also means that Akasa is paying salaries for positions that aren’t fully utilised. And since over 70% of an airline’s staff costs go to pilots, this is a pretty hefty financial burden.

Put all of this together and you’ll see why Akasa might experience some turbulence on its flight to profitability. But will it manage to prove us wrong?

Well, that would certainly come as a pleasant surprise.

Until then…

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Oh, and one more thing. We’re taking a publishing break to celebrate Independence Day tomorrow. We’ll catch you on August 16th with a fresh story. Happy Independence Day and see you soon!

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