Air Asia Investment Limited has executed a share purchase agreement with Tata Sons to sell its equity interest of 32.67% in AirAsia India. Photo: AFP

Malaysian low-cost airline AirAsia Group Berhad, which is battling the Covid-19 headwinds and flight restrictions across the globe, has indicated that it may exit its Indian joint venture with Tata Sons, multiple media outlets have reported.

The airline has stated that its businesses in India and Japan have been draining cash and causing financial stress.

“Cost containment and reducing cash burns remain key priorities evident by the recent closure of AirAsia Japan and an ongoing review of our investment in AirAsia India,” the airline said in a statement.

AirAsia Japan is stopping its operations immediately and has filed for bankruptcy with the Tokyo District Court on Tuesday.

AirAsia had posted its biggest quarterly loss in the second quarter ended June 30, and CEO Tony Fernandes described India and Japan as peripheral markets that it could exit in future. The airline had recently lowered its projected recovery rate in Malaysia to 60% of its pre-Covid capacity by year-end, from its earlier forecast of 70-75%.

AirAsia had in early October stopped funding its India affiliate. The Tata group, which has the first right of refusal for the 49% stake held by its Malaysian partner, has been looking for various options, including scouting for strategic investors, to keep the airline afloat.

Though India is a price-sensitive market, AirAsia’s low fares have failed to attract flyers. As per the airlines watchdog, the Directorate General of Civil Aviation, AirAsia India had a market share of 6.8% in August, compared with Indigo’s 59.4% and SpiceJet’s 13.8%. AirAsia India began its operations in 2014 and employs 3,000 people, but is yet to turn profitable. In India, high fuel taxes and predatory pricing have taken a toll on the profits of even dominant players.

Pandemic blues

According to industry lobby group International Air Transport Association, airlines in the Asia-Pacific region, including India, are the hardest hit by the Covid-19 pandemic. India had imposed a flight ban on March 25 to contain the spread of coronavirus, which lasted for two months.

On May 25, it allowed resumption of domestic fights in a phased manner and the passenger load factor has been improving month-on-month. Buoyed by the ongoing festival season, air traffic has now reached 50% of the pre-Covid levels. However, scheduled international flights continue to remain suspended and India has entered into bilateral “air bubble” arrangements with many countries including the US, the UK, Germany, France, the UAE, Canada, Japan and others.

The launch of AirAsia India had marked Tata Group’s return to aviation. The group was instrumental in bringing commercial aviation to India. In 1932 it began the first airmail service and soon started passenger services under the name Tata Airlines. After Independence, the government bought a 49% stake in Air India in 1948 and nationalized the carrier in 1953.

Tata Sons also operates full-service airline Vistara in partnership with Singapore Airlines. It is also evaluating a bid for the ailing state-owned airline Air India, which the Indian government is keen to sell.