Rakesh Jhunjhunwala's Akasa to use stock options to lure staff

By Ragini Saxena,

Akasa, a new Indian airline backed by billionaire Rakesh Jhunjhunwala, plans to offer stock options to attract staff, using a lure more often deployed by technology startups in its bid to gain a foothold in one of the world’s most competitive air-travel markets.

The carrier, which is preparing to start flying in late May, is taking the unusual approach of granting company shares to a bigger pool of top employees, rather than a select group of senior executives, as the aviation industry globally suffers from a talent shortfall. Airlines have retrenched thousands of workers because of the pandemic and many pilots have quit, either taking early retirement or switching careers.

“We want to have an organisation that’s very tight knit in values, but diverse in experiences, genders, locations within India,” Chief Executive Officer Vinay Dube said in an interview. “We were saddened by the plight of employees through the pandemic, some of the bankruptcies that have taken place in Indian aviation, and we wanted to create homes for them where they are happy.”

The degree to which Akasa plans to grant stock options for staff will be “far greater than most airlines in India and hopefully reminiscent of maybe some of the tech startups where they go fairly deep in the way they provide employee stock ownership plans,” Dube said. There isn’t a suggestion stock options would be given to air crew or regular pilots, however.

Putting employee satisfaction so squarely front and centre is an interesting strategy in a market that’s historically gone after customers by offering cut-throat prices. Rock-bottom air fares have long been a feature in India, which has a suite of no-frills carriers targeting the nation’s huge flying public.

Akasa, backed by some impressive aviation veterans, has hired around 50 employees for back office functions and is now recruiting pilots, flight attendants and airport staff, said Dube, who is also Akasa’s founder and managing director. The careers page of Akasa’s website, decked out in the airline’s orange and purple brand identity with a tagline of “It’s Your Sky,” states that new applications have been paused after an “unprecedented number” of inquiries were received.

“It’s flattering, overwhelming, but there’s also a hint of sadness because I don’t want so many people to be either unemployed or unhappy,” said Dube, who says 95% of staff call him by his first name. “If we don’t treat our employees well, if we don’t take care of them, then it’s very hard for them to take care of customers, which we want them to do.”

Customer service alone isn’t going to alleviate the pain wrought by Covid, however. Airlines in India are expected to take an $8 billion hit from the pandemic and even before the virus decimated air travel, the landscape was littered with failures.

Former billionaires like liquor baron Vijay Mallya with Kingfisher Airlines and travel agent-turned-entrepreneur Naresh Goyal with Jet Airways India Ltd. couldn’t crack the market, both venturing into cheap, on-time budget business to augment their more premium offerings.

Tough business

Kingfisher folded in 2012 after failing to clear its dues to banks, staff, lessors and airports, while Jet Airways has new owners following a court-monitored, insolvency-resolution process.

Even those still in business find it tough. SpiceJet Ltd. almost collapsed before its founders returned to gain control and revive the company in 2015. Air India Ltd. survived on taxpayer bailouts worth billions of dollars before the government sold it to Tata Sons and the local ventures of Singapore Airlines Ltd. and Malaysian tycoon Tony Fernandes’s AirAsia Bhd., both of which teamed up with Tata Sons, have never made money.

Coupled with high taxes on aviation fuel, the sector is so riddled with brutal price wars that don’t leave carriers any fat to cover costs it’s “chronically ill,” IndiGo’s Chief Executive Officer Ronojoy Dutta said recently.

“Startups have a particularly difficult road ahead,” said Robert Mann, the New York-based head of aviation consulting firm R.W. Mann & Co. The challenges before airline upstarts like Akasa include availability of sufficient capital and the need to stimulate flyer appetite with cheap fares upon launch, which generates good word of mouth leading to positive cash flow and eventual profit, he said.

Dube is optimistic his airline, with secure financing and a low cost-structure, can succeed where others have failed.

“What gives us confidence is the way in which we have purchased our aircraft, established our long-term engine maintenance deals, the way in which we have started leasing our aircraft with the lessors,” he said. The leadership team Akasa has attracted is also “hyper-focused on the hundreds of elements that make up an airline’s cost structure.”

Indeed Akasa’s founding team has a long history running airlines. Dube is a former Delta Air Lines Inc. veteran who also ran Jet Airways until it went belly up in 2019. He briefly led Wadia Group’s no-frills carrier Go Airlines India Ltd. and laid the groundwork for the budget carrier to file for an initial share sale.

Akasa, operated by SNV Aviation Pvt., is also backed by Aditya Ghosh, who spearheaded IndiGo for nearly a decade and propelled the once little-known startup to the nation’s top spot, eventually capturing more than 50% of the market. Under Ghosh, IndiGo placed record aircraft orders worth tens of billions of dollars, had a blockbuster IPO and catapulted itself ahead of AirAsia Group Bhd. and Spring Airlines Co. to become the biggest budget airline in Asia by market value.

Lower costs

Akasa plans to follow a similar playbook of growing at a breakneck pace, adding 18 aircraft during the year ending March 2023 -- the first deliveries from a November order for 72 Boeing Co. 737 Max jets, worth $9 billion at sticker prices. A deal for the 737 Max, which was grounded globally after fatal crashes in Indonesia and Ethiopia, probably helped Akasa secure bigger discounts than usual considering it was one of the Max’s first new customers after the model’s recertification.

Akasa would also have taken advantage of the pandemic to get its aircraft and engine contracts right, which should help it achieve lower costs in the initial years, according to Kapil Kaul, South Asia chief executive officer for Sydney-based CAPA Centre for Aviation. Akasa is on track to be well-capitalised with a potential ability to raise $500 million through sale and leaseback of its aircraft over five years, he said. Jhunjhunwala initially pumped $35 million into the airline.

The carrier will begin flying internationally by the summer of 2023 when it inducts 20 aircraft, the minimum fleet requirement to serve overseas routes according to local regulations, Dube said. Akasa will have an option of flying to the Middle East, Southeast Asia, Nepal, Bangladesh and Sri Lanka, all within the range of a 737 Max.

Akasa also plans to cut down queues at airports and reduce the amount of time passengers spend waiting to board by using technology, Dube said, without elaborating.

“If you look at the next 20 years, Indian aviation is going to continue to grow by leaps and bounds,” Dube said. “India is geographically a very large country and aviation is under penetrated, there are many people today who still haven’t flown relative to most Western economies. All said and done, we are extremely bullish about the future. 100% -- Akasa will be profitable.”