But AirAsia is clearly betting on the long-term potential for the Indian market and the synergies that it can extract from its existing operations in Asean countries. The idea of catering for the population in smaller cities is predicated on the view that aspirations in small towns are matched by rising incomes. Moreover, it can be more cost-effective to operate out of smaller airportsto cite an example, sales tax on ATF in all airports in Maharashtra other than Pune and Mumbai is just 4% compared with 25% in larger cities. Since the joint venture will no doubt follow an asset light modelthe initial capital to be invested is around $30 million which suggests fixed costs will be reined in by leasing aircraft. However, the Indian market is a difficult one since flyers are extremely price sensitive making it hard to sustain yieldseven an efficient player like SpiceJet posted a loss of R580 crore in 2011-12 and could remain in the red this year too. While AirAsia will be happy to have a partner with deep pockets, for the Tatasthey have a 30% financial stakeit represents another chance to get at a market which they first tried to get into nearly two decades ago. Though Indian carriers clocked a decent R46,000 crore in FY12a large part through overseas operationsthe large losses make you wonder what the Tata gameplan is. More so when other group operations need greater focus.