The smallest of India’s low-fare carriers is in a hurry to make up for lost time
Giorgio De Roni, GoAir’s new chief executive officer, is no stranger to aggressive growth. In his previous job with Air One, an Italian private airline, he increased its market share from 6 per cent to 30 per cent. And the fleet count went up from 10 to 64. In the process, Air One became a profitable airline.
De Roni will have ample opportunity to put that skill to good use in GoAir, which has shown a reversal of fortune from two years ago. His appointment coincided with the airline’s announcement last week that it would buy 72 Airbus A320neo planes for $7.2 billion – something that prompted the CEO to say that his “target is to outperform competition”.
That may be a tall order as GoAir remains the smallest of India’s low-fare carriers (market share 6.4 per cent) with others such as Indigo and SpiceJet taking a giant leap in market share as well as fleet expansion. But the aircraft acquisition deal shows that the Wadia group airline is finally taking steps to get into the big league. The six-year-old airline currently has 10 A320 planes, but together with an order of 20 A320s placed in 2006, its total order with Airbus is now 92 aircraft.
Managing Director Jeh Wadia is quick to dispel any sense of disbelief. “Let me tell you, these planes are confirmed orders, not options,” he said, speaking at a press conference last week to announce the deal. The 72 planes will be delivered from 2015 onwards. The company is tightlipped on how it would fund the expansion, except saying that the airline is generating money and that the group is capable of funding the 72-plane deal through a mix of equity and debt.
But what would be the new CEO’s strategy going forward? De Roni says GoAir plans to tap the corporate sector, specially small and medium enterprises, to increase its passenger volumes. “I am evaluating trends and will have a concrete proposal shortly,” he says, adding the airline has so far been more oriented towards leisure travelers.
There are also plans to expand the footprint fast, to make up for lost time. So Chennai and Bangalore are the next on the radar. The airline is also working out a new network expansion strategy to tap tier II and tier III cities, which is a big change from its earlier strategy of flying only between big metros.
Last month, the airline introduced a 4.40 a.m flight between Mumbai and Delhi. “The early morning Delhi flight gets a full load. Those travelling by road or air to hill destinations in North prefer this flight,” says Rahul Deans, general manager (marketing). The airline has also added a morning flight to Srinagar in view of good passenger load and high fares.
There is no denying that after a turbulent phase during 2008 and 2009, GoAir did turn around under the stewardship of Kaushik Khona, who was brought in from Bombay Dyeing, as the CEO. It flew 3.3 million passengers last year and expects a 20 per cent growth this year. Go Air has 79 daily flights and its load factor is consistently around 80 per cent. The airline’s revenue grew 61 per cent in FY 2011 and profit after tax was up by 7 per cent. While absolute numbers are not available, company executives say operating margin was up 15.7 per cent and operating profit by 13.7 per cent. Kapil Kaul of Centre for Asia Pacific Aviation estimates the airline made a profit of Rs 40-50 crore last fiscal.
Wadia attributes the success to the airline’s focus on small issues: clean aircraft, cleanest bathroms, smiling crew members. Other factors such as better turnaround of flights also helped.
Despite the good performance, De Roni and his team realise the challenge on hand. Rivals Indigo and SpiceJet are no pushovers. Both airlines have market shares of over 19 per cent and 13 per cent respectively.
“IndiGo is the favourite amongst low cost carriers. It has become an established brand. The airline has taken away a lot of business from Jet Airways and Kingfisher Airlines,” says Pradip Lulla ex-president of Travel Agents Federation of India.
The problem with GoAir, says Vishwas Udgirkar, senior director Deloitte, is that there is no brand loyalty associated with it. “One of its disadvantage is its small network. If it wants to retain its market share and become a significant player in Indian aviation, it will have to expand,” he says.
“The mistake GoAir made was not in remaining small, but taking planes on a short term lease. Its fleet size kept fluctuating between six and eight planes and this affected schedules. Not only do you lose passengers, you also lose flight slots,” an aviation analyst says. The other concern area was the frequent changes in the mid-and top level management, which meant that there was no continuity in leadership. De Roni is the airline’s fourth CEO in its sixth year.
Some others have a more charitable view. “In my view, the airline management took the right call in keeping a low profile and keep costs manageable instead of burning more money for the sake of market share,” management consultant and Go Air’s ex-commercial head Raj Halve says.
De Roni, however, refuses to be drawn into any discussions on this, saying he will not comment on the airline’s past. He too maintains that sustained profitability is more important than market share. “We will continue to remain efficient so that we can deliver good service at lower price,” he adds.
Last year, when most domestic airlines bled, GoAir made net profit. De Roni and his team’s immediate challenge will be to ensure a repeat.