GoAir mulls leasing planes to retain market share

As competition in Indian skies gets warmer, battle to rein in costs and also push market share; open to strategic investment

GoAir is evaluating plans to lease planes over the next two to three years, to retain its market share as India opens to two new domestic airlines.

The Wadia group-run airline has 17 Airbus A320 planes now and will add three more aircraft by next July. It has no further deliveries scheduled till 2016, when Airbus rolls out its fuel-efficient A320neo.

GoAir has 72 of the A320neo on order but is now also looking at options to increase capacity till it begins receiving the former. AirAsia India, which is awaiting approval from the Directorate General of Civil Aviation, has indicated it will import 10 planes in its first year of operations. Tata-Singapore Airlines also plans to launch services next year, raising the competition for existing airlines.

LOOKING UP

• GoAir has 17 Airbus A320 planes. Will add 3 by July
• Will revamp business class product by Feb
• Working to increase ancillary revenue and foreign exchange earnings
• Working capital requirement has increased. In talks with banks to secure additional limits
• Next phase of capacity expansion will be between metro-non metro routes. Exploring new domestic destinations

“We are in discussion with Airbus and leasing companies. No decision has been taken. We are evaluating plans,” GoAir’s chief executive officer, Giorgio De Roni, told Business Standard on Friday.

He said the  management was studying market growth and demand evolution. A decision in the matter was not easy, he said, with weak market conditions and uncertainties in the regulatory framework, dollar movement and the price of aviation turbine fuel. De Roni said he could not share a figure for the additional planes which could be taken on lease, as a decision was yet to be taken.

“We are not under pressure to become bigger and bigger. There are many airlines bigger than us. We are growing and the number of passengers flown has increased by 25 per cent. That means we are offering some value for money,” he said.

He said the management was seeking strategic investors. “The strategy should be win-win for us. Foreign direct investment is a significant opportunity for GoAir, as for any airline. The main thing is that we should not finalise an agreement only to oblige Indian travellers to go via an intermediate point to reach a final destination,” he remarked.

The past six months have been difficult for domestic airlines, with operating costs mounting and fares at the same levels as last year. GoAir, too, has been seeing weakness after a solid first quarter. Demand growth has come on the back of aggressive pricing.

“The traffic has grown marginally but in order to achieve that growth some airlines are following very aggressive pricing, which is not in line with increasing costs. These airlines are focusing on market share. That is not our strategy but we are forced to react due to competition. Overall, the market is not positive. We had the best ever Q1 (first quarter) in GoAir’s history in FY2014 but we are witnessing weakness since July,” said De Roni.

GoAir has a market share of a little less than eight per cent, the smallest among domestic airlines. It cannot fly abroad since the current rules allow only airlines with at least five years of operations and 20 planes to operate on foreign routes. The airline's seat factor, a measure of occupancy, has improved in the past six months.

"We are relatively comfortable with our December results but the last quarter (January-March, of this financial year) will be challenging and we have to put all efforts to achieve a good result...We are on track but it  will be challenging,'' he said. "We have worked hard in 24 months to make the cost structure competitive and are now focusing on customer service and training. I certainly respect competitors but I think we can deliver value for money to our customers,” he added.