We hope to go international soon, the Gulf is a possibility: Giorgio de Roni
Interview with CEO, GoAir
 "We hope to go international soon, the Gulf is a possibility: Giorgio de Roni")
It is the smallest airline in India with a fleet of 15 aircraft. Yet, despite high operating costs in India that have made larger rivals such as Kingfisher Airlines go bust, the Wadia Group-promoted company posted healthy profits in the past financial year. Chief executive Giorgio de Roni explains to Sharmistha Mukherjee the merit of GoAir’s cautious approach. Edited excerpts:
GoAir is said to have a cautious approach in adding capacity and expanding operations, which has limited the airline’s market share. How true are such allegations?
It is not a part of our strategy to chase market share. We want to develop a sustainable business model. We were profitable last year and we will certainly declare profits for the first quarter of the current financial year. In 2011, we had placed order for 72 aircraft, deliveries for which will be made between 2016 and 2020. In the meantime, we will add one aircraft on July 10, two in October and one more in February next year, taking our fleet size to 19.
We are growing but we have a cautious approach. The Wadia Group was set up in 1736 and is in business for over two centuries. We are here to stay. India is growing and the aviation market here is estimated to become the third largest in the world by 2020. We want to play a big role in it.
GoAir has evinced interest in commencing international operations. How close are such plans towards realisation?
To fly international, a domestic airline needs to be in operation for five years and have a fleet of 20 aircraft. We started operations in 2005, we are meeting the requirement in terms of business experience. We have applied for a waiver of the 20-aircraft regulation for flying international. If a foreign airline can fly without meeting any such conditions, why should not a domestic airline be allowed to do the same? Specially, when it increases tourism, generates opportunities in terms of both trade and employment. We have written to the ministry over a year back and hope to receive a positive response. Such a regulation amounts to discrimination against Indian airlines.
How long will it take to start GoAir’s first international flight? Is a business plan in place for any destination?
We hope to start international operations soon. We have started work on a business plan. The destinations we fly to from India would depend on traffic rights. We already fly our aircraft 13.5 hours a day and if we have to improve productivity, we need to fly in the night as well. The idea is to improve utilisation by flying on international routes. The Gulf is a possibility..
GoAir is said to have a cautious approach in adding capacity and expanding operations, which has limited the airline’s market share. How true are such allegations?
It is not a part of our strategy to chase market share. We want to develop a sustainable business model. We were profitable last year and we will certainly declare profits for the first quarter of the current financial year. In 2011, we had placed order for 72 aircraft, deliveries for which will be made between 2016 and 2020. In the meantime, we will add one aircraft on July 10, two in October and one more in February next year, taking our fleet size to 19.
We are growing but we have a cautious approach. The Wadia Group was set up in 1736 and is in business for over two centuries. We are here to stay. India is growing and the aviation market here is estimated to become the third largest in the world by 2020. We want to play a big role in it.
GoAir has evinced interest in commencing international operations. How close are such plans towards realisation?
To fly international, a domestic airline needs to be in operation for five years and have a fleet of 20 aircraft. We started operations in 2005, we are meeting the requirement in terms of business experience. We have applied for a waiver of the 20-aircraft regulation for flying international. If a foreign airline can fly without meeting any such conditions, why should not a domestic airline be allowed to do the same? Specially, when it increases tourism, generates opportunities in terms of both trade and employment. We have written to the ministry over a year back and hope to receive a positive response. Such a regulation amounts to discrimination against Indian airlines.
How long will it take to start GoAir’s first international flight? Is a business plan in place for any destination?
We hope to start international operations soon. We have started work on a business plan. The destinations we fly to from India would depend on traffic rights. We already fly our aircraft 13.5 hours a day and if we have to improve productivity, we need to fly in the night as well. The idea is to improve utilisation by flying on international routes. The Gulf is a possibility..
What about growing business on home turf?
In the domestic market, we will expand operations between metro and non-metro routes. There is a huge potential in tier-II and tier-III cities. We want to develop these markets by increasing frequencies between these places. We have operations between Delhi and Srinagar and have doubled frequencies on the Delhi-Leh route. We are pretty strong in the Mumbai-Goa, Delhi-Pune and Delhi-Bangalore sectors. The capacity addition would be on a mix of new as well as existing routes. The newer destinations we are looking at connecting are largely in the northwest, the northeast and the southern part of the country. We will add one new destination to our existing 21in November.
With AirAsia slated to enter the market later this year, what are your views on enhanced competition?
There are 382 aircraft operational for 1.2 billion people in India. In Europe, which has a population of 400 million, Ryan Air alone operates over 300 aircraft. There is a huge opportunity to grow air traffic here. I do not want to underestimate competition but I am not apprehensive of the entrance of any new players. This may result in some changes in the market. But we have delivered profit last year when the industry was going through a tough time. Our cost structure and our value proposition are different.
In the last financial year the industry declined by five%, GoAir grew traffic by 16%. Our customers appreciate our service, product. We have tried to diversify and deliver value for money with our loyalty programme GoClub and with GoBusiness for corporate travellers. On the Delhi-Mumbai routes, the occupancy in business class is around 80%. The average occupancy on our network for GoBusiness is 50%.
In May, domestic traffic grew by around five% – the strongest in several months. But with the lean season setting in, will you cut fares?
In May and the first half of June, the traffic was good. We have witnessed some reduction in demand in the second half of last month. The second quarter is usually lean. But in India, to meet customer expectations for lower fares is not easy. Fuel costs and airport fees are high. The rupee depreciation is further impacting margins because for every drop of Re 1, our costs go up by Rs 30 crore per annum. So we are not interested in recording the highest passenger load factors or market share by cutting fares. I feel the cost structure should match the revenues being generated so as to develop a sustainable business.
The Airports Authority of India is talking of a three-way joint venture with airlines and oil marketing companies to set up common fuel farms and bring down ATF costs. Do you welcome such an idea?
All ideas to reduce costs of fuel are welcome. Fuel accounts for nearly 50% of an airline’s cost. The government had earlier approved direct import of aviation turbine fuel by airlines but there isn’t adequate infrastructure to support the implementation of such a policy. With the initiative from Airports Authority of India, I can only hope that we realise something. The fiscal burden on jet fuel is around 40% in some states – by far, the highest in the world. If we get any benefits in form of reduced taxes, we can pass them on to customers. Traffic will increase as a result. We are well-funded and we are ready to invest if required.
How are unbundled services being received by your passengers?
Unbundling services offers passengers the freedom to choose what they want to pay for. So that is good. We started charging for preferential seats and excess baggage a few weeks ago. It took time to prepare the information technology platform to charge for seats of choice. But we are not recording huge demand. The scheme for pre-purchasing allowance to carry excess baggage has been well appreciated.
There have been reports of GoAir scouting for a strategic sale…
The foreign direct investment policy provides an opportunity. We are not under cash pressure but we are looking for a strategic partner to strengthen our position in India. A partnership is like a marriage. We have appointed a consultant and an investment bank for strategic stake sale.