• 100 planes by 2023, finally, GoAir spreads its wings to take on rivals

    Airlines typically spirit people from one city to another and after forging links between them, fly to another and another. Adding routes, with much ado, is what they do. Low-cost carrier GoAir is the antithesis of this defining characteristic of airlines.

    It has long been the fuddy-duddy of Indian skies, cautious to a fault in embracing expansion. Be it fleet size, number of flights or number of routes, the 10-year-old has been awfully timid compared with competitors (see Slow, Very Slow). Both IndiGo and SpiceJet, which started around the time GoAir first took off, have far more planes — 111 and 42, fly to more routes — 40 and 39 — than GoAir. The airline’s market share was 8.4% in July compared with 39.8% and 11.7% of IndiGo and SpiceJet.

    New airlines in India like Vistara and AirAsia India have lobbied hard to launch international flights, bound by the infamous 5/20 rule that which prevented them from flying international routes until they are five years old and have at least 20 planes (the new aviation policy has relaxed this rule a little). GoAir, in contrast, was in no hurry to exploit the opportunity even when it met one of the conditions (age) five years ago.

    By its own admission, or rather that of Jeh Wadia, managing director, GoAir, the airline is a tortoise. In successive interviews to ET last June and July, Wadia and its new CEO Wolfgang Prock-Schauer stressed that the airline would continue to focus on domestic operations.

    Wadia also termed ambitions of overseas flights as “more glamour than anything else”. Even when the airline placed its first major order of 72 Airbus Neo 320s in June 2011, there was little to indicate that a change in strategy was at hand. Aircraft deliveries face delays and are stacked over years.

    Indeed, GoAir took first delivery of the first aircraft from the jumbo order only this June. But barely two months later, the airline took the industry by surprise by ordering 72 more Neos, doubling its total order to 144 planes.

    The new aircraft order was also aimed to build up the international presence, according to Prock-Schauer. “The character of an aircraft is to spread its wings and fly. It should not be bound to one market.” Prock-Schauer now counts international expansion at the top of his to-do list, he revealed in a recent interview. “We are in a (domestic) market which is growing at a rate of 20%… even 10% will be good enough. We are really confident about absorbing this aircraft number.”

    Surprise Aggression
    GoAir now accounts for a third of Airbus’ total order book to India; the remaining belongs to IndiGo. It now has 20 planes and is scheduled to reach the 100 mark by 2023 by inducting one plane every month for 10 years. Like IndiGo, Prock-Schauer acknowledges that placing big orders is smart since it leads to incentives and of course benefits on sale and leaseback transactions.

    GoAir’s sudden aggression has surprised many aviation analysts, given its deeprooted cautious manner of doing business. Some industry experts say it may be a sign of insecurity with the advent of aggressive new competitors and the government’s relaxation of rules which will help them.

    In 2012, the government relaxed foreign investment norms in aviation allowing foreign carriers to buy 49% stake in Indian peers. Earlier this year, it allowed Indian carriers to fly overseas if they have 20 planes.

    Immediately after the 5/20 rule was relaxed, Vistara CEO Phee Teik Yeoh spoke of ambitious plans to mount flights not only to neighbouring regions but also to the US and the UK. Prock-Schauer denies GoAir has been influenced by these factors, although he did say the decision to place the second order was taken in just two months.

    The pressures of the domestic market could have forced the change of strategy. No doubt, India still leads other nations with a 23% growth rate in domestic traffic, but airlines have been feeling the pinch of overcapacity, especially in the metro cities such as Delhi and Mumbai, according to Prock-Schauer. “These metro routes (which account for over 70% of overall traffic) are getting a bit difficult for all of us.If you add up Mumbai-Delhi you will probably have 62 frequencies among all of us. So it is very difficult in the lean season.”

    The government has been talking of regional connectivity and developing 150 new airports, but Prock-Schauer says that as far as Go Air is concerned there would be very little demand beyond 40 key airports. “After the top 40, demand goes down like this,” he says, with a sharp downward slant of his hand.

    There could not be a better airline executive than Prock-Schauer to lead GoAir’s sudden desire for aggression and overseas push. He is an aviation veteran of 35 years. The Austrian is also a scale-up expert. In his first job with Austrian Airlines, he oversaw its expansion from 20 planes to 100.

    During his six year-plus stint at Jet Airways, he presided over its fleet expansion from 40 planes to more than a hundred, its first international flights to Colombo and later to London, its public listing and acquisition of Air Sahara.

    “That (international expansion) is something I have done several times,” he says. On the list of GoAir’s foreign destinations are unusual choices such as Iran, Azerbaijan, Uzbekistan, Kazakhstan, China, Vietnam, Saudi Arabia and Doha and even Europe. Last week, the airline received the aviation ministry’s approval to fly to some of these destinations.

    “We purposely chose countries which have huge demand, like China or countries like Kazakhstan and Vietnam that are underserved. Vietnam can be the new Thailand,” he says.

    The short distances also augur well. “Some of these countries are so close to India. Almaty (Kazakhstan) is less than a three hour flight away from India. Even Baku (Azerbaijan) isn’t that far,” says Prock-Schauer.

    The USP of GoAir’s network will be the east-west connectivity, according to him. The airline will develop a three modules— Delhi, Mumbai and southern India — which will serve as hub points in the connectivity between west Asian and east Asian destinations.

    The second phase may include destinations in Europe, like Irish budget carrier Ryanair and its British rival Easyjet that “fly short haul sectors, but they fly long haul sectors too”.

    Analysts approve. “It’s a brilliant move and hitherto unexplored from India,” says Mark Martin, founder of Martin Consulting LLC, about Go Air’s international plans. “Obsession with domestic market dominance can set you on a precarious path.” It won’t be easy. GoAir has to build credibility in new markets and handle the tough competition. And almost every airline in India is making losses on international routes.

    Eye on Profits
    The overseas foray could also dent profits. So far GoAir’s achingly slow expansion has been rooted in a regimented strategy to remain profitable. Besides IndiGo, GoAir is the only airline to have consistently made profits in India, one of the toughest aviation markets in the world and a graveyard of many airlines. One of the key reasons for the demise of Kingfisher AirlinesBSE 3.03 %, the most mourned of them all, was a relentless desire to grow to the point of ignoring the fundamentals of the aviation business.

    The unlisted GoAir posted a net profit of over Rs 100 crore in FY13. In the following two years profits nosedived but has again crossed the hundred crore mark in FY16, says a person in the know.

    Prock-Schauer acknowledges there will be start-up costs in running international operations, but says that he will not sacrifice profitability. “Profitability prospects will be the decisive factor of allocation of aircraft.” The expansion will require significant investment though, especially on manpower— Go Air has been hiring 50 cabin attendants every month, but the airline will not be topheavy.

    It currently has 2,300 employees. The usual benchmark for the airline industry is about 100 employees per aircraft. The stage is now set for a possible IPO. Prock-Schauer says an IPO is still on the cards as are other options of fund raising such as private equity.

    The perception of GoAir has changed very much in the last nine months or so to very positive, according to Prock-Schauer. “When I talk to an airport, a manufacturer, a leasing company or a travel trade company, they all say GoAir has improved. And now we are sure this airline talks business.” Shaquem Griffin Authentic Jersey

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