 "GoAir is poised to post higher profits this year: Giorgio de Roni")
It may be surprising that GoAir is content to operate only a boutique domestic airline when new players are entering and rivals are placing record aircraft orders. But it is tough to doubt the results of the strategy. In an interview with Roudra Bhattacharya, GoAir Chief Executive Officer Giorgio de Roni talks of how the airline is in line to record strong profits. Edited excerpts:
Go Air has had two years of profits while most airlines are in losses. What is your outlook for this financial year?
Last year we were profitable, but it was limited due to the huge increase in fuel costs and the significant depreciation of the rupee. This year will be much stronger. We are much better placed than last year in forward bookings for the fourth quarter.
IndiGo is sharply increasing capacity sensing growing demand. What are your plans?
The first availability for A320s reasonably is beyond 2019 and certainly we are considering what could be the scenario beyond 2020. I don’t think we will go for additional aircraft before that, but we should be flexible enough to take up opportunities in case of significant changes in the competitive scenario. If needed we can always lease aircraft, but we are right now working on the budget for the next financial year and it is based on 19 aircraft.
The margin in this industry is very thin, so we must keep tight control on costs. We have a fleet of 19. We have accomplished the first phase of our life of nine years and now are in our intermediate period which will last up till April 2016 when we start receiving the A320 NEOs (New Engine Option) — 72 in all and one almost every month. The next 15 months we will focus on strengthening internal processes. I do not have a strategy based on competitors, and short-term opportunity does not change the life of any business. We have seen airlines growing very fast and getting into trouble, but we have our model and we keep to it.
You were planning to add the 20th aircraft last year.
We sold the 20th aircraft to a US airline before receiving it because the A320 NEOs (New Engine Option), will be 15 per cent more efficient in fuel costs. If we had taken delivery of the 20th aircraft we would have been obliged to keep it for nine years. So it’s not a question of market share and adding passengers and not having a sustainable profitability. We have taken a decision, let us not grow as much, let us keep focus on long-term profitability.
What about your plans to fly abroad then?
We are looking at international expansion, but in our three to five year business plan we do not envisage anything beyond 15 per cent capacity on international routes. This means the core business will remain the domestic market. Our aircraft utilisation is already high, over 13 hours a day. So if we are able to utilise the fleet effectively, we do not need to fly overseas.
The government is planning to remove the 5/20 rule.
We think the 5/20 is value for the country because it allows airlines to offer capacity in remote areas. It should stay, because airlines should be profitable but also play a role in development of the country. Areas like Jammu & Kashmir and the northeast enjoy huge growth because of this, and to be honest some routes are also profitable.
I think in the revision of these rules and foreign direct investment, we should keep in mind not to sell to foreign entities, because in the long-term India will not have a vibrant industry.
But new players are batting for its removal.
The government has to take the final decision, but it should have in mind the welfare of the country and not the profit and interest of a single player. There are plenty of good ideas and what is good of this government is that there is a participative approach. In Europe I was part of a group dealing with the same issue, there it is called public service obligation, there is a similar system in the US. All systems are not perfect. In Europe, giving financial support to airlines working in weak markets is not the best solution. We have to look pragmatically, and certainly there must be compromise. The regulation so far has stimulated demand in remote regions and it has worked in the interest of the country
GoAir is said to be in active talks with foreign investors.
Since September 2012 there is the opportunity to get FDI. As the management, we have been working on that, but we are not under pressure to finalise any strategic partner. We have been approached, we are approaching, discussing and evaluating, and the final decision will be made by the shareholder. We are not looking for money, but for strategic opportunities, therefore it takes time.
How are the incumbents affected by the entry of Vistara and AirAsia?
Airlines normally behave emotionally and, unfortunately, it proves wrong. The industry together has 400 aircraft and Vistara has three aircraft. Can that change the competitive scenario? They will certainly grow. What we need to analyse is that Vistara has already decided to drop fares — but wasn’t its model completely different? This is the weakness. If you want to be everything and meet expectation of all kinds of customers, at the end of the day you end up with a dissatisfied customer. We are small, we aim to satisfy a limited number.
Go Air has had two years of profits while most airlines are in losses. What is your outlook for this financial year?
Last year we were profitable, but it was limited due to the huge increase in fuel costs and the significant depreciation of the rupee. This year will be much stronger. We are much better placed than last year in forward bookings for the fourth quarter.
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Overall the financial year has been good. We have deployed 20 per cent more capacity and have increased passengers by 24 per cent. Yields have gone up little but I would have expected more. We are slightly below 40 per cent increase in revenue and now we enter the last quarter, which normally isn’t the strongest but we are confident of delivering profit for the full year. I don’t see any reason not to maintain profitability also due to the much lower cost of fuel.
IndiGo is sharply increasing capacity sensing growing demand. What are your plans?
The first availability for A320s reasonably is beyond 2019 and certainly we are considering what could be the scenario beyond 2020. I don’t think we will go for additional aircraft before that, but we should be flexible enough to take up opportunities in case of significant changes in the competitive scenario. If needed we can always lease aircraft, but we are right now working on the budget for the next financial year and it is based on 19 aircraft.
The margin in this industry is very thin, so we must keep tight control on costs. We have a fleet of 19. We have accomplished the first phase of our life of nine years and now are in our intermediate period which will last up till April 2016 when we start receiving the A320 NEOs (New Engine Option) — 72 in all and one almost every month. The next 15 months we will focus on strengthening internal processes. I do not have a strategy based on competitors, and short-term opportunity does not change the life of any business. We have seen airlines growing very fast and getting into trouble, but we have our model and we keep to it.
You were planning to add the 20th aircraft last year.
We sold the 20th aircraft to a US airline before receiving it because the A320 NEOs (New Engine Option), will be 15 per cent more efficient in fuel costs. If we had taken delivery of the 20th aircraft we would have been obliged to keep it for nine years. So it’s not a question of market share and adding passengers and not having a sustainable profitability. We have taken a decision, let us not grow as much, let us keep focus on long-term profitability.
What about your plans to fly abroad then?
We are looking at international expansion, but in our three to five year business plan we do not envisage anything beyond 15 per cent capacity on international routes. This means the core business will remain the domestic market. Our aircraft utilisation is already high, over 13 hours a day. So if we are able to utilise the fleet effectively, we do not need to fly overseas.
The government is planning to remove the 5/20 rule.
We think the 5/20 is value for the country because it allows airlines to offer capacity in remote areas. It should stay, because airlines should be profitable but also play a role in development of the country. Areas like Jammu & Kashmir and the northeast enjoy huge growth because of this, and to be honest some routes are also profitable.
I think in the revision of these rules and foreign direct investment, we should keep in mind not to sell to foreign entities, because in the long-term India will not have a vibrant industry.
But new players are batting for its removal.
The government has to take the final decision, but it should have in mind the welfare of the country and not the profit and interest of a single player. There are plenty of good ideas and what is good of this government is that there is a participative approach. In Europe I was part of a group dealing with the same issue, there it is called public service obligation, there is a similar system in the US. All systems are not perfect. In Europe, giving financial support to airlines working in weak markets is not the best solution. We have to look pragmatically, and certainly there must be compromise. The regulation so far has stimulated demand in remote regions and it has worked in the interest of the country
GoAir is said to be in active talks with foreign investors.
Since September 2012 there is the opportunity to get FDI. As the management, we have been working on that, but we are not under pressure to finalise any strategic partner. We have been approached, we are approaching, discussing and evaluating, and the final decision will be made by the shareholder. We are not looking for money, but for strategic opportunities, therefore it takes time.
How are the incumbents affected by the entry of Vistara and AirAsia?
Airlines normally behave emotionally and, unfortunately, it proves wrong. The industry together has 400 aircraft and Vistara has three aircraft. Can that change the competitive scenario? They will certainly grow. What we need to analyse is that Vistara has already decided to drop fares — but wasn’t its model completely different? This is the weakness. If you want to be everything and meet expectation of all kinds of customers, at the end of the day you end up with a dissatisfied customer. We are small, we aim to satisfy a limited number.