We have a lower cost structure than IndiGo: Ben Baldanza of Go First

In a Q&A, the vice-chairman of India's second-largest airline says he doesn't see its competition in the market leader, but in SpiceJet, Air India, Vistara and AirAsia

Wadia group-owned Go Air, which rebranded as Go First, is looking to raise Rs 3,600 crore through an IPO. Low-cost airlines have been the darling of investors across the world and IndiGo in India is an example of that. Ben Baldanza, who had converted the ultra-low cost structure of US-based Spirit Airlines is trying to do the same for Go First. In this interview with Arindam Majumder and Aneesh Phadnis, Baldanza outlines his plans for the airline. Edited excerpts:

Where do you see Go First in the next five years?

We believe Go First is going to develop into a very strong No. 2 airline, behind IndiGo in terms of size. Our focus, however, will be different. IndiGo as an airline is more complex.  It flies regional planes as well from Airbus A320s, has high frequencies among a lot of big cities and carries a lot of corporate traffic. Their 50 per cent share is impressive but also constraining.  It is not realistic that IndiGo’s market share will increase from 50 per cent to 80 per cent. That is not good for consumers and the regulators might not like that. I don’t think it will be good for consumers and even the regulator might not like that.

We want to position Go First as a clear winning player from the other 50 per cent. We really see our competition in SpiceJet, Air India, Vistara and AirAsia. We don’t really see IndiGo as our competition. But we believe we will be the most relevant and profitable among the rest of the airlines.

The airline has positioned itself as an ultra-low cost carrier. What changes can consumers expect? 

We will be the most relevant airline for customers who pay for tickets themselves. When people pay for tickets themselves they tend to first think of the price. Then they wonder if the flight will be on time. What the ULCC model really means is that we will be focused on leisure and small business travellers. And not the corporate customers. So in terms of network we will not fly a dozen times between Mumbai and Delhi. We will fly a couple of trips a day between Mumbai and Delhi. We will have a lot of non-stop services between large medium and small cities and very low fares.

I can’t guarantee that our ticket price will be lower than our competitors as they will most likely match our fares. But we will be more profitable wherever we fly because our costs will be lower. Over time we will unbundle ticket prices further. We will charge lower fares to get customers on a flight but we will charge extra for services for which they might choose to buy. We think that is an empowering model for consumers.

Indian regulators may not allow you to charge for certain services. Won't that not impact your plans?

In terms of the regulatory environment what you can do in Europe is different from what you can do in the US or India. Yet, you see development of good well-structured low cost airlines in various parts.

We are not going to become a carbon copy of Spirit Airlines (Baldanza served as CEO of Spirit, an ULCC). What we will do is we follow basic principles and stay focused on customers who pay for tickets for themselves. This set of customers are younger in age, travel often and digitally savvy.

Whether the regulatory environment allows us to charge differentially for one thing versus another is less important. Over time we could have separate charges for things like baggage and lower the ticket price. It would be good for consumers if some of the rules are liberalised. However we don’t feel constrained by the rules.

But not focusing on metro routes like Mumbai-Delhi and opening new routes could increase costs...

We believe there are many markets – some of which we fly today and some we don’t – which can be served with Airbus A320s. Just to give you an example before we started flying to Phuket there were no non-stop flights between India and Phuket. India represented No. 14 in terms of visitor arrivals and within a year of us launching the flight India became No. 3. We developed that market. Within India we have also developed the Srinagar market. We now have a night flight from there – the first time ever by any airline.

When we start new non stop services some one of them will develop into strong markets for one trip a day. You don’t have to have a morning, mid-day and evening flight to be successful, which is what you have to do to serve the corporate market. But that is a constraint for IndiGo and not for us.

In terms of cost it isn’t more costly as long as the plane is being well utilised. If a plane flies six trips a day it doesn’t matter whether it flies all the six trips to  Delhi or one to Pune, Lucknow or Srinagar. In terms of airport costs too it is not incrementally expensive. We pay certain landing charges and to use facilities at the airports and that price is not meaningfully different in most airports. It represents ten per cent of the cost of flight anyway. So operating five flights to five different cities is not more expensive than flying five times to just one city.

How do you look at the current demand environment? Passenger numbers are dipping and are almost at the same level as last year when air services resumed. Do you think the overall market size will shrink for Indian airlines and require trimming of order books?

The situation we are in is largely temporary. We are convinced that traffic will rebound very strongly as we are seeing in the US. This summer in the US is going to be a very busy one for airlines while last summer was terrible. What’s happening in India is different. Like Mumbai has started to get better than what it was three weeks ago.

But, now Bangalore is the epicentre. It’s not like the whole country is getting impacted at the same time, it’s moving around. Over the next six to 12 months, we will get back to some kind of normal flying. India as an economy has got enormous growth potentials and Covid may slow it down but not kill it. It’s like running a marathon- maybe at some point you will stop and rest but that doesn’t mean you are not going to run well and finish it.

India as a country just has 700 aircraft. Compare that to China’s 4,000 planes. The aviation sector however busy is way too small compared to India’s growth. IndiGo in all probability cannot go from 60 to 80 percent but Go First can grow from 10 to 20 per cent. So, I don’t think we are going to trim our order book.

Do you expect any consolidation among Indian airlines?

Not other than the possible exception of Air India. I don’t think consolidation is an answer. India has only five major airlines. I think consolidation in Indian aviation will lead to complications regarding employee pool and business model.

When Jet Airways failed, SpiceJet took most of their aircraft which were more oriented to business class. SpiceJet took up those planes and basically changed their business model. That’s crazy in my mind. So, I don’t think consolidation is an obvious answer.

A few negotiations with lessors have been highlighted as risk factors. How are those going on?

Like every airline in the world we have worked with suppliers to restructure deals. When the airline is running full again in maybe six to 12 months, it is going to generate revenue to cover all of its debt.

Around the world, airlines had to change structures with their suppliers and I think we have been good fiduciaries. Potential investors will be looking at how we have been good managers of our cash, business and we have a strong promoter backing the company. So, while other airlines may or may not survive, we are very certain about the way forward.

Should investors worry about the branding issue of the company with its former managing director Jeh Wadia?

We don’t see this as any issue for the airline going forward. In the risk factors mentioned to investors, a company intends to be as broad as possible. Because in the future, you don’t want an investor saying he wasn’t aware of that.

In terms of the company, it is not a meaningful risk going forward at all.

During the IPO of Spirit Airlines, we used to joke that in the risk factor we should mention that the shift in continents may impact the stage length of flights. Point is you want to disclose everything that could go wrong so that there is no surprise.

How will you be different and yet compete against IndiGo which has developed a super low cost structure?

No country is well served with a single airline. We are not here to displace IndiGo as the No. 1 airline. They can stay in that position but we can be a very important airline for India’s leisure and small business travellers.

You may not see IndiGo as a competition but IndiGo considers everyone as a competition..

But the natural extension of what you said will be that India will have only one airline. I don’t see that happening and I don’t think customers will like to have only one choice. Would you want to have only one restaurant in the town? Of course not.

In the US, Spirit competed with larger airlines- Southwest, Delta, United. Spirit did very well because it was very specific about the demography they were serving.

We are not here to become another small IndiGo. If we do what they do, then we aren’t running our business, we are running their business.

We are already lower in cost than IndiGo because IndiGo has a more complicated fleet structure which results in higher cost and higher fares.

If they match our price and capacity, we can deal with that because our unit cost is going to be lower than them and ultimately we are going to win in that case.

But unlike in the US, where airlines focus on their strong-base cities, Indian airlines compete with equal vigour across geography. In that case do you think government intervention is required to counter monopoly?

I think the dramatic growth that Indian economy will see means their market can make those calls. You have airlines starting and failing in India. That’s good because it shows that customers are mindful while choosing. It is much better for the customer to choose than the government to dictate.