GoAir shifting gears

The airline is taking first steps to achieve economies of scale even as its maintains caution

• Earlier this month, GoAir launched its services to and from Hyderabad, making the city its 23rd domestic destination
• Just four months back, GoAir took first delivery of its order of 72 Airbus Neo 320s placed in June 2011. Barely two months later, the airline took the industry by surprise by ordering 72 more Neos
• GoAir, which began operations in 2005, has mostly been cautious in its approach towards expansion. But with flights from Hyderabad GoAir will be flying on 45 routes - up from 42 - and this is part of plans to raise the number to 71 in 2018 and 116 by 2020

So what explains the sudden aggression? Take Hyderabad. GoAir says it has picked the city as one of its bases "to create a good spread of connectivity across India and tap into new revenue opportunities offered by the growing traffic at Hyderabad". "Hyderabad is amongst the top six airports in the country. It has a strong growth rate, offers good infrastructure and is therefore an attractive choice. Also, Hyderabad is a leading airport for central and south India. As an airline one needs to have a significant presence in that region," says Prock-Schauer.

During 2014-15, GMR Hyderabad International Airport witnessed an exponential traffic growth of 20 per cent over the last year with domestic and international passenger traffic recording a jump of 22 per cent and 15 per cent, respectively.

With Hyderabad as its hub, GoAir is offering travellers daily flights to Bengaluru, Bhubaneswar, Hyderabad and Kolkata. It is eyeing morning and evening departures to offer flexible connectivity options to flyers. For leisure travellers, it offers mid-day flights to Port Blair.

The addition of Hyderabad to the airline's destination map has translated into a higher number of daily flights for GoAir, up from 146 to 155, which it further aims to increase to 165 by December 2016.

As the airline goes about adding destinations and new routes the challenge for GoAir is to manage growth while keeping costs under control.

According to an industry analyst, GoAir faces tough competition even as it launches service on new routes since it lacks the first mover's advantage. But having said that, GoAir has built its business by sticking to the proven low-cost carrier model. The airline's lean and mean approach has seen it report net profit of Rs 5.4 crore in financial year (FY) 2013-14 and Rs 104 crore in 2012-13.

GoAir has benefited from the use of a single aircraft-type fleet (Airbus 320 Neos), high fleet utilisation and an attractive pricing strategy.

In order to scale up profitably, GoAir needs to keep up the good show that it has managed so far.

Prock-Schauer is aware of the challenges that the airline faces.

First, with the online travel agencies' presence, prices in the industry are very transparent. The lowest cost proposition alone will not help an airline grow. "Therefore, the differentiation boils down to cost proposition and service quality. Also on the product proposition low-cost airlines have caught up and offer what the customer wants and needs - tailor-made solutions," he says.

For an airline to succeed it needs certain economies of scale. This calls for a good city presence, major destinations on offer and more frequencies. By flying on more routes, expanding its fleet and plans to launch international operations, GoAir is steadily ticking the right boxes even as it keeps operational costs low.

The airline has a uniform fleet of A320s with 20 aircraft. Of the total order book of 144 new A320 Neo aircraft, two planes have already been delivered. GoAir will end this FY (March 2017) with 26 aircraft.

A uniform single fleet is a recipe for success for many international airlines such as Southwest in America and most low-cost airlines globally. With improved design and engine, GoAir makes 15 per cent savings on the Neo planes in fuel costs. A uniform single aircraft fleet saves it costs involved in training pilots and engineers, by avoiding duplications as operational processes are same.

Despite all the advantages that the Neo aircrafts offer, industry reports predict that the large number of aircraft induction over the next year could lead to high operational costs for GoAir. The airline appears to be ready for such challenges. For example, it's betting on flying more passengers on new planes as they offer 186 seats as compared to 180 seats in older planes.

Next, the airline is focused on achieving high utilisation rates. GoAir's utilisation rate stands at 13.5 hours - half an hour more than the industry average. GoAir starts early morning and each flight's turnaround time is 30 minutes from the time an aircraft lands and takes off for the next destination.

With all the growth levers in the right place, GoAir is also planning international services. As it expands, the focus continues on making infrastructure and people more productive. At the same time, "domestic market remains key as we want to be among the top three players in India", says Prock-Schauer.