A johnny-come-lately in the sky

Tumultuous events can at times result in unexpected outcomes. The pandemic that has changed the very DNA of the aviation industry globally has led to many airlines declaring bankruptcy and an equal number of bailouts by governments. 

In India, too, players have been scrambling to survive: India’s largest private player cut salaries, costs and raised a large sum of money through a qualified institutional placement; Go First tried to reinvent itself and raise funds from the market — a move that appears to have failed so far; and SpiceJet is now trying to raise money and hiving off its cargo wing. Go First and SpiceJet have both delayed reality by not making payments to vendors and lessors and running a barebones operation in a bid to survive the Covid carnage.

So when one of India’s foremost stock trader and billionaire Rakesh Jhunjhunwala decides to take a punt on a sector that for all practical purposes is in the intensive care unit, one cannot blame the industry for concluding that he is keen to extract himself from the billionaire club — many joke that those keeping him company may not be the most desirable — and carve his way into the millionaire club instead. The reference is to Sir Richard Branson who once famously remarked: The quickest way to become a millionaire is to start with a billion and set up an airline.

But jokes apart, it may be worthwhile to examine this new kid in town from three different lenses. Like a newborn in a family, fliers and passengers can only welcome this new addition. More airlines, more senseless competition, lower fares. So, what’s there not to celebrate? May many more Akasas (sky in Sanskrit) take birth and to the skies.

Second is the industry lens. For Mumbai the city, it’s great news since CEO Vinay Dube and the airline’s headquarters will be in Mumbai (base announced is Bengaluru) and after the closure of Jet and KFA, the only airline in Mumbai is Go First. Any new airline means new jobs, much needed after the devastation caused by the pandemic. Another new player will not be welcomed by rivals, although the Tata and IndiGo sources both seemed to prefer the newcomer to what they are currently saddled with (read: poorly funded, unreliable adversaries).

And last but not the least is the business lens. Can this motley crew set up a successful business? Is this a good time to start a new airline? Is there ever a good time to start an airline? What are their chances of making money and a success of the venture? Timing wise I don’t have much of a quarrel with the new entrant. Many businesses are set up in downturns and often the best deals are struck in troubled times. Be it airplanes, vendors or sourcing talent —everything will be available at a discount. If the management is savvy, some good long-term deals can be struck with lessors, maintenance, repair, and overhaul operators and other vendors. Moreover, in the long term, India’s traffic can only go up as incomes rise and more experience the relative ease of air travel versus other modes.
 

What I am less certain about is whether the new team, which has more of a full service DNA, will be able to pull off an ultra-low cost airline and make a success of it. Dube cut his teeth in Delta, a full service carrier and then worked with Jet, another full service and high cost carrier. He is venturing into new territory and although he did a short stint in Go First, it was primarily firefighting in the midst of the pandemic. The grapevine has it that other ex-Jet professionals are also likely to be part of the start-up team. 

Putting together a good team in India’s aviation sector is never an easy task — talent is in short supply in the country as a whole — and the best talent is at even more of a premium in the pandemic.  He does of course have the able guidance and wisdom of former IndiGo president and CEO Aditya Ghosh, as co-founder and board member, a dynamic that should be interesting to watch.

What I am far less certain about is this ultra-low cost bandwagon that everyone seems to be jumping aboard. In a country where airports are more expensive than most and there is little flexibility on what the airline can or cannot charge for, I don’t see how it’s possible to go much lower than where many of the players, including the market leader, already are. An ultra-low cost carrier might work in, say, London where a carrier can avoid Heathrow and use Gatwick or Stansted but it is hard to see how Mumbai or Bengaluru can at present provide facilities that may be differently priced. Any relaxations agreed to by the Directorate General of Civil Aviation will be quickly adopted by all. Moreover, the funds infusion required is far in excess of what anyone can conceive as two relatively recent entrants Vistara and AirAsia India have demonstrated. 

So all in all, let me say as a passenger I’m overjoyed that we might soon have a new option in our midst. As an industry observer, I’m happy as long as the start-up is well funded, reliable and offers fair competition to the existing ones. But as someone who has been watching the sector for a while, do I think we have a contender for the number two or three slot in India? I wouldn’t put my money on it.