 "A GoAir aircraft taxis on the tarmac at Bengaluru International Airport in Bangalore")
Wolfgang Prock-Schauer, 60, is not new to India, having been chief executive (CEO) of Jet airways from 2003 to 2009, when he left to join Lufthansa-owned BMI in the UK, returning to India last year to head GoAir. He spoke to Anjuli Bhargava on the changes in Indian aviation and the change for himself, personally from a full-service airline veteran to pushing the low-fare airline philosophy. Edited excerpts:
What change do you see from the time you were away from the Indian scene?
Much better infrastructure. The picture has changed completely from 2003. I see huge growth in the number of people travelling. I could not have imagined 63 frequencies a day between Mumbai and Delhi but here we are. I see a far more diverse picture. When I first came to Mumbai, I saw two-three airlines. Now there’s a whole range, domestic and international.
Demand is there from all kinds of smaller cities. Interior cities, I see a good demand. We open a new route and we see planes filling pretty fast. There is much more traction in the smaller cities when I compare with 2005-06.
The costs of operating in India have really gone up. Yes, there is better infrastructure but one is paying the price for it, too. I think the costs are over-proportionately high.
Unlike a lot of Europe, things you believe are happening here in India?
I’d say so. Everything is stagnating in many countries in Europe, where you discuss whether there will be growth of half a per cent or will things shrink. Retirement is something people aspire to as early as possible. Here, I see quite a passion for work.
What is happening on fares and competition? As I see it, fares are running very low.
(laughs) Today, one of my people sent me a screenshot on train fares and I had to look twice to see whether it was plane fares or train fares! On some days, I think it dips lower than train fares.
Competition has intensified in India. When I started here in 2003, we mainly had Sahara and Indian Airlines as competition. Then, in 2004-05, all the low-fare airlines came in. I’d say then competition went too far and we saw a number of collapses.
Are we heading the same way? Should we be ready for more debacles?
I don’t think so. There is a big difference. Earlier, banks were more relaxed, there were more overdues and credit was easier. Banks are now very reluctant to lend; leasing firms have tightened their conditions, AAI (Airports Authority of India) and others are less tolerant of airlines not paying dues. In general, there has been a correction.
Airlines, too, have become more cautious. Even if they have a big order, they might slow down deliveries. Our philosophy, too; reckless expansion is a thing of the past. So, I don’t expect a similar scenario. More discipline has come into the sector. The environment, in general, is sounder. You will still see exits but it will be in a much more controlled manner.
India remains one of the most competitive markets I know of. I think the US, for example, is less competitive.
Which market have you seen that is more competitive than India?
Well, the markets are different. In Europe, you have the big three who have their hubs (Lufthansa, British Airways and Air France-KLM). Turkish airlines is now developing its hub at Istanbul. It’s the same for the US.
In India, there is no hub dominance and so the market is a bit different. No dominant player means competition is higher.
How has this transition been for you personally? You looked at the Indian market as the CEO of Jet from a full-service point of view and now you are here looking at things from another end, so to speak.
In 2009, I moved to British Midland (Airways). The UK is a very competitive market. I was there for three years and during the time I was also looking at the operations of Be My Baby, the low-cost subsidiary. So, I had been exposed to how much simpler things were with the low-fare model. At the end of every day, you knew your profit or loss. Everything was simple. Costs were low. So, I had the opportunity to compare the complexities of a full-service carrier with that of a low-fare offering. And, I thought to myself, well, the low-fare model has its own advantages.
Then I joined Air Berlin (after three years at BMI) and I could see how a full-service airline struggles to compete in the touristic segment. In Europe, they offer very little value and many full-service airlines are offering low-fare options. But, they have not been able to take all the complexities of the model out.
So, my experience convinced me that in this up to four-hours stretch, low-fare is the only way to go. Of course, for longer hauls, full-service might work well and both can, and will, co-exist. For us at GoAir, cost leadership is key.
But, the way you inherited GoAir, you would not have been the lowest cost offering. So, how can you hope to achieve cost leadership?
Right but your overall cost depends quite a lot on your aircraft order and we have been able to correct this with our latest order. Personnel and aircraft orders are the two biggest heads where we can reduce costs.
What did you need to correct when you came to GoAir?
Operationally, we didn’t have enough pilots, leading to flight cancellations. We’ve inducted 140-150 pilots (since I came). We have 218 pilots and so we now have enough for even our expansion plans. Commercial effectiveness was another key area. With the same fleet, we’re now generating 10-15 per cent more revenue, through higher load factors and better yield management. From last October-November, we have gone into profits. If you keep interest costs aside, our profit margin compares with the market leader (read IndiGo).
Third, I’d say we have tried to change the culture. There is a more vibrant atmosphere. When I came, I found a tired air. I think we have been able to change that to a large extent. The staff is more upbeat. The new aircraft order has helped reassure employees. I think, for the first time, there is also some confidence that you can make money with an airline.
GoAir has remained in idling position for a long time.
No longer. At the end of this year, we will have 26 aircraft operating. Also, we will start international (plying), with the summer schedule.
Isn’t that a double-edged sword?
We’ve chosen a different path. You can all fly to Dubai, Singapore, the Middle East but we’ve chosen to develop new routes. We will fly to China, though not Beijing and Shanghai. The Central Asian countries. We have rights for Iran and Saudi Arabia. Maldives and Vietnam. We’re not going the same route as the others. We will have a balanced network between East and West (opens a map showing the proposed network), using Delhi and Mumbai as hubs.
Our new aircraft come with 186 seats. Not due to lower seat pitch but as there’s a way now of creating an extra row on the A320. On one aircraft, six seats. On 10 aircraft, 60 seats and on 100 aircraft, that’s 600 seats. On 144 aircraft, it’s 900 seats. Divide that by 180 and it’s, like, we have five more aircraft.
We won’t rush into it. Profitability will remain the guiding principle. I have seen the dangers of very quick expansion in the past.
I must have asked you this before when you were with Jet, too, but how will you manage your Indian promoters?
(laughs loudly) Let me say I’ve done it before (read Naresh Goyal). I thought I’d seen it all but let me say here that in fact having a promoter who is not from the industry lends a new and different perspective. One can view things with an objective lens and learn from those who have run other successful businesses. If one can bind aviation knowledge with other business knowledge, it makes for a good combination.
I worked in Lufthansa before this and things can take longer in large airlines – there are committees for various decisions. In this kind of promoter-driven company, things can move faster, although I’d like decision making to be even quicker.
But, overall, I have to say I like it very much.
Let me end here. I’ll ask you the same question (about promoters) two years from now.
Laughs loudly.
