‘We should all have our heads examined in the airline industry’

‘We should all have our heads examined in the airline industry’
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First Published: Thu, Jun 05 2008. 11 50 PM IST

Looking ahead: Chairman Naresh Goyal says the airline’s plans to start a Mumbai-San Francisco service via Shanghai from 14 June. (Photo: Ramesh Pathania/Mint)
Looking ahead: Chairman Naresh Goyal says the airline’s plans to start a Mumbai-San Francisco service via Shanghai from 14 June. (Photo: Ramesh Pathania/Mint)
Updated: Thu, Jun 05 2008. 11 50 PM IST
Istanbul: India’s oldest private airline, Jet Airways (India) Ltd, survived the aviation crisis of the mid-1990s that forced rivals such as ModiLuft and EastWest Airways to fold up. The carrier, set up in 1993 following the deregulation of the aviation industry, is battling new challenges: intense competition from multiple carriers that deters it from raising air fares, and aviation fuel prices that have tripled in the last three years.
Looking ahead: Chairman Naresh Goyal says the airline’s plans to start a Mumbai-San Francisco service via Shanghai from 14 June. (Photo: Ramesh Pathania/Mint)
In an interview with Mint on the sidelines of an annual meeting of the industry body International Air Transport Association (Iata), Jet Airways chairman Naresh Goyal candidly talks about issues faced by the airline industry, his company’s international operations and the road ahead.Edited excerpts:
Given rising losses at airlines in India over record fuel prices, what is the future course for Jet Airways?
As far as the industry is concerned I have been saying all along it is not just fuel alone; we have all been doing irrational pricing.
If a mobile phone costs $5 and you are selling it at $3 or $4—how long can the factory continue?
We are doing crazy irrational pricing, we are selling below costs and it has been going on for many, many years now.
To be fair, fuel is not the only issue; you don’t have infrastructure and you have given so many licences. (Not only) is fuel already 50% higher in India than the rest of the world, you are (also) circling your plane over airports.
An average flying time in India—some flights are half an hour, some are 2.5 hours—is about 1 hour 10 minutes. (But) we are flying 30-40 minutes extra every day.
So, we are spending another 40% fuel, because you don’t have the facilities to handle flights. Then you are carrying fuel, let’s say 10 tonnes, on a flight between Mumbai and Delhi, you are circling (over the Delhi airport) and let’s say you are turned to an alternative airport like Ahmedabad.
How many can go there? Let’s say the ATC (air traffic controller) diverts six aircraft. Four can go there (Ahmedabad). Where will the rest go? One day it can be a disaster if fuel (runs out).
(At this rate), shareholders will be in trouble if we run away. If we (Jet) close down, it is a very bad message for the country, we will go back to the monopoly (of state-run airlines). It means you go (to the) pre-1991 era.
Meanwhile, the foreign airlines are coming, dumping capacity because so many bilaterals have been given out. First, you must allow your (Indian) carriers to become stable. They (international carriers) don’t want us to fly to their countries.
Singapore Airlines has dropped fares to 50% in economy class; they have the money power. So it means Indian carriers will not be able to survive, so you go back to the foreigners (airlines).
British Airways is doing the same thing; its average UK-India fare used to be £400 (Rs33,360) before we started (a London service). Now, it’s £220 on average. So they have dropped 50% so we don’t stay in the route.
US carriers have dropped fares too since we launched—they were selling (for) $1,200 (Rs51,120), now it’s $600-700. It’s not just Jet Airways anymore; these are the industry issues.
How’s Brussels working out as a hub for Jet?
The Brussels experience is going extremely well and the hub has settled down and we are getting complete support from the Brussels government.
In fact, people from Europe have started coming and joining Jet Airways flights via Brussels. People are coming from Leon, Cannes, even Paris, Milan, Florence, Venice, Rome, Düsseldorf, Cologne, Hamburg Hanover, Stockholm, Oslo, Madrid, Barcelona, Lisbon, Geneva, Zurich...
Also, Europeans who are going for business have started travelling with Jet. They used to travel with other European airlines. (Customers) are seeing the service. They are seeing what the Indians can do, what Indians are capable of...So it’s working very well.
Are you looking at another hub in Europe?
First let us solve the existing issues. We are on oxygen. If you pull the plug, you die. Everybody is on oxygen.
The industry lost $500 million in 2006-07, I said it will double next year in 2007-08. This year it will be $2 billion.
How long will this oxygen last?
Depends on what all we want to do. First, we should all have our heads examined in the airline industry: me and all my airline counterparts... that we should stop doing below-the-cost pricing. Who can afford these losses?
Look at the capital of the airline companies in India. My friends at US airlines are sitting on $3-4 billion cash; talk to them... they are in trouble even with that money in their bank.
Over the next one year, how do you see this panning out for the industry?
We must stop irrational pricing if we are to remain in business. Everybody is just killing each other just to get market share. It is not ultimately in the interest of the consumer; the consumer is benefiting today (but won’t if the market goes) back to monopoly.
Last year there were buyouts and consolidation. Do you see another round of consolidation in the industry this year as well?
More consolidation will take place. Even with last year’s consolidation, nobody is stopping irrational pricing.
Worldwide you have to keep increasing fares while here, what we do is once the fuel surcharge goes up we further reduce the base fare.
What about the expansion plans? Are they on track?
Whatever expansion plans we had are continuing; for example, we now starting our Mumbai-Shanghai-San Francisco (flights) from 14 June as planned. It is the first time the Chinese have allowed a thirdcountry airline to go through; It was always the US carriers (earlier).
We are hoping to start our operations to Saudi Arabia. We have already requested the government—hopefully it will be cleared any day—to fly to Dubai, Jeddah and Riyadh.
So hopefully, we start that next month. Dubai will be (receiving) direct flights from Chennai, Delhi and Mumbai. It would be from various points in India, and Jeddah and Riyadh will be (connected with) direct flights from Delhi and Mumbai.
Do you see a future for low-cost model in India?
What is low-cost? There is nothing like low cost in India. There is no alternative airport, no secondary airport.
In Dubai they are creating a separate terminal in Jebal Ali for low-cost carriers—that is (the basis of) low cost. Because cost will genuinely be lower; they will charge less at theairport. In Singapore, they created a low-cost terminal; so did Malaysia. Here, everybody is using the same airport, paying the same navigation fees, same landing fees, same fuel (price); only we are selling low fare tickets.
Tarun Shukla was in Istanbul as a guest of Iata.
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First Published: Thu, Jun 05 2008. 11 50 PM IST