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Air Costa chairman Ramesh Lingamaneni says the company will add two-three new destinations in the next financial year, mainly concentrating on tier II and tier III cities.
Air Costa chairman Ramesh Lingamaneni says the company will add two-three new destinations in the next financial year, mainly concentrating on tier II and tier III cities.

Air Costa plans to apply for a pan-India permit before year end: chairman

Air Costa chairman Ramesh Lingamaneni on plans to seek a permit for pan-India operations and on funding the 100-plane order

Mumbai: On 13 February, Ramesh Lingamaneni, 42, executive director of little-known real estate company LEPL Group of Vijayawada and chairman of India’s newest regional airline Air Costa, shocked the market with an order for 100 planes worth $5.88 billion (around 35,568 crore today).

The airline, which currently flies just two planes, signed a definitive agreement with Brazil’s Embraer SA for 50 E-Jet E2 planes with purchase rights for an additional 50 jets. The initial order is for 25 E190-E2s and 25 E195-E2s, which together are estimated to be priced at about $2.94 billion, based on 2014 list prices.

Lingamaneni’s entry into aviation comes at a time when airlines are making huge losses. Competition is also set to increase with Tata Sons Ltd tying up with Singapore Airlines Ltd to float a full-service airline and with AirAsia Group Bhd for a low-fare one. Lingamaneni in an interview discussed his plans to seek a permit for pan-India operations and on funding the plane order. Edited excerpts:

You are entering when airlines are making huge losses.

Our research and analysis conveyed to us that there is a wide scope of trade and commerce development in tier II and tier III cities, which was lacking air connectivity. Low-cost aviation offers a viable business opportunity as there is a huge gap of 70 aircraft (of Kingfisher Airlines Ltd, that was grounded since 2012).

Many regional airlines, including those floated by real estate companies, wound up. Many did not start. Where is the confidence coming from?

We are not just a real estate company. Our vision is to develop cities and towns, including real estate, and thereby improve the standards of living and quality of life in these cities and towns. The aviation business complements our other businesses and aligns with our vision.

What are the key lessons from the failure of regional airlines including MDLR and scheduled airline Kingfisher Airlines?

We believe that running a successful airline is no different from any other business. The fundamentals are the same. We need to understand the market before we can serve them better. Our focus is to drive costs down without compromising on service quality.

Two key lessons that we have learnt from the failures of other airlines—focus and discipline on the sectors that you are operating—are the most important things for a successful business.

Why did you opt for Embraer planes when others are not flying the same?

Our fleet comprises the contemporary Embraer E-170 and E-190 aircraft. It offers a quieter cabin, spacious seats with best-in-class legroom, no middle seat and better turbulence handling. These planes are capable of delivering double-digit improvements in fuel burn, maintenance costs, noise reduction, etc., when compared to the current regional jets. We are very confident on our growth plans and this order falls in line with our strategy.

The 100-plane order seems big. In fact, in 2007, Paramount Airways also signed up to buy 40 such planes but they never flew more than five planes. How do you justify those big numbers?

I would not like to comment on Paramount Airways and why there were not able to take delivery of their order. Our order of 50 aircraft with an option of another 50 is not a big order when we consider the delivery period for those new aircraft. Our order perfectly complements the capacity requirements in the Indian aviation market over the next decade (till 2030). We plan to induct four aircraft per year (one aircraft each quarter). We have carefully considered our expansion plans taking both the internal and external factors into considerations.

How will you fund the order?

We would consider options like roping in foreign investors or raising funds by divesting stake. Some investors, including international airlines and private equity funds have already approached us, but we requested them to wait. We will raise funds once we prove our operations are successful so that we get better valuations.

How many planes are there in your current fleet and what services do you offer?

Currently our fleet size comprises two E-170s and two E-190s, which we are flying to Ahmedabad, Bangalore, Chennai, Hyderabad, Jaipur and Vijayawada. From 30 March 2014 (summer schedule), we are launching two E-190s connecting three more destinations—Coimbatore, Madurai and Visakhapatnam. The bookings for the same are already open.

How many cities and flights would you be adding in the next financial year?

We will have 8-10 aircraft by March 2015, and we plan to add four aircraft every year until 2018, when the new order comes in. We also have the option to buy 50 more jets. We would be adding two-three new destinations in the next financial year, mainly concentrating on tier II and tier III cities.

What kind of licence do you hold and how many cities can you connect under that? What is your business model?

We are presently a regional operator. We need five aircraft in our fleet to apply for a pan-India licence. We have plans to apply for a pan-India permit before this year ends. We are not a low-fare airline. Our strategy is to reduce costs and transfer the benefits to our customers along with better service and reliability.

Would you be joining hands with Indian scheduled airlines?

We have not decided on partnering with Indian airlines. Maybe a year from now we would be able to comment better on this.

What are the three things you want from the government to make Air Costa successful?

We are seeking three important things from the government: 1) VAT (value added tax) on aviation turbine fuel should be waived off; 2) development of tier II and tier III airports; and 3) concessions of airport charges.

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