R Jagannathan
One of the unexpected survivors in the loss-laden aviation sector is GoAir —an airline belonging to the Nusli Wadia Group. A low-profile airline with one of the smallest footprints on the domestic aviation map, GoAir posted a profit of Rs 30 crore in the first quarter ended June, higher than Jet Airways’ Rs 24 crore.
So what’s GoAir done that others didn’t?
In an interview to BusinessLine, GoAir’s CEO Giorgio de Roni explains the key elements of the airline’s ability to keep its head above water when others like Air India and Kingfisher are drowning in a sea of red ink.
According to the Centre for Asia Pacific Aviation (Capa), GoAir achieved the highest gross fares in the market (Rs 5,100-5,200) amongst low-cost carriers, in part because it seeks to fly more on routes with limited competition. So far, the airline is focused on the Delhi-Mumbai sector and the north-east, and plans to become more prominent in the south once it augments its fleet strength.
GoAir emphasises customer value, rather than low fares. Reuters
So what are de Roni’s mantras and home-truths to live by?
First, market share is not the goal. Growing big isn’t the priority. Profitability is. Hear the CEO on this: “The role of GoAir is not to chase market share and become the biggest airline in the sector, but to grow continuously and step-by-step and deliver profits. Only if we are profitable, we can continue to grow.”
Second, GoAir emphasises customer value, rather than low fares. Reason: in India, there is no such thing as a low-cost carrier. CEO de Roni prefers to call GoAir a budget airline rather than a low-cost carrier. He told BusinessLine: “We are not low-cost. Unfortunately in India, there is no chance to be low cost.”
Third, GoAir has created a business model relevant to India. There is no European low-cost model to be copied in India. The CEO gives the example of fuel costs to show how operating conditions are completely different. In the first quarter, GoAir’s fuel cost per block hour was $4,100 when, for the same quarter, EasyJet in Europe had a cost of $2,800. Moreover, in Europe, security is handled by the airports; in India airlines have to do it themselves.
But when it comes to on-time performance, India is actually better than Europe. Says de Roni: “The biggest mistake one can commit is to bring in the European model in India. You have to customise it for the Indian environment. For example, it is normal in India to have an on-time performance of about 90 percent but in Europe, if the on-time performance is, say, 75 percent, it is considered very good.”
Fourth, it’s important to recognise that labour is not really cheap in India. According to de Roni, nominal wages are lower in India, but productivity is also correspondingly lower – thus blunting the cost edge. He gives the case of GoAir itself: “Though the average salary is lower in India than the rest, the number of people we deploy here is huge. Ryan Air has 42 employees per aircraft while GoAir has 140 employees per aircraft.”
Read the full interview here.
