Video: A rather tame interview of civil aviation minister Ajit Singh

The Media India Group recently conducted an interview with Indian civil aviation minister Ajit Singh.

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Exclusive interview: G.M. Toh, General Manager India, Singapore Airlines

Singapore Airlines (SQ) is one of the most respected airlines in the world. Bangalore Aviation was honoured to have an exclusive one-on-one with Mr. G.M. Toh, the airline's head in India.

Q. Please give us an overview of the trends you’ve seen in the Indian market over the past 6 months? What do you see in the next 6 months? 12 months? 24 months?

The air travel as a whole is dependent on the world economy. While a lot of air travel is essential, there is a high component of discretionary travel as well, and when there is a slow down, both corporations and individuals cut back on air travel. So yes, there has been an impact on Singapore Airlines.

In India, travel was good till end last year. The Indian domestic market was recording double digit growth. The growth slowed down by the start of the fiscal to single digits, and in the last few months we are seeing a contraction. It is a shocking slowdown, especially considering the Indian economy is growing at 5%~5.5% and normally air travel growth is 2x the economic growth. Clearly there are some other factors at play. This is purely my personal view, it is possible that the current economic growth is being driven by rural India where air travel is not significant. The increases in air fares could also be a factor, but I feel there is a softening of demand.

On Singapore Airlines itself, we are a listed company so we are not allowed to disclose information that is not already published and available to public. At a macro level, if you see the last published resulted for the fiscal year ended March 2012, our performance has been impacted considerably, especially in the last fiscal quarter i.e. January to March 2012. In the quarter one of fiscal 2013 i.e. April to June, 2012, the results were better than expected, but the overall results are not as good. While we are still reporting profits, margins are slim and not at previous levels.

Our growth has moderated. Long haul flights are very challenging for us, given the high fuel prices. We have had to cut back on longer haul flights like Houston, but growth this year is focussed on Asia. We have added services to China, Indonesia, a little bit to Australia, and to India.

At Mumbai, we are growing from 14 services a week from Mumbai to 21 from November, a 50% growth. At Hyderabad we are increasing Silkair services from a daily, to nine a week. We have announced new SilkAir services to Vishakhapatanam (Vizag). In total we will grow from about 79~80 fights a week in July 2011, to 93, a growth of 14 flights, which is good considering these depressed times. 50% of this growth has been in Mumbai were we have traffic rights. As you know our traffic rights to the top five cities of India are very constrained, so we add where we can.

Q. A lot of growth is on SilkAir (MI) rather than Singapore Airlines. Is this growth, a brand driven exercise, or an aircraft driven one, considering Singapore Airlines has only wide body aircraft, while SilkAir has only narrow body (A320 family) aircraft?

It is a little complicated. By and large it is aircraft driven. A lot of the newer destinations like Vizag and Coimbatore, cannot handle larger aircraft. There are also factors like traffic rights. We are unable to expand to the larger Indian cities due to constrained traffic rights. The newer destinations are smaller cities and we operate narrow bodies due to traffic capacities and economic reasons.

Q. How do the forward bookings for Indian travel look given the economic slowdown here and continuing economic woes in the rest of the world?

There is no doubt there is a softening of demand across domestic and international travel, but due to our added services and destination we are overall okay compared to last year, but I am sorry I cannot give specifics.

Q. How is competition from the MEB3 (Middle East Big 3 Three - Emirates, Qatar, Etihad) affecting Singapore Airlines, especially on the India to US routes?

We do not compete too much with MEB3. Their main markets from India are the middle east, Africa, Europe and to a lesser extent the United States. To the US east coast, frankly, they [MEB3] compete with the European carriers. To the west coast, which is a far smaller market than the east coast, from the south and east of India we compete well. From the west and north, the routing does not favour us as much. We operate two flights a day each to San Francisco and Los Angeles. Most of our traffic from India is to the east i.e. Asia and Australia / New Zealand, and there the MEB3 routing does not afford them to compete with us.

Q. Singapore Airlines currently operates its 777-300ER with the 1-2-1 ultra-premium business class product on the red-eye flights from Delhi and Mumbai, but does not on its remaining Indian sectors, especially Bangalore. Please give us insight as to why this is?

There are two factors. The 777-300ER is space intensive cabin, specifically meant for long distance flights. Our business class is an ultra-wide 1-2-1, 4 abreast configuration compared to the 2-2-2, 6 abreast of our competitors. Even our economy we have a nine abreast economy cabin, while some of the big middle east carriers are flying ten across. [Editor's note: Emirates and Etihad, and now Jet Airways have this 10 abreast ultra-narrow configuration].

So our 777-300ER has only 276 seats compared to 330~340 seats of our competitor. We have put in fewer seats recognising that long haul flights require more comfort for our passengers. Mumbai and New Delhi are like Shanghai and Beijing in China. One is the commercial capital, one is the national capital, and in recognition of the commercial importance of these markets, we limit operations of the 777-300ERs to these cities, both in India and China.

The second factor. You will observe world-wide airlines are cutting back on the traditional three class aircraft of First, Business and Economy. First class is a very limited product and very few routes can remuneratively sustain First class, on a regular basis. You will observe we offer a First class only to Mumbai and Delhi in India, Shanghai and Beijing in China, Sydney and Melbourne in Australia, Auckland in New Zealand, and Tokyo in Japan.

In response to your question, why not Bangalore. Bangalore has good corporate demand and good business class traffic, but it does not have a sustainable First class demand. Across the world for markets similar to Bangalore, most carriers, including Singapore Airlines operate a two class aircraft. So we do not operate our 777-300ER which has a First class cabin due to market matching.

Q. How does the financial performance look on the secondary Indian routes by Silkair to airports like Coimbatore, Kochi, and Trivandrum ?

It is no secret that Singapore Airlines and Silkair are aggressively cutting back non-performing routes. We left Amritsar in 2009 for example. Coming to these secondary routes, we started Trivandrum (Thiruvananthapuram) in 1991, Kochi in 2001, Coimbatore in 2007, and the fact that we are still operating these routes, suggest they are doing okay. Two factors work for us. First is the immigration to Singapore and Malaysia from southern states of India, especially Tamil Nadu and Kerala, which leads to a natural demand for the family driven traffic, and the needs of travelers from these cities to connect to the world which we provide from our Singapore hub. [Editor's note: Singapore Airlines is a handful of carriers belonging to the "six continents club" i.e. offering flights to all six populated continents of the world].

Q. How are the LCCs like AirAsia, IndiGo and Tiger Airways competing with you in India? We have seen a lot of churn with AirAsia withdrawing from many stations?

Devesh, you are very knowledgeable about the industry, and you know Singapore is the epicentre of low cost carriers in Asia. These are purely my own thinking. There are two reasons why low cost carriers have done so well at Singapore.

First, we have a very liberal, business friendly attitude and policies in Singapore. JetStar Asia is very big in Singapore, and even though it is 51% owned by a Singapore business house, it is effectively run by Qantas who owns 49%. So, from about 2003, when LCCs started operating in Singapore, their traffic share has gone from single digits to over 26% today on a base of about 45 million passengers annually.

Secondly, Singapore is a strong yielding market. Our strong economy and strong currency, it allows LCCs to price lower than full service carriers, but yet make their operations viable.

India is a challenging market for anyone, but especially for low cost carriers. Indian LCCs who dominate the domestic market, now enjoy operational efficiencies which makes it very hard for foreign low cost carriers to compete against them. Another aspect to consider is that India is a low yielding market compared to many destinations in the Gulf or ASEAN region. So foreign LCCs choose to deploy capacities to higher yielding markets, especially in these tough times.

Q. How much scope for expansion does Singapore Airlines see for more Indian service, whether that be capacity/frequency increases, or new routes?

Traffic rights still remain the constraining factor. If we get additional rights, I leave it to your educated guess to where we would like to expand. [Editor's note: It would be New Delhi, Bangalore, Chennai]. Last year, in Chennai, we were forced to reduce our SilkAir services in favour of Tiger Airways. So we are facing a further dilution of traffic rights.

Q. Given that Tiger Airways is making a resurgence in India, as a knowledgeable industry professional, what are your thoughts about Scoot in India?

If you see Scoot is expanding in to those countries where we have open skies or very liberal third and fourth freedom rights. Australia, China, Thailand, Taiwan and Japan. I think Scoot is focussed on economic returns and since they have modified their 777-200's to 400+ seats, they are only looking at high volume routes. There are some cities in India which are high volume enough to sustain Scoot, but traffic rights are the constraint.

Q. Is there a scenario wherein Singapore Airlines would operate the A380 to India, and is it already allowed to?

We have ordered 19 A380's all of which have been delivered. They are deployed on long distance, high volume, high yielding routes. London Heathrow is THE airport the A380 was built for. As present we have no plans for bringing the A380 in India. If you observe, we operate the A380 to Hong Kong which is 3.5 hours, but then we operate seven flights a day one of which is the A380. I am not sure any destination in India will justify it, at least for now. For the future, I look forward to India growing and generating these levels of traffic.

Q. What has been the effect of the wing rib cracks on the A380?

When this matter showed up, there was some initial juggling of the schedules and I think the initial issues have been settled, but I am not an expert on this matter.

Q. Can you share any insight into the business/leisure breakdown of Singapore Airlines proper’s Indian operation (i.e how much of the traffic is business traffic and how much is leisure) ?

We do have a good mix of both, but I cannot share more information than that.

Q. Can you share what percentage of Singapore Airlines’ Indian traffic is origin and destination (O and D) and what percentage is connecting onwards through Singapore (6th freedom)?

Devesh you are already well informed. But for those who want greater detail, I recommend your readers see the CAG report. If you see the top ten airlines, most of them are in the 70%~80% range [connecting vs. O and D]. Lufthansa was around 87%. Clearly these airlines are carrying Indian passengers to the world not to their countries. Singapore Airlines was one of the lowest with a very healthy mix of about 50% passengers flying to Singapore and 50% going beyond. Which is not surprising considering the historical ethnic links and the over 300,000 Indian permanent residents in Singapore, and 900,000 visitors from India in Singapore. Unfortunately we get clubbed with the other airlines and our traffic rights are constrained.

Q. What does SQ/MI look forward to, from the Indian government, in terms of aviation policy? What in your opinion should be some initiatives the Indian government must take in the civil aviation sector? Comments on Indian airports, charges, facilities? What does SQ/MI look to from airports in the future? In current stations? In future stations?

To be fair to the airport operators, they moved from the old airports terminals to these spanking new facilities. This costs a lot of money, and we recognise someone has to pay for it. Our issue is how the payment burden is structured. To have such a huge increase, implemented all in one go, and in some cases, almost retrospectively, is not the way business should be done. As an example, at Delhi, just the passenger fee increases represents a double-digit percentage increase in total fare outgo by the passenger. Even the increases on landing and parking charges for us is over seven digits and we operate only two flights a day. It is not fair.

As a comparison, Singapore Changi airport, after many many years, is increasing the passenger fee by S$6. This is effective April 1, 2013, and this increase was announced two months ago, giving the airlines a lead time of over six months, and is valid only on tickets sold after November 1, 2012. Indian airports need to do fare increases in an orderly, planned and gradual manner, giving all the stake-holders time to adjust and to enable passengers to make their ticket purchases with their eyes wide open on the total costs. The suddenness and quantum of the increase is having its impact on marginal airlines.

I have been in India now for 22 months and I have seen 17 airports. I must admit, I am very impressed by some of the new airport terminals coming up. For example Chandigarh, Amritsar, or Vizag. We recognise there is a cost to be paid for these new terminals, what industry needs is for the power that is, to recognise that we all want better facilities, but we all need to find better ways of managing costs and distributing them in a fair and equitable manner.

One fundamental issue that has come up from the Delhi airport saga, is that, while PPP [Public Private Partnership] is good, but if you have AAI taking such a large chunk of the revenue collected, as its share, makes the job very challenging for the operator, and is a key reason why charges have gone up by some much.

Thank you Mr. Toh. Its been a pleasure.

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Exclusive interview: Giorgio De Roni - CEO GoAir - Part 2: We first deliver results, we do not over-promise.

Continuing from part 1 of the interview with the the soft spoken CEO of GoAir, Giorgio De Roni, who has quietly turned around the Wadia family promoted airline from a rock bottom position, dismal market share, and reputation for frequent cancellations, to a top performing contender in the Indian airline industry, with some of the best performance parameters in the industry.

In the concluding part of this broad ranging two-on-one interview with Devesh Agarwal and Vinay Bhaskara, De Roni, shares his management mantras, techniques and methods utilised in the turn around of GoAir.

Q: How are things developing at GoAir and in the Indian airline industry as a whole over the past year?

Well the industry is going through a challenging period due to many issues in the market.

Certainly and foremost the cost of fuel and taxation on fuel. We have recorded an increase of 7%, which is a huge increase given that fuel represents more than 50% of our total costs.

Then we have a market that I’m fully confident and sure that in the medium to long term is growing. But unfortunately in the latest few months, we have recorded a drop in respect to last year, and that is a big concern in the short period.

We have some infrastructure bottlenecks and again this is penalizing airlines in India.

That said, I remain confident in the growth of the Indian aviation sector. We might require some revision of the regulatory environment which is a little bit old fashioned. If I’m not wrong the base of the legal framework is dated 1934, so even before the Chicago Convention.

I feel that some commitment from the government to revise and improve efficiency in the system is necessary. I feel confident that all stakeholders will be able to deliver us such an environment.

In my view, a country with 1.2 billion people should have a much stronger aviation sector. Definitely there is an opportunity to create a hub in India, and there is probably also a space for more than one hub. But we need some efficiency in all of the systems.

Q: Till a little more than a year ago, GoAir did not enjoy the best reputation in the industry in terms of dispatch reliability. In the last 1.5 years, that has turned around literally 100%. GoAir ranks, right at the top in terms of least cancellations and best on-time performance. Can you share with us what were the issues confronting GoAir and some of the steps you took to solve them when you joined the airline?

Well I think that quality to customer is one of the pillars of any airline, and we are committed to deliver value for money. Definitely I am aware that in the past, GoAir was suffering in terms of on-time performance. We are now averaging around 90%. And notwithstanding the high on-time performance, we also have high aircraft utilization, because in July we achieved 13 block hours per aircraft per day, which is remarkable for a narrow-body airline.

I think that the only thing that I am trying to reach within the organization is trying to deliver consistent strategy, and a consistent approach throughout the management team and down to the front line. We are investing hugely in terms of training and hugely in processes and procedure. We were IOSA approved [IATA Operational Safety Audit] at the end of 2010. Since it is a 2 year approval, we are now going through the renewal of that certificate. All these aspects are contributing to keep our quality and standard of performance high.

IOSA? We didn’t know that you had undergone IOSA. We only knew that Air India had undergone IOSA.

Well, one of our characteristics is not to overpromise, but first to deliver the result and then communicate. Sometimes my shareholder [Wadia family] blames me, saying that we [GoAir management] should be more proactive in communication.

Well my view is that we have to communicate only what we are able to deliver. And definitely IOSA is a good achievement.

But in the end, does a passenger choose GoAir for being IOSA certified? No I don’t think so.

I think that it is more important to deliver on-time performance, and good service, both on-board and on the ground. And that is why we are investing significantly in training.

Q: You mentioned that GoAir is achieving 13 hours aircraft block utilisation time, That is almost 20% or 30% more than IndiGo or SpiceJet. You appear to have probably the best aircraft utilization in the country?

Well last year we received an award by Airbus for being the best operator of the A320 in whole of Asia Pacific, Middle East and Africa in our fleet size. [Editor's note: A320 behemoths AirAsia and IndiGo are in the same geography]

And this is remarkable because of course the higher utilization continues to keep fixed costs more efficient , but also it is remarkable because it is accompanied by a very good on-time performance.

Q: How long are you looking at keeping the same level of aircraft utilization?

I hope that as soon as we get approval, we can start operating on international flights and increase the aircraft utilization by adding some flights at night. Of course on a daily basis we need to carry out maintenance checks on all the aircraft. And these keep the aircraft grounded for 3.5~4 hours every day, so the limit for the utilization is 20 hours.

We have a turnaround time of between 25 and 30 minutes depending on the size of the airport and efficiency of the airport in providing turnaround services. And that’s the limit I cannot go beyond.

Because our first departure is at 05:15 and our last arrival is at 01:00 the following day. Of course not all of the aircraft have such an intensive utilization, but we manage to have a pretty good utilization.

Q: So does this high utilization change the timeline on heavy maintenance checks for the A320s?

We do have C-checks. Another policy of the company is to keep the fleet as young as possible, because this brings efficiency in maintenance and efficiency in fuel consumption, and a good product to our customer. It means that C-checks. Yes we have undergone 8 C-checks for the fleet. These keep the aircraft grounded for around 3 days. We outsource the C-check maintenance. We also have engines updated but considering that we have spare engines, the high utilization is not as much of a concern.

Q: Many Indian carriers are moving to the concept of "power by the hour" with engine manufacturers. Is GoAir using this business method?

[Editor's note: In this business method, airlines agree to pay engine manufacturers a unit price per hour of usage of the engine. The manufacture is then responsible for the performance and maintenance of the engine.]

We do not do so currently, but we are exploring this method. If it saves us money and helps us improve our despatch reliability we will consider it most strongly.

Q: Can you share some of your operational numbers? What are your average number of flights per aircraft per day?

We operate roughly 100 nonstop flights, but the network is constructed to offer as many “via” [connecting] opportunities as possible, particularly via Delhi and via Mumbai. And we carried roughly 3.5 million passengers last year and we have a target of 5.5 [million]. Why? Not only due to the increase of aircraft, we grew capacity by 22% as well.

Q: So you will be targeting growth up to 5.5 million passengers this year?

Yes 5.5 million. Due to increasing capacity by 22% and a higher seat factor. We also slightly increased the productivity by 15 minutes – which is peanuts. But at the end of the day, we can deliver some positive results.

Q: How many rotations do you achieve on average per aircraft per day?

We achieve 7.6 legs per aircraft per day.

[Editor’s Note: Mr. De Roni clarified that he meant 7.6 one way flight segments per aircraft per day.]

Q: Can we ask you for CASK or RASK numbers? (Cost per Available Seat Kilometre, Revenue per Available Seat Kilometre)

Sorry No.

Q: You mentioned the enhanced connectivity that you are looking at through Delhi and Mumbai. Looking forward, how much do you want to grow connections? Will it play an increasing role in the business model or will the primary focus still be point to point connections (P2P)?

Well the main focus will continue to be on point to point, but definitely connectivity might increase without diluting the overall revenue. Furthermore, we also must consider that due to some infrastructure bottlenecks, it wouldn’t be easy to add additional slots in Mumbai or at peak times in Delhi. So we also have a strategy to increase our presence in other areas of the country. We are already relatively strong in the Northwest; in Jammu and Kashmir we are the market share leader in Srinagar. We have recently deployed second aircraft nonstop at Bangalore Airport and the January A320 delivery will be most probably deployed in the South of the country, bypassing both Delhi and Mumbai.

Q: What do you see happening in Mumbai with regards to an integrated terminal? Will it be something similar to Delhi where you have an LCC terminal and a separate integrated terminal.

First of all, I am not Indian and I am not particularly able to forecast Indian decisions. And even if I am able to forecast, since it is sometimes a frustrating experience, I prefer to keep to what is the final the result.

Because media coverage is unpredictable – one week they say that FDI will be approved by Friday, the next Saturday, it is next month, and the next month, it is in a few months time.

So I have the habit of let’s see what happens and planning consequently.

Q: The reason we ask is that if in Bombay they structure the integrated terminal similar to Delhi, will the cost structure be similar to Delhi?

Yes. And it will create inefficiencies in the cost structure if we have to share activity between two terminals. So I do hope that this kind of consideration will be analyzed before any sort of decision is made.

[Editor's note. Please see part 1 of this interview where Mr. De Roni explains how high fees are impacting Delhi airport with reduced traffic]

You recently asked the DGCA to grant you a waiver from the 5-year and 20-aircraft rules for international flying. How confident are you in receiving a waiver, and would this signal a shift in strategy towards more international flying?

No, the core business will remain domestic. I personally see a strong potential for more growth domestically, considering that only 60 million passengers travelled by air last year out of 1.2 billion people.

If there are opportunities to fly internationally, I feel relatively confident to be authorized to fly internationally.

We already have, as you know, the 5 years of experience required, but we are flying less than 20 aircraft. I do not see why foreign airlines are allowed to fly international flights to India with just 1, 2, or 3 aircraft and Indian carriers are not allowed.

In my view, allowing GoAir to fly international, will increase opportunities for employment, flows of currency and tourism, and will serve the economy of the country better, and at the end of the day, it will create a dynamic competitive environment to the benefit of the final customer.

[Editor’s Note: Just to give some examples of this disparity. Avia Traffic Company, an airline with 5 aircraft that is banned in the EU, is allowed to operate in to India. Bhutan's Druk Air with just 3 aircraft, and several sketchy Afghan airlines with very small fleets, operate non-stop international services into Delhi? Yet GoAir with its now sparkling reliability and safety record is not allowed to do so?]

Q: Looking at your network, Mumbai and Delhi seem to be roughly equal in size. Will you increase in Delhi?

We are slightly more present in Delhi, historically due to a lack of slots in Mumbai. But definitely also due to the fact that the cost in Delhi has increased greatly. Thus the expansion plan will mostly be outside Delhi.

Q: One thing we’ve noticed is that the bulk of the expense at Delhi Airport seems to have occurred on Terminal 3. Yet GoAir, SpiceJet, and IndiGo passengers, who do not use T3, are made to pay fees for T3. Your comments?

Unfortunately, this is the common approach to airport development. And with this kind of approach we have weaknesses in the efficiency of the system. We have to survive anyhow.

Thank you sir for the revealing details. It was a pleasure.

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Exclusive interview: Giorgio De Roni - CEO GoAir - Part 1: GoAir is profitable

Over the last 18 months, the soft spoken Giorgio De Roni has been quietly turning around the Wadia family promoted GoAir. From a rock bottom position, dismal market share, and reputation for frequent cancellations, De Roni has grown GoAir to surpass Kingfisher Airlines and JetLite in market share, and made GoAir a contender in the Indian airline industry, with the confidence to place large orders for 72 Airbus A320neo aircraft.

In a broad ranging two-on-one interview, Devesh Agarwal and Vinay Bhaskara spoken to De Roni. During the interview, De Roni dispelled the misconception that IndiGo is the only profitable airline in India.

GoAir is profitable, and this profit is achieved purely by operations, without the income from sale and lease back of aircraft.

In the first of this two part report, we cover the financial and strategic aspects of the interview.

Q: In March this year, at India Aviation, Mr. Dinesh Keskar was saying that India is having "profitless growth." Airlines were experiencing growth in passenger numbers but profits were very hard to come by. In less than 3-4 months, growth has stagnated, but profits are there. What are your thoughts on this odd situation?

My thoughts are that the industry should not operate below cost of production. Unfortunately the situation in the past in India was that most competitors were more interested in market share rather than profit. So I more than welcome the shift in strategy from most of my competitors. And this has brought fares in line with costs, and in fact we have been able to deliver a profit for the first quarter.

Q: Any numbers you could share?

No, not really, we are not a listed company and as a policy, we do not share our results. I can say, that I am relatively satisfied of the results. The net profit was in percentage terms higher than IATA average, and differently from some of my competitors, it was purely reached by operational factors; so by revenue from passengers, and not from non-operational sources [referring to sale and leaseback income and other non passenger sources of revenue]. I never comment on my competitors, I try to learn from them…. And it’s [Sale and lease-back income] not something that only happens in India.

Editor’s Note: The IATA figure is 1.4%. Since GoAir’s figures came purely from passenger revenues, they outperformed the passenger figures at both SpiceJet and Jet Airways.

Q: You were mentioning your fellow competitors. If you look over the past year at your fellow LCC competitors, both SpiceJet and IndiGo have pursued a rather aggressive growth in their own form. SpiceJet has been going into virgin territory withthe Q400 in to Tier II and Tier III markets, and IndiGo has been adding a new A320 literally every 3 weeks; and they have gained a lot by the implosion or the contraction, of Kingfisher. However, GoAir has pursued a very modest growth path. In fact we think you’ve added only one aircraft net in the last year.

In this financial year we added two net aircraft. One in April and one in August, with a third one coming in January 2013. Yes, we have a more cautious approach to growth. We are exclusively targeting profitability and not really market share. We do have an ambitious expansion plan, and in fact last year we ordered 72 A320neos.

So we are committed to better serve the country. I think that we had some advantage in being a small carrier last year. Our losses were limited. It’s an airline 100% owned by the [Wadia] family . They are committed to the airline business, but I feel personally that we can grow only if we deliver profit. So I would prefer to deliver a profit and remain small as opposed to growing rapidly and having challenges on the bottom-line.

Q: Could you describe what trends you’ve seen in the unit PRASK revenues (passenger revenue per available seat kilometer) in the past several months, because we do know that SpiceJet recorded PRASK growth of more than 17% and Jet Airways recorded PRASK growth of more than 15% on its domestic network. Are you seeing similar numbers?

Yes, I would say that we are pretty satisfied of the [PRASK] growth. What is inconvenient is that the cost structure also suffered a significant increase. Airport charges increased due to the devaluation of the rupee against the dollar, fuel prices increased heavily. Since September 1st, I think we reached the historical peak of the cost of fuel in India, which is not the case in other parts of the world. So I just wonder how we structure the cost of fuel in India versus other geographical areas.

Q: Is it possible for you to share in percentage terms roughly the breakup of costs at GoAir?

Fuel costs are about 50%, more precisely it might reach around 55% of our total cost now with fuel at Rs. 72 per litre? That is the figure I remember most clearly, because it is a huge amount. I would say that the cost of personnel is pretty efficient, also because the most expensive community, the pilots are pretty well utilized with more than 900 hours per year, the cap being 1,000 per year in India. Certainly we are suffering from the weakness of the Rupee as far as lease rentals and maintenance costs are concerned; due to the fact that maintenance is performed primarily with US dollars.

Q: And you did mention airport charges?

Of course airport charges are huge. You are aware that Delhi Airport increased charges by 334%. It was a number that did not meet their expectation of a 700% increase. But I’m challenging anyone to find any other airport in the world with such a huge increase year by year.

And this is a serious concern.

Of course when we say that fares have increased year over year, we have to consider that we have to shift to the customer the burden of increasing costs. Because we cannot absorb any increase in costs, we have to transfer them to the customer. What is the result? The result is that volume and demand have decreased, as the data in June and July have shown.

So I don’t think that the way airports keep growing their costs and increase their inefficiency is smart. At the end of the day, they suffer due to a decrease in demand.

Q: Can you give us a brief financial outlook for the next year, and then maybe 3 years out?

Well I can tell you that we forecast to achieve a profit at the end of the year. Of course the first quarter was positive. The second quarter was the weakest from a cyclical point of view of the financial year, so we are definitely suffering. That said, for the entirety of the year, I am relatively confident that we will deliver a profit.

Q: What do you assume will be your revenue growth over the next one and three years, relative to 2011-12?

Well what is important to us is to remain flexible. Although we have a purchase order for roughly 80 aircraft between today and 2020, we should bear in mind that if the market is not growing, if there are turbulences, we have to be more flexible and be cautious. Or if the market offers more opportunities, we have the flexibility to take more aircraft and our part of the growth.

Q: Do you currently have any purchase options for the A320neo?

We don’t have options at the moment. 72 A320neo and the 7 remaining A320 classic orders are all firm. Anyway you know that there is a sort of over-production of narrow-body aircraft. And it’s not really a problem to add aircraft if the market requires.

Q: How do you think valuations in the used market are looking as both the 737MAX and A320neo are coming closer to delivery? Are you finding any impact on the secondary markets?

The residual value will be impacted definitely. We still have to see whether those manufacturers will deliver as per the schedule, or if, as it is normally, there might be some delays. But the impact on the present values might be negative.

Q: GoAir has selected the PurePower (Pratt and Whitney GTF) engine for the A320neo. And we’ve heard that CFM has not quite been able to deliver on the performance parameters of the LEAP-X?

I would disagree. First of all, we are very satisfied with CFM engines for the current fleet. Then, as I told you a few minutes ago, I don’t want to go for over-promising. And I don’t like my providers to over-promise. And since I’m not commenting on my competitors, I don’t understand why my provider comments on their competitors. They are free to do whatever they like.

[Editor's note: Our source of information on the LEAP-X engine is not Pratt and Whitney]

Q: So can you talk about some of the factors that drove your decision to purchase the PurePower engine?

So we did an overall evaluation from a financial and technical point of view and in the end we found Pratt and Whitney’s proposal to be better. But this is not to say that we are not satisfied with the present [CFM] engines that we have on our fleet.

Q: You did mention aircraft program delays briefly. And since both Boeing and Airbus have had trouble with delays recently on the 787 and A350 programs respectively, how concerned are you about delays [on deliveries].

We are among the first carriers in the world to receive the A320neo in the first quarter of 2016. So far, I do not expect any delays. But we aware that in new aircraft, some delays might happen. Although, considering that 95% of the airframe is common to the current airframe, and considering that the same engine technology will be utilized on other aircraft in the next year, I feel relatively confident that Airbus will be able to deliver the aircraft as per schedule. You are aware that anyhow that we have current engine A320s on order, and so we are not really planning for an environment with delays. But it might happen.

Q: Will GoAir be adding Sharklets to its A320 classic fleet?

Yes, our next [A320] delivery in January will be with Sharklets. In fact, I think we will be among the first airlines to have sharklets; most probably the first in India, though it’s not really a race against IndiGo.

[Editor's note: Sharklets are new wingtip devices fitted on the A320 family aircraft]

Q: Has Airbus indicated the possibility of retroffiting sharklets?

Yes they have. There is no clear picture on the cost involved and the time-frame of grounding the aircraft. As soon as they come out with a final picture, we will evaluate. We are keen to reduce fuel burn, both for savings and for the pollution reason.

Q: What sort of numbers are you looking at in terms of fuel burn reduction from the Sharklets?

Based on our network, we are looking at something around 1.5% savings.

Q: And what about the A320neo?

On paper, they [Airbus] say that there will be a saving in the range of 15%. That would be a great achievement.

Q: Your order for 72 A320neos have a list price of almost $5.6 billion dollars, which will require around $280 million in upfront financing costs. How is GoAir planning to pay for this order?

[De Roni laughs] Your calculation is pretty precise.

We are well funded. If there are opportunities in the market we will consider them carefully, but there is no concern [about paying for the aircraft].

Q: So there is no feeling at GoAir that it is time to turn to the public market with an IPO?

Well inside the company last year, there was a project to develop an IPO. It was not pursued due to the overall position of the market. We are open, but that is a question that needs to be asked of the chief shareholder. I will say that overall we are comfortable with the funding for the next set of deliveries.

Stay tuned for Part 2 of this interesting interview. Comments and feedback are always welcome.

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"How can you save money, except by getting the 787?" Interview with Dr. Dinesh Keskar, President, Boeing India

On the sidelines of the India Aviation 2012 show at Hyderabad, Devesh Agarwal had an exclusive one-on-meeting interview with Dr. Dinesh Keskar, President, Boeing International Corporation India Pvt. Ltd., and Senior Vice President of Sales, Asia-Pacific and India, Boeing Commercial Airplanes. Dr. Keskar also chairs the Committee on Aviation at the Federation of Indian Chambers of Commerce and Industry (FICCI) which organises this show.

The interview was held on-board the 787-8 Dreamliner, N1015B, in Air India configuration, line number 35, specially brought in for the show. (See cabin photos and video walk through here.)

Dr. Dinesh Keskar

Bangalore Aviation covered a wide variety of questions with Dr. Keskar, from the 787 to 737 MAX to 747-8i to 777-X, and not just in his official capacity at Boeing, but also as a seasoned and well informed observer of the Indian commercial aviation industry. Dr. Keskar answered all the questions posed to him, and gave us a frank opinion, on what he sees happening in the ailing Indian airline industry.

Q: Please give us an update of what’s going on at Boeing, from an India, Asia-Pac, to a global perspective?

A: The bottom line is, the world is a big market with 33,504 sales as a long term forecast. Within that, I think Asia-Pacific has the largest potential. If we come from that perspective, Asia is the booming thing right now, Europe is still struggling, the US is kind of flat, and then you have India at the bottom, which is a good market, but as I said yesterday [at the public Boeing press briefing], the growth is there, still double digits, but it is a profit-less growth, and that is our big problem right now.

Q: You have brought the Air India version of the 787 to India. How has been the response to the aircraft? From the public? from [launch Indian customer] Air India? from Government officials?

A: Tremendous… Everybody who has walked in is absolutely impressed with the airplane. Those people who have seen the airplane from the inside, who have seen the features, who have looked at the full flat business class seats, who have played with the electronic windows; who have looked at the economy seats and are absolutely ecstatic. They cannot wait to have this airplane in India so they can start making money with it.

You can see it for yourself, bigger bins, larger windows, better humidity, we talked about what the passengers can see themselves. Then there is also what they can feel, which is the air filtration system, the dust elimination system, the cabin altitude [787 cabin pressure is maintained at 6,000ft MSL vs. 8,000ft of other aircraft], and I mean you can go on and on. These are not present in any other airplane, and these are all important factors.

Q: Have you been successful in your efforts to persuade the government that the Dreamliner is the aircraft Air India needs to succeed in its efforts to turn around? There has been a lot of talk about the Indian government reducing the order due to financial constraints? Can you please comment on how confident you are in retaining the original order of 27 787-8 Dreamliners? [Editor's note: About a month after this interview, the Government of India, in its financial bail-out package of Air India, confirmed the airline will take delivery of all ordered 27 aircraft.]

A: I cannot comment on the Government of India’s mindset or on the on-going negotiations. It is the government's prerogative on what to do; but I will say that this is the best airplane we have. You can see the data. 850+ planes sold, five aircraft already delivered, 59 customers, one has started taking delivery.

Which other airplane gives the fuel efficiency that this aircraft does? 30% lower maintenance costs, 10% lower operating costs. There is no other airplane like this. It is an amazing airplane. How can you save money, except by getting an airplane like this?

Q: How are the five delivered Dreamliners performing at [launch customer] ANA (All Nippon Airways)? Are there any issues?

A: You should talk to ANA too, but they are clearly very pleased with the plane, and they have made a statement to this effect. Over 100,000 passengers have flown on the different sectors that they fly, and it has over 98% dispatch reliability, which is unthinkable for an airplane which is going into service for the first time in the world.

Q: What are some of the other critical indicators, there are concerns some of the initial airplanes were overweight?

A: That’s true, but the plane is making all the missions. One has to see what are you really getting? On the initial airplanes , instead of 20% improvement in fuel efficiency, you are getting 18%. Airlines kill for 1% and this is straight 18%. We are doing programs and we are continuing to improve the program in such a manner that we will be able to make up for these initial deficiencies, reduce the weight, and we will try to improve the aircraft’s engine and engine integration, so that we will get back to the efficiency that we initially advertised.

Computer generated image Lion Air Boeing 737-9 MAX

Q: Switching tracks now. You led the team that closed the largest aircraft order in history, very recently, with Indonesian LCC Lion Air for the 737-9 MAX. What does this order mean for Boeing in general, and for the MAX program in particular?

A: So obviously, it is the third customer after American and Southwest. These are big orders. People were always worried who Lion Air is, but now they’ve taken delivery of their 60th 737-900ER just about 10 days ago, and they are making a lot of money with these aircraft.

Q: Lion Air was the launch customer of the 737-900ER. Will they be the launch customer of the 737 MAX 9 as well?

A: Yes.

Q: What has this done for the MAX program?

A: First of all, it is a clear indication that people believe in this aircraft, when you have airline’s putting belief in this aircraft [by ordering it] in these quantities of numbers. And again, if you look at it, Indonesia is a perfect market, where there are 17,000 islands, across 7 time zones, bigger than the US. You fly 6 hours and you are still in the country. So they can generate lot of RPKs [Revenue Passenger Kilometres - a measure of airline performance], and that is why they need such airplanes. The ASEAN [Association of South East Asian Nations] is being opened up. When there will be open skies in ASEAN, then there is no limit to where they [Lion Air] can go; and that’s where, if Lion Air can run an efficient airline, a profitable airline, which he does in this environment with the fuel price where it is, they’re going to be the leader in the ASEAN low cost segment.

Q: Please elaborate on Boeing's plans for the 737 MAX in India?

A: Jet Airways [group which includes JetLite, now re-named to JetKonnect] flies a majority fleet of 737s which are NGs [737-700, -800, -900/ER], and then SpiceJet is all NG, and Air India Express is now at 23 737-800s. When you are looking for replacement for these airplanes, clearly you are going to get the same thing. We are showing customers what this [the MAX] is all about, and we are showing them how we’re not changing today’s 737. We’re not changing the body, we’re not changing the interior, we’re just changing the engine. So it is whatever is there today, it’s just becoming 15% more fuel efficient. So it’s going to be an amazing thing for airlines. No cockpit changes, nothing.

Q: Currently, Boeing has 451 orders for the MAX, but you have more than 1,000 commitments (which includes these 451 orders). Lion Air has demonstrated their confidence in the form of an order. Why are other customers hesitating to convert their commitments into firm orders?

A: I won’t say it's hesitating. It takes time to define everything, and people have different things going right now. And they’ve stepped up to say that they want this airplane because, as you can appreciate Devesh, the more they wait, they might not get the early positions. Lion Air has locked up the early positions in 2017, so has Southwest, and clearly there’s an advantage to that. But they have to weigh that with respect to their other things going in their life as an airline. But I don’t put too much stock into that difference (between orders and commitments). Some people might think, it’s 2012 and the aircraft is 5 years away, what’s the big rush?

Q: We understand your competitor is facing some issues with CFM. How confident is Boeing in the LEAP-X engine, especially since its a single source engine for the MAX?

A: We feel pretty good. I have not heard anything other than that, and we have time to fix it. Clearly we have given them [CFM] the numbers. We have told them what missions this airplane has to do. It can only happen if they deliver. After all what is the big change on the MAX? its only the engine, and we if we don't have that, we are left with an NG.

Q: What future does Boeing see for the 787 in India, beyond the 27 and ten orders with Air India and Jet?

A: So you are asking who else, in India, do you think can fly the 787 internationally? The rest of our customers are all regional airlines. The two airlines that are capable of flying it [the 787] internationally have already purchased it. Other airlines are still flying within a zone, that is very small and regional. The 787 is not the airplane to go to Dubai and back.

Once we have those airlines interested, we’ll be talking. Even SpiceJet’s people went through this airplane today. So, it’s not like we’re not talking to them, but you have to be realistic also. When will they have the flight plan for using the 787? When will they be able to fly the airplane, etc.? We are working with the various airlines. In any case, even if they came today, right now I could not give them the airplane till 6~7 years down the line, unless they lease it. So it works out all well.

Q: What future do you see for the 777, and 777-X when it does develop, and your 747-8i?

A: The 747-8i, I feel, the potential may only be with Air India, if at all. The reason for that is, you just look at Bombay London, or the India London routes for that matter. Six to seven years ago, we only had 25 to 30 frequencies a week. Today we have 120, just on India London. With that kind of number, you clearly can see that you can’t take a big 747 and fly it because there are five other airlines that are flying a flight within the same hour.

So you got to have an airplane that is right-sized that is more efficient, and that’s what 777 and 787 are all about. We think that the 777 has a tremendous future. As we build variants like the 777X going forward they too will have a solid future. Once you have the base, and we have the base, as an example look at the cockpit; people that fly the 777 can fly the 787 with just five days of training. The 777X is not going to make a radical change either. Whereas, to go to an Airbus requires a long training period and a complete change in philosophy.

We’re going to continue to work with all our airline customers and keep them informed; in fact I am doing that as we speak right now, to airlines about what's coming in the future, and also taking their inputs so the airplane is what they want and like, as opposed to what we tell them it will be.

Q: What kind of demand do you see for new build freighters within the India market?

Not much, though, there is a market for used conversion freighters. That is already happening with Blue Dart, and we only have one dedicated freight airline, in India, today, and that too is regional and small. The reason for that, is that we’ve created a 777 that carries 15 tons of cargo in its belly, that’s half of the 737 freighter’s capacity. 787 is another good example, it’s got 14 tons of belly cargo capability. With that kind of capability, we are creating airplanes which already have a mini-freighter built in the belly, allowing airlines to leverage their passenger operations better.

Q: The Indian economy is growing fast, the passenger market at double digits. It has one of the highest growth rates in the world at 15-20%, yet Indian carriers are losing money, hands over fist. Why?

A: Simply put, because the airlines are pricing lower to artifically stimulate demand. If they continue this behaviour, it is not an industry that can be sustained.

Q: This question is for you, not as a Boeing person, but rather as an informed observer of global aviation. Many Indian airlines are leasing out their 300 plus seat aircraft out to foreign carriers, who then make a lot of money with the aircraft, before returning them back. In your opinion, what factors, are specific to the Indian market, that are holding back Indian carriers from making money with the very same aircraft? [Editor's note: For the last two years, bulk of Jet Airway's Boeing 777-300ER fleet has been leased out to Turkish Airlines, Gulf Air, and Thai Airways. Air India too, is considering leasing its 777s.]

A: So the fundamental answer to that question is that fares from India are a lot different than fares from another country. Dubai and Singapore [Emirates and Singapore Airlines, the two largest operators of the Boeing 777], with the same aircraft make billions of dollars of profit, while we have trouble filling that aircraft because they’re taking away the market. And why is that? it’s because of their connectivity. Once you go to Dubai, you can go anywhere in the world nonstop. Jet Airways will take you to London and then what happens. You don’t go anywhere. When they take you to Hong Kong, you don’t go anywhere. When I fly SQ [Singapore Airlines] from here to Singapore, 75% of passengers connect to somewhere else. So if you understand the fare segment, if you buy Jet Airways up to Singapore and other airline after that, you’ll pay 30% higher fares, so the only way to solve this is the connectivity.

Q: So you’re saying that the Indian carriers have to drastically expand their network to make these larger aircraft work for them?

A: Through Brussels Naresh [Goyal, Jet Airways] does okay. He has a scissor hub, What does Air India do? They go to New York and stop, they go to Chicago and stop, which is better than going just to London, but it still falls way short of the global connectivity offered by SQ and EK [Emirates]. The secret is the connectivity along with the fare.

Q: These last questions are for you in your capacity as Chairman of the Aviation committee at FICCI. What, in your opinion, are the critical steps to correct the problems in the Indian aviation market?

A: We’ve got to find money for the airlines, FDI [foreign direct investment] is one way, but the second thing is that you’ve got to find ways to reduce their cost, fuel being an important one. We also ought to find how they can rationalise their routes. There’s no point having 45 flights between Bombay and Delhi when the demand is only for 35 flights. Finally, there has to be cooperation at the airports. You come to Hyderabad, there’s a ladder from SpiceJet, there’s a ladder from IndiGo, and every airline has its own. Why can’t we have an airport provide those implements, charge for it, and reduce everybody’s costs? If the costs of the consolidated ground handler is high, it needs to be talked and looked into, as to why it is high. We should not abandon the idea.

Q: What about the airport charges? Some people say, India does not need gold plated five star airports with high charges.

A: Great question. You either increase the fare or the airport charge, the effect is the same, you lose the passenger. And this is why AERA [Airport Economic Regulatory Authority] was created, it’s a tough job, I don’t envy them at all.

Thank you Dr. Keskar, a pleasure as usual.

Thank you, Devesh.

Special thanks to Vinay Bhaskara for helping with the transcription.

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"There is no single low cost model for the world" - Q&A with Neil Mills, CEO, SpiceJet

-RyanAir considers its passengers as "self-loading freight"
by Devesh Agarwal

"While 80% is common, there is no single LCC model that is used across the world". These were the thoughts expressed by SpiceJet's Chief Executive Officer Neil Mills in a relaxed and free spirited conversation with Bangalore Aviation's Devesh Agarwal, enroute to Niagara Falls immediately after taking delivery of the new Bombardier Q400 fleet. Mills is a veteran of iconic Low Cost Carriers (LCC) EasyJet and flyDubai and we wanted to better understand the LCC segment through the prism of his global expertise.

About the LCC model?
While 80% is common, there is no single LCC model that is used across the world. The LCC model is adapted in each geography to meet local cultural expectations. For example, RyanAir considers its passengers as "self-loading freight" who accept this treatment in return for a very low fare.

The Indian market is not ready for this. RyanAir's model will just not work in India. Here, when any person visits, it is basic courtesy to offer them water, regardless of their economic stature, from a labourer to a landlord. Which is why SpiceJet offers its passengers their first bottle of water free of charge.

SpiceJet wants and provides its passengers a safe and efficient service at the lowest cost the airline can deliver it for, and make a small margin along the way, with the lowest operational complexities.

How would you compare SpiceJet with IndiGo?
I wouldn't. SpiceJet is not a "me too" airline. We have our own service philosophy and business model and I am confident it will deliver the right results. In the past SpiceJet has suffered from too many management and ownership changes. [Under the new ownership of Mr. Kalanithi Maran] We have recoved the lost focus. We are focussed on profitable growth not market share. I cannot pay the bills with market share.

I will acknowledge that IndiGo has a good business model and is efficiently run. And, they got a great aircraft acquisition deal from Airbus.

The state of the airline industry in India
The rise in fuel prices and slowdown in business is testing the airlines. With very high fuel prices, efficiency and productivity will be the key determinant of who survives and thrives. In India fuel hedging is not a practical option; so SpiceJet continues to work on constantly reducing our non-fuel CASKs (Cost per Available Seat Kilometer) which are already one of the lowest in India.

This is also a time for airline promoters to express confidence in their airlines and invest. Mr. Kalanithi Maran is going to buy another 5% shares in SpiceJet at Rs. 36 per share when the current price is Rs. 22. This shows the level of commitment I am talking about.

What should be the role of government
Government should focus on policy. For example, regional markets are inherently more risky. The government needs to maintain and strengthen its regional aviation policy and also look to strengthening infrastructure at regional airports.

Government should not over-regulate or over-tax. The Indian airline market is at a tipping point and the time has come where industry has to improve itself. Government should step out of the way and let the free market sort itself out.

About SpiceJet's Q400 regional service expansion
We know Bangalore is a key market, and we look forward to a more enthusiastic proposal from the airport operators. We will definitely create a hub at Ahmedabad. Chennai's terminal is a choke point at present, but the airport operators are addressing it. We will take a look at it [Chennai hub] once the expansion is completed.

Mumbai is a key market and the existing airport [CSIA] is over congested and Navi Mumbai airport is already five years overdue.

About SpiceJet's Q400 maintenance and MRO plans
We have a "Smart Parts" parts provisioning agreement with Bombardier for the Q400 aircraft. The warehouse is at Hyderabad airport rented from GMR. Our 737's go to Malaysia for their C checks. MRO is not a core business for SpiceJet and we will not venture in to this business. We are talking to various MROs including Indian MROs for the Q400 maintenance, but Indian MROs must be commmercially competitive.

Why is the 180 seat Airbus A320 and Boeing 737-800 so popular in India?
Airlines, especially LCCs, select aircraft based on their residual values (i.e. re-sale value or the value at the end of the lease). The Boeing 737-800 has the highest residual value in the industry becuase it is such a popular aircraft around the world. The Airbus A320 is marginally lower. Hence these two aircraft are also the most popular in India. The Boeing 737-700, 737-900ER and the Airbus A319 and A321 do not enjoy the same residual values [in percent] of the 737-800 or A320 and are therefore not as popular.

About the Airbus A320neo?
I am concerned about the interim period and the demand for the classic A320s till the neo's start getting delivered. Which aircraft leasing company is going to risk leasing the classic [old engine] models with their falling residual values when the neo is just around the horizon? It will be a challenging situation.

Will SpiceJet consider changing all or part of its 30 Boeing 737 order to the new 737 MAX?
We will always look at what ever safely saves us money, and fuel constitues over 50% of my expenses today.

How does an airline pay for an aircraft - What is a typical payment schedule?
[Editor's note: This was asked to better understand the two large contracts for A320s signed by IndiGo and GoAir]
Typically an airline pays 1% of the agreed price on signing the contract. Two years out [i.e. 24 months prior to delivery] it pays 6%. Then every six months it will pay 6% i.e. at 18, 12, and 6 months. Then the payments accelerate until delivery by which time the airline would have paid the full amount.

Do you see LCCs joining an airline alliance?
Traditionally an airline approaches alliances for membership, but not in the case of LCCs. Across the world with LCCs out-performing their legacy counterparts, alliances are increasingly looking at LCC's, especially in Asia. SpiceJet is open to anything, but we are not talking to anyone right now.

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