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He gave wings to the common Indian
Moneycontrol.com | December 27, 2006
Captain Gopinath needs no introduction. He is considered the father of low cost air travel in India. Some say he is a visionary; he created a whole new market when he launched India's first low cost airline Air Deccan.
Others say, he has the daring to enter a sector where even the Tatas failed. Even his competitors admit that he has succeeded in giving ordinary Indians wings. But what he is not known for is running a profitable and sustainable enterprise - at least not yet. So, does Captain Gopinath want to be a trailblazer or a successful entrepreneur?
Andrew Miller, CEO, Centre for Asia-Pacific Aviation, told CNBC-TV18, "I think the vision was very wide, very early on. He is obviously a first mover and sometimes first movers can be 5-10 years ahead of their time."
Managing director of Air Deccan, Captain Gopinath explains, "People keep asking me if I'm an evangelist. I'm not, it is more like a evangelical zeal that I have. It so happens that my dreams and the dreams of Air Deccan are aligned with the nation's dreams. It is not that I am just madly trying to get market share.
We had one flight between Mumbai and Delhi once upon a time about two and a half years ago. Jet had about 10 flights and Indian Airlines had 12 flights. They put a flight half an hour before my flight and just slashed the price. So, that they could increase fares in the other sectors and that is what they did."
"They increased the fares in all the other Mumbai-Delhi sectors but brought down the fares on that particular flight, when I was flying, to bury me in the sand. The only way to stop that from happening was to increase my size and my scale, which also is one of the key elements of low cost. You cannot be a low cost airline if you have two aircraft, you need a certain size. I don't consider Air Deccan as a regional airline, we are a national airline going to many regions."
He understands that people with a bigger corpus of funds and name behind them - like the Tatas - were not given this opportunity. So, he realises he has to figure out how this system works and fast - because now the skies are more open than before.
Even saints have their share of critics. So, while people like Warwick Brady, CEO, Air Deccan admires him for his vision and says he is given the freedom to operate and hire and fire at will, there are others who think, he's not connected enough to his staff.
Kapil Kaul, CEO (India), Centre for Asia-Pacific Aviation, says, "I think he is intellectually more stronger than what the market thinks of him and I think he is a visionary. The problem in Air Deccan and the vision of Gopinath is that he is somewhere not connected to the people who work with him."
The man has more labels than most other brands. He is considered visionary, a trail-blazer, a pioneer but where does the Air Deccan brand figure in all of this?
Bill Larsen, director, Landor Associates feels, "He's very straightforward, he does not have the loudness or the dynamic kind of personality that you imagine, which I think in this market is something that is probably a very positive attribute."
Even Captain Gopinath himself says, "We are not in the entertainment business, we are not in the fashion business of showing off models or in the business of restaurants or in multiple channels."
And no, this is not meant to be a dig at his far more flamboyant peer Vijay Mallya. He just feels that it is easy to lose the focus of your business but he's clear about his business model - his is a transportation business. He emphasises, "We want to carry large numbers of people from point A to point B on time. So, anything that comes in its way is a frill for me."
Except that now-a-days, being on time is a frill at Air Deccan. The airline may be providing fares, which are 15-30 per cent cheaper than its competitors but its also building a reputation of not being punctual.
Captain Gopinath says, "Increasingly, in the last two years, this aspect of our flights getting delayed and cancelled has given us this reputation. I think part of it was our internal issues in terms of the way we have to manage it - the operational efficiencies, the engineering efficiencies and some of it was the nature of the business we are in because of infrastructure, because of the various problems that you face when you want to get an aircraft flying on time. I will tell you what Air Deccan has done about it.'
"About three years ago, we had decided that we cannot be low cost and be small. It is not possible because the competitors were trying to kill us by bringing down the fares in the sectors we are flying and increasing the fares in other sectors, so we had to expand. And when we wanted to expand the infrastructure - there was a disconnect with the government (Airport Authority of India) and our own ability to manage. The first we have sorted out more or less."
He adds that even today when he has a fleet of 42 aircraft, he doesn't have a hangar of his own. He has to rely on his competitors' hangars. In Kolkata, because of a bird hit, an engine had to be changed in pouring rain. His staff operates in almost primitive conditions, where they have to battle mosquitoes and the rain to change engines at night and where even basic facilities like toilets are lacking.
He says, "Right now, after persistently and relentlessly going to the government, I got land in Chennai after two and a half years. Even as I speak the drawings have not been cleared for commencing construction (of the hangar)."
So, much so that, the airline has been running on time for the last twelve weeks 'but I think it will take another 3-4 months for the perception to change.'
Though despite this, at the moment, the balancesheet is not half as good. Losses made in the last 15 months have eroded half of Air Deccan's networth. Globally, low cost pioneers like Europe's Ryanair have stuck to one kind of aircraft and focused on regional routes, Air Deccan has done the opposite. Add to that, the high infrastructure costs and the lack of secondary airports in India and Deccan's entire low cost model seems clouded.
Fuel makes up 40 per cent of the cost and infrastructure costs are fixed, so there is about 15-20 per cent margin that could be played around with - by everyone. So, what is Air Deccan's margin that they can make profits out of - especially when they call themselves a low-cost airline.
He sees, "There is a lot of propaganda here. I don't think people really understand this. You are a low fare airline because you are a low cost airline. The fundamental difference comes in the way we do business. Of course, the leasing costs are same or the finance cost for the aircraft acquisition is same, fuel cost is same, infrastructure is same, salaries are same, maintenance is same."
Air Deccan has been penny pinching - the number of employees per aircraft has reduced from an industry average of 120 to 70. Aircraft utilisation has gone up by two hours per day to 11, routes have been rationalized and the cost per seat has gone down by 70 paise to Rs 2.60. But even this hasn't silenced the protests.
Professor, Ohio State University, Nawal Taneja explains, "The desire for growth must be balanced against such things as profitability to the airline and should also be able to satisfy your shareholders. You also have to be able to satisfy your labour."
Air Deccan also operates helicopters, they operate a ATR 42, a ATR 72 and Airbus A320. They also operate to many destinations. Executive chairman, Centre for Asia-Pacific Aviation, Peter Harbison says, "It really likes to focus on regional routes. It obviously has an edge on its competition. It is at a less competitive market place at the moment even though the passenger numbers are large." Captain Gopinath agrees and says, his regional routes are doing better than the trunk route.
But his critics feel that he's attempting to become a national player too fast. He's adding two new aircraft every month and he rebuts this with the reasons that he has to build a company that people want to work for. He finds it difficult to find pilots who want to fly regional routes in smaller aircraft because they all want to fly Airbuses and Boeings.
But the airline has to make money to survive and revenues can be made from other sources as well. Captain Gopinath says, "I am just short of about $10-12 per seat. My average fare for Bangalore-Delhi is about Rs 4,500. Three years ago, Jet Airways and Indian Airlines were selling Bangalore-Delhi fares at Rs 12,000 per seat. Today, I wanted to realize Rs 500-Rs 600 more per seat."
Ryanair has proved that there is money to be made from everything - food on board, check in luggage, website sales and even airport parking. Air Deccan already earns 9 per cent of its revenues from such ancillary services and hopes to take that to 26 per cent soon.
Former chairman, Ryanair, Patrick Murphy says, "The secret comes in terms of how you make revenue, how you maximize revenue on board from the passengers you are carrying. But more critically, I think Air Deccan will learn to say how can we make more money from the passengers we carry - not necessarily in terms of the fare they pay but in terms of on- board services or the amenities or the additional products that can be sold to the customers. So, that is part of the secret of the success of Ryanair."
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