Monday, September 27, 2021

ENTERING THE SKIES FROM INDIA

By Bikram Vohra

IADB: In the early seventies, if you wished to travel from Mumbai to Delhi by air, you either caught a Caravelle from Indian Airlines or a red-eye Air India 707 flight on the domestic segment. The cost was Rs 360 one way, and it was very elitist to go by air. Like an old boys club. There was an IA morning flight and one in the evening. Else, you caught a train and spent the better part of 30 hours.

Fast forward. Before the pandemic hit, there were 74 options on just the Delhi-Mumbai route every 24 hours. Mumbai itself handles over 950 flights a day. There are over 2500 departures per day on the network which comprises 124 airports and 26 civil enclaves in defence airstrips.

We have come a long way, baby. And would have gone even further if the pandemic had not played havoc with civil aviation. Even as the carriers make heroic efforts to clamber for purchase in the Indian skies, they are fortunate that despite severe restrictions on the international routes, they can get some revenue from internal uplift. Even as travellers are beginning to get over their reluctance to get on a plane, there is the exciting news that Indian aviation per se sees new entrepreneurs doing well by it. Rakesh Jhunjunwala’s Akasa indicates a building of confidence. The clearance for the DGCA last August to allow the Max to fly in India will be seen as a good omen. He has an option on 70 units.

Akasa is an “ultra low-cost carrier” in which stock market investor Jhunjhunwala has taken a 40% stake. Jhunjhunwala has reportedly planned to launch the airline by April 2022. Though still playing his cards close to the chest, he has allegedly been headhunting Jet Airways CEO Vinay Dube and ex-IndiGo President Aditya Ghosh to spearhead the management and the start-up of this latest airline. According to Bloomberg, and there is no cap on this figure, Jhunjhunwala will pump in $35 million, which, of course, will be only a part of the required funding to get Akasa into the air. How deep these pockets are or how strong his backers, one cannot say. For a newcomer, slots are vital at critical airports and schedules built around them must promise the operative word convenience.

There seems to be no issue with the government, and the Ministry of Civil Aviation will give the green signal if it hasn’t already done that. It makes sense to come into the Indian market when it is robust. For Rakesh, the challenge of going for it is incentive enough. There is room in the Indian sky for another ultra low cost ‘don’t wait for the train’ carrier and efficiently run even in a Covid era it could spin into profit very soon. Sensible routing, high frequency, no-frills, but the urgency to be on time and create reliability as a reputation will be of the essence.

For Akasa, the challenge comes from the big ‘little’ boy on the street that plays pretty much in the same league. That is Indigo. This carrier’s working model has used these factors to grab this chunk of the pie. IndiGo is India’s largest airline with over 54% market share in the domestic passenger market, followed by state-owned Air India, SpiceJet, GoAir, Vistara and AirAsia India. GoAir will now take to the air as Go First and joins the same market segment.

This success came with sedulous effort, and Indigo is not likely to give up the lead quickly. Indigo’s strategy has been anointed: strengthening routes to hub airports and ensuring tier-II connectivity and beyond. It also offers a decent flight and has impressed upon the market its dedication to on-time performance. Ronojay Dutta, CEO of the parent company Interglobe was widely quoted last June as having made this statement: We are really on a mission, and I take that word very seriously—it’s not an aspiration, goal or nice dream, its a mission. We are on the mission to build the best airline system in the world. We think we owe it to India.

Whether he owes it to India or not, these are not empty words of rhetoric because Indigo has not compromised its standards.
If anything will delay the effort of the Jet enterprise, it is the resistance from the Unions who are demanding better financial packets. According to a PTI report, cabin crew and ground staff unions stated concerns about unpaid salaries and retirement benefits and filed a petition to the National Company Law Appellate Tribunal (NCLAT). That could undoubtedly crimp the Kalrock-Jalan combine, even though it is hoped that the unions and management will rapidly get on the same page and maintain the schedule. UK-based financial advisory firm Kalrock Capital and investor Murali Lal Jalan were sanctified as the new owners of the Jet Airways airline by the National Company Law Tribunal (NCLT) in June.

The only other full-service airline besides Air India, Jet did command a specific loyalty factor in its heyday, reaching 21% of the market pie. But as it retired its multiple fleet, doubts began to be expressed about its fiscal dealings, and the reputation began to wobble a little. As a result, ambitious expansion plans flew into the ground. It placed a further order for 75 Boeing 737 MAX aircraft on 23 April 2013 as part of the modernisation of its fleet of 737s. In April 2018 and July 2018, the airline entered an agreement to acquire an additional 75 Boeing 737 MAX aircraft, taking its order tally to 225 Boeing 737 MAX jets. After Jet Airways ceased its operations, Boeing cancelled all of Jet Airways’ remaining 737 MAX 8 orders along with the Boeing 737 MAX 9 and 10 orders and Boeing 787-9 orders due to the financial problems and airline’s collapse. And when it sank, the fleet comprised 2 737-800s, a 737-900 and six triple 777 ERs. Lost in the plot was an order of 10 Dreamliners.

Not much is known about either Jalan or Jhunjhunwala, especially where aviation is concerned or what the work ethic is in either case. Murari Lal Jalan has made a name in UAE in real estate but has kept a very low social profile and is likely to stay so. Efforts to track him down for this issue have met with no success. He presumably lives in Emirates Hills, about twenty minutes from me but a trip to the gate failed spectacularly to obtain his address. Not integral to the 100 member high profile Indian social movers and shakers, he prefers it that way. There is no flaunting of wealth. Even the Agio group which he headed has a relatively bland website with no names given. I have sent them a message so let’s see—still time.

Is this mystique in the two new players on the aviation front going to work to their advantage? Since they are unknown entities but hugely successful in their other ventures and have the wealth to show for it, they could make for an intriguing entry at two ends of the market.

For Rakesh, the problem will focus on getting off the ground and seeing what he can do to out Indigo Indigo. This is not going to be easy because Indigo has pretty much covered all its bases and not slackened off even during the pandemic. What do you do in all ULCC categories where the offerings are naturally limited?

While the exact parameters would hold good, perhaps a wi-fi connectivity to keep the rampant Indian middle class in touch with earth from the air would be an added attraction. Ticket pricing that does not gouge in season or crisis could be another goodwill gesture that is tangible.

With Vistara and Spicejet dealing with their issues and having been bruised these last twenty months, perhaps the think tank at Akasa imagines that there is enough space and scope to sidestep Indigo and still earn a loyalty passenger manifest by offering a second decent service. India’s middle class is aspirational, and the move from a bus and train mindset to an aircraft has percolated down to a town level and even filtered into the rural areas. They are the new elite. India’s Udan regional Connectivity scheme plans to link Tier 3 and 4 towns, and that is a whole new area to milk with affordable rates. Add to that the NABH (Next-generation Airports for Bharat) programme to generate a billion passenger trips indeed allows for a great deal of opportunity.
It won’t be easy, but then anything worth doing is not.

Jalan is facing some hassles on the union front and might see delays in getting his ducks in a row. But, again, for Jet, it is a question of slots outside the country and a schedule that offers something extra. A full-service carrier has massive overheads and competes at a very high level on an international scale.

For now, no second-guessing. Let’s follow the course each has charted and see where they reach. And good luck and more speed to them

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