The Hindu Business Line : `We are making a mark on international routes'

We plan to increase capacity by 15 per cent a year, adding another 50 per cent to domestic capacity in three years. Our focus will remain on domestic business. In fact, international capacity expansion will help the domestic operations.

NARESH GOYAL, CHAIRMAN, JET AIRWAYS

Ask him if he is a tough boss. "Do I look tough?" he queries, in turn, with his signature chuckle. But never mind what he says, Mr Naresh Goyal is a hard nut in the aviation business. In the tough days after the skies were opened up to the private sector, Jet Airways was one of the very few airlines that survived the heat of the business. Now, the airline is making a splash in the international segment, where its market share is growing. For example, it has captured 23 per cent share of the India-UK segment. Its flights to the US have been going at a high load. Not surprising, therefore, that Mr Goyal is a man pleased with himself. With Sahara (now, JetLite) under its wings, Jet Airways has a bouquet of plans - aircraft acquisitions, new routes, new division for cargo, and a training academy for pilots and crew.

Business Line met Mr Goyal on the eve of Jet's inaugural flight from Chennai to Brussels. (The flight consolidates passengers at Brussels and flies to transatlantic destinations.) We wanted to understand where, literally and figuratively, Jet was going. But, first things first. So we opened the discussion with a question on Jet Airways' deferred rights issue.

Your rights issue has been deferred. When is it likely to hit the market?

It will come, perhaps in February next year.

After the rights issue, do you intend to retain your stake in the airline at the current 80 per cent?

It depends on the expansion of the airline and the level of funding required. I will keep an open mind. But I will always retain control, the majority (of the stake), because this is the only business one is in.

But you are open to dilution...( SEBI requires a 25 per cent public holding in a listed company, whereas Tail Winds Ltd, the promoter of Jet Airways, has 80 per cent in the airline.)

(I will do) whatever the requirement of the company and what is good for shareholders. And whatever are the SEBI rules, we will follow.

In the last two years since you began overseas operations, the revenue from international operations has gone up to 24 per cent of the total. Yet the profits are still largely from the domestic operations...

This is a very important question. In the next three years, with our new fleet, new routes, and with all the traffic rights the government has given us, and the ones we hope to get, I think by 2010, (the proportion of international to domestic revenue) will be 50:50. Although there is 40 per cent growth (in the industry), we do not want to go into that type of growth. We are a very conservative type of company.

In India, there is nothing like low-cost (operations). We do not have secondary airports, as in the US or Europe, where (low-cost airlines such as) Ryanair or Southwest (operate). Here, everybody operates to the same airports; everybody pays the same salaries. Some of my friends, when they steal our pilots or ground staff, have to pay higher salaries.

Every airline is losing money. Last year, it was $500 million, this year the loss could be more, because many airlines have inducted more capacity. This is what I call low-fare, no-margin operations.

So we plan to increase capacity 15 per cent a year, which means in three years we will be adding another 50 per cent to domestic capacity, through some Boeing 737s, some turbo-props. We are in serious discussions with Embraer and with Bombardier for its latest aircraft CRJ900.

Our focus will remain on domestic. In fact, international capacity expansion will help the domestic operations. Let us say you are coming to Chennai from Los Angeles or San Diego or Washington D.C., and you are going to Coimbatore or Kochi; that will mean incremental revenues. Our yields have always been 20 per cent higher than the competition. Our seat factor has been 72-73 per cent; that will add to the bottom-line.

International can only help domestic. And people will find it convenient if they are travelling in the same airline with the same standard of service which, except for the new Air India, no foreign airline can offer. The market share of Indian carriers of the traffic to and from India has been under 20 per cent. We only stand to gain from the other 80 per cent. Jet Airways would like to see this market share go up to 50 per cent from the present 20 per cent.

What is Jet Airways' own market share target?

My feeling is that Air India will also increase its market share with the induction of new aircraft. I know how many aircraft we will have. I know we will have a 75-80 per cent seat factor on international routes. I think between Air India's expansion and ours, India's market share will go up to 50 per cent.

This trend is already happening. On the India-UK sector, where Air India had a 13-14 per cent market share and foreign airlines 86 per cent, today Jet Airways' market share is 23 per cent. Air India may have gone up to 20 per cent, which means India's share has gone up to 43 per cent.

I can say with all modesty that we are an Asian airline. People travel a lot on Singapore Airlines and Cathay Pacific. We cannot be inferior to Singapore and Cathay in terms of service. I say this because, for Indians, service is in our blood. Suppose I come to your house, you know how you will treat me. It will not be the same in a New York home. Again, we understand our own people better. You know what films a Tamilian or a Keralite would like to watch.

How crucial is the Brussels hub to this expansion?

Today, in Indian airports, there is no place even to park your aircraft. There is no infrastructure. We need to overcome this problem, we can't wait till 2010. We had to look around. Look at Frankfurt, there is no slot available till 2012 to land one flight in the morning. Paris, again, no slots. London, no slots. In addition they are all congested.

It has become crowded everywhere, but Brussels has none of these problems. None. There is no air traffic congestion. No plane has to wait and burn extra fuel. Belgium does not have a long-haul airline after Sabena closed down some years ago. We have no competition. That means we (Jet Airways and SN Brussels Airlines) complement each other. Brussels Airlines is a private airline totally owned by banks and institutions, without state support.

Would you like to take it over?

I don't see a reason yet. I can't tell you what happens tomorrow. Indian companies are going global. So, one cannot tell. Today there is no need to take over, because taking over or taking equity does not solve the problem. You can have co-operation without taking equity.

They have about 50 aircraft, Boeing 737s, Airbus aircraft and British Aerospace aircraft, and operate to over 50 places in Europe. Those we will be able to connect via Brussels. All our flights will land at the same time in Brussels, and you can connect with all those places.

For the first time in the history of aviation, an airline has created a hub in a third country. For that we have got excellent facilities, discounts and concessions from the airport, cost-wise.

Is it cheaper for you to operate out of Brussels than Mumbai?

Much cheaper. There are 14 countries in Africa that were former colonies of Belgium and there are a number of Indians living there. They come to India, they also go often to the US. We can also bring US and Canadian traffic to Brussels Airlines.

How did you persuade the Belgian Government to give you the concessions?

I think it was a win-win situation. The Belgian Prime Minister (Mr Guy Verhofstadt) visited India last year to meet our Prime Minister. He asked to see me. I have never ever come across a Prime Minister of another country telling you, "Let's have a business lunch". Along with his ministers we had lunch last November at the Taj.

He said there is no air link (between the two countries) after Sabena (Airlines wound up). We would like you to operate a flight. I said let us study the matter because Belgium is a small market. In three months we had three meetings. Then we decided to create a programme called Brussels Inc., like Singapore Inc. Changi airport is part of it. Singapore Airlines is a part of it.

What it means is that Brussels Airlines, Brussels airport and Jet Airways should work together without having equity.

Brussels airport will provide the link, (Jet Airways) will bring in the traffic and Brussels Airlines will provide the connections in Europe, so that people will find a service that is not inferior to Changi airport or Dubai.

After all that, in a matter of a few months, from August 5 we started our operations through Brussels. I do not know of any country where you can move so quickly.

So it is working well, and the Belgian Prime Minister himself, when we held a function to receive the first Boeing 777 on May 2, spent two to three hours at the function. It shows his commitment. When the second flight operated on September 5 to Toronto from New Delhi the Deputy Prime Minister, who is also the Finance Minister, was there to support this programme.

Have you been asked to take any interest in running Brussels Airlines?

We are working very well together; the kind of traffic we will be bringing in will change the profile of Brussels Airlines.

Will you operate flights for them?

We will not operate any flights for the moment. We will do a code share with them. We have asked the Indian Civil Aviation Ministry to allow us to do a code share on all their flights in Europe, so that it will be convenient for Indian passengers to go on to Rome, Milan, Nice, Marseilles, Barcelona, Geneva, Oslo.Those who want to go to Birmingham will not have to through (London) Heathrow.

We will have Indian staff at Brussels airport. The Belgium Government has been very helpful and flexible in giving visas for these people to work there. The airport is not crowded. It can handle 30 million passengers a year, but does only 16 million now. With this programme another one million passengers will be added.

When will you make money on international routes?

We are already making money on some of the routes. Our London route is doing well. In 18 to 24 months all international routes must make money. In a matter of a few days Mumbai-Newark was operating at 90 per cent seat factor.

What is your projection for the Chennai-Brussels sector?

You know how many people travel from Chennai on Lufthansa, British Airways and Emirates. If our service is better, why should people not move, why should it take long?

What is your break-even seat factor?

In the high 70s, because we have a very good first class, one of the first airlines to provide a private cabin. I believe Indians can do it. We are second to none. If given an opportunity we can do anything.

What are you doing with JetLite?

It is a separate company, but owned by Jet Airways. As I told you, there is nothing like a low-cost airline. It will be a one-class airline. We will give you a packed lunch or dinner, which costs only one dollar. The advantages are, it has a Boeing 737 fleet, (Jet Airways) has a 737 fleet also. You do not need separate spares, inventories. That will save a lot of cost. Engineering costs are about 11-12 per cent of total costs. Even if we can achieve (a saving of) one or two per cent, that is huge money. As you know, margins are so small in the airline business. Secondly, there is a lot of duplication of airport staff, which we will overcome. That is already happening, and we took over only on April 20.

We (JetLite) will break even in the next financial year. A number of aircraft were grounded; now only one Boeing 737 needs to fly. All seven CRJ7 were on the ground; now four are flying and we are negotiating with Bombardier to bring in new aircraft that will be more fuel-efficient and reliable.

Have you considered a merger of the two companies?

At the moment, no. It is like Singapore. They have Singapore Airlines and Silk Air, and now Tiger Airways. These will be two separate companies, but management can be common, the technical department can be common. It is like going to Harrods'. You can buy something for 5,000 pounds and you can buy things for 50 pounds.

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