The Hindu Business Line : ‘There is no compelling reason to shift strategy’

The business model we have followed is a robust one that does not need to change based on the price of fuel or anything else. It is a successful model.

Mr. Bruce Ashby, CEO, Indico Airlines

Ashwini Phadnis

After what he calls a “three-year tour of duty”, the first President and Chief Executive Officer of the Delhi-based low-cost airline, IndiGo, Mr Bruce Ashby, is bidding farewell to India. In a freewheeling interview with Business Line, Mr Ashby outlines what prompted him to move from the United States to take up the job of starting an airline here and the challenges that he faced.

Excerpts from the interview:

Why did you choose to come to India?

I had been with three airlines — United, Delta and US Airways. I was with US Airways before I came here and I worked through their best and worst years. I was there for the best year that we ever had and then we went through two bankruptcies. After September 11, 2001 we were very poorly off financially. We went through bankruptcy and reorganised. Then a year later we had to do it again because revenue and other things did not keep up. After the second reorganisation, US Airways successfully merged with America West.

Interestingly, when I started there, we had about 32 vice-presidents and senior vice-presidents. I was the Vice President for Financial Analysis. And of the 32, only two remained when I left — the Chief Operating Officer and me. I was in charge of all the revenue. It was a challenging job and I got to do a million things, from negotiating labour deals to contracts to running operations to being in charge of worldwide revenues and international operations.

At that time, my old boss, Rakesh Gangwal, who is also one of the owners of IndiGo, called me. He had been our CEO at US Airways and I had worked with him in United as well. He wanted me to come to India and take over as the CEO of the new airline that he was starting with a friend. They had just ordered aeroplanes from Airbus. It was a clean sheet and they wanted me to build a low-fare carrier.

I thought to myself that opportunities like this did not come up very often in life. It was completely different from everything that I had done. It was sure to be interesting, challenging and different. So I made a personal decision that this would be a lot more interesting.

Could you expand on how your personal growth was more here than in the US?

The key difference, I guess, was that it gave me a chance to learn a new language, live in a new place, have a new environment. Secondly, though I had been doing interesting things in the US, I had always been the number 2 or number 3 person in the airline. My general role was being a senior strategy advisor to the CEO.

This was a chance to be CEO, which is obviously attractive and a great title to have. It puts you in a different kind of framework.

Instead of advising people you have to decide things. I talked to various friends and while 10 per cent said it was a great thing, 90 per cent thought I had gone nuts.

So you went with the 10 per cent.

Oh yeah. Keep in mind that I had worked with Rakesh (Gangwal) for 20 years. I had eaten a large amount of Indian food, I was the only person who worked with him who enjoys really spicy food. Though I had never been to India I had imbibed a fair amount of information about it. The fact that Rakesh was one of the owners also gave me a lot of comfort.

India, then and now, is probably the best macro-economic set-up for an airline, a low-fare airline. It is a huge country that is relatively very under served, even now. Alternative forms of transportation are fairly weak. So it is a great set-up for a low-fare airline. And I thought it could be a very successful venture if we did it right and stayed focused on a high-quality, low-cost airline. I agreed to sign up for a three-year tour of duty and set the airline up.

Did you anticipate cutting back on routes as you have had to do?

The specific answer to that is no. But the general answer is that we were prepared for these contingencies. I have lived through airlines that have gone through their best and worst year cycles. What I learnt from that is that you just do not know what will happen. You do not now if there will be a SARS epidemic or a September 11 kind of terrorist incident or a tsunami. Fuel prices too are not under your control. Things happen.

How different was the reality from your perceptions?

Mainly, the approach we used was different. Some expats, when they get into a new job, bring a team from their prior job or jobs with whom they are comfortable to set up the airline. What that does is it creates some good and some bad things. It gets a team that knows each other well and works well together but it also creates a barrier between locals and expats.

What I chose to do was not get anybody I knew and decided to rely mostly on local talent. Rather than personally trying to learn all the things that are different here, in contrast to the US, I just let the local people help me. I went to them and said, look, we need this licence. They said getting the licence would take three months. I said it should take three days but since this is the way it is, lets get started.

What did you put on the table that any other CEO could not have?

I would love to say that I got some unique, special thing but that would be a lie. What I really got with me was a long list of things not to do. Things that airlines should not do with the goals they have — to have the lowest operating cost, a high quality product, be able to grow quickly, realise economies of scale and stay focused.

There are many things that you want to do when you set up an airline with the profile that we have. You want to have one type of aircraft, not multiple types, because it keeps your cost lower; you want to buy really good software so that it does not need to be changed as you grow; have simple procedures because, as you grow and hire new people, they can learn what there is quickly.

A lot of things about efficiency happen behind the scenes that I have spent years learning. Like how you draw up your aircraft schedule during the day.

If you do it one way, it takes two sets of pilots to operate an aircraft for a whole day. If you change it a little, it takes three sets of pilots. Basically, you need 50 per cent more pilots if you change the schedule by just 20 minutes.

Could you give an example?

When we do the scheduling I go through it carefully to see what is happening with maintenance, crewing and all other things, so that it is not only a commercial schedule but also one that works for operations. We leave enough time in each place to catch up in case the aircraft runs late. Having done it for years I can look at a schedule and say what works and what does not.

The rule for the crew is that for a day they can be scheduled to fly 8 block hours, which basically is from the time an aircraft leaves the gate to the time it arrives. You try and set up an airline so that there are two shifts a day — one in the morning and another in the afternoon. If the aircraft takes off at 5 whatever in the morning, the crew on that aircraft should comfortably fly six-and-half hours. Then the aircraft should come to rest around 2 p.m. take a break to be cleaned and get new food put on and take off to fly another six-and-half- hours, and be done around midnight. That would be a good aircraft schedule.

If, in that process, you have too many landings, or try to stretch it too long, then it can trigger problems or penalties or extra staff.

It took a year to set up IndiGo. During that time, our then small management team, which is mostly the same people we have today, sat in a conference room and went through procedures. That paid off because when we started we moved quickly and were able to grow really fast. And retain quality, which is a mistake that small airlines often make. They grow fast but the quality does not always keep up because it is hard to manage.

What happens next to IndiGo? How does the airline move from here?

My view is that the business model we have followed is a robust one that does not need to change based on the price of fuel or anything else. It is a successful model. I think that there is no compelling reason to shift strategy.

What did you say no to?

Everyone serves hot meals. We do not. I understand people expect to be fed. But we are just not going to serve hot meals. A million things like that.

On some things I changed my mind when people convinced me. For instance, in the US you do not provide transportation for employees to get to the airport. But here you do. At first I said why would you do that? They said because the traffic is awful. I said okay. It is not like I did not listen but I challenged everything.

How does the airline plan to generate ancillary revenues?

We do have some ancillary revenues. We do carry cargo, do sell sandwiches and beverages on board. I am in favour of selling products and services which people perceive as valuable on the aircraft. So, if people really like sandwiches, I am fine with offering them. If they want to pay for travel insurance or something, that’s fine. If they want to carry cargo in the belly, that works too. All these things are meaningful and important.

There is only one airline — Ryan Air — which has turned ancillary revenue into a whole new business. Their fares are practically nothing, but they charge you for everything else. We have chosen not to go the Ryan Air way and say, well, you want to check in a bag? That will be, say, Rs 1,000. While we are exploring additional ancillary revenues streams, in IndiGo they tend to be more value-added.

In the recent past, full-service airlines become low-cost airlines on the last day. How do you react to this?

The general strategy of revenue management states that fares should go up closest to the date of travel, that a customer is rewarded for planning in advance. The tendency of airlines is that if they find they have not planned well they will have empty seats. And given that an empty seat is a perishable commodity once an aircraft has flown, the temptation is to fill it at any cost.

However, this is obviously a Catch-22 situation. If customers know that there is no point in buying in advance, they do not buy in advance and then all the seats are empty and are given away for less than the cost. So it is a self-defeating strategy. This did happen some time back, but I am not sure if it is happening now.