After stints with SpiceJet and Vistara, Sanjiv Kapoor took over as the CEO of Jet Airways in April this year with the responsibility to relaunch the airline after it went through the debt resolution process. BusinessLine met Kapoor to get his views on the Indian aviation sector and how he plans to navigate through the headwinds being faced by the sector. Excerpts.
What is your outlook on the aviation industry, and how do you see the industry shaping up post Covid-19?
Demand has come back much faster, which is a great thing. But India now has hit a low season so demand growth has flattened which in some sense is a blessing in disguise because what is happening in the West is that July-August-September is a high demand season and the airports and airlines are not being able to cope, they are looking at reducing flights to reduce losses.
The bad news is that airlines globally are not able to ramp up staff because it takes time to restaff, retrain and redeploy. The other bad news is that the prices are at a record high. If demand would have been higher and the fuel prices would have been the way they are, it would be a disaster. From July to September, airlines will struggle, and I don’t expect airlines to make profits due to the fuel prices and the low season. But travel is going to be back, and once staffing ramps up, it will go on an upward trajectory.
Do you see inflation also impacting the industry?
On the cost structure, yes! So the interest rates and exchange rates are both in the wrong direction, and it makes the cost of operations very high especially for purchasing and leasing aircraft. India is doubly hit because interest rate increases are global and the pricing is done on the global interest rate and it is done in dollars, and the rupee is at a record low.
It is putting further pressure and the cost pressure on the aviation industry is really high at the moment. If the rising interest rates and fuel prices result in some kind of a recession, that’s not good news but we can keep our fingers crossed and hope that it doesn’t happen.
It’s a tough environment in India that I have seen in over a decade. I have never seen a combination of record-high prices, record low rupee value, and high-interest rates, and all three coming together has never happened before. So it is a bad time but the industry is cyclical and all these factors are also cyclical, and we hope that it fixes itself. We have to take a longer-term view. In hindsight, international travel is coming back, and that boom is helping us. The fear is that if the boom disappears then what happens.
You cannot hold on to the price and at the same time you cannot pass on to the customers, so how do you balance pricing?
There is a feeling that the demand is falling because of the high airfares but this is not true. It’s actually falling because of the low season. You’re right, you cannot increase airfares because then it will hit demand even in good seasons. But the opportunity that the industry is that there is no more deep discounting. We were offering a ticket valued at ₹3,000 to a passenger that could afford it at ₹2,000.
The fare floor introduced by the government is helping because there was an unnecessary destruction of that value. Now, the floor is helping the airlines in terms of revenues. It is always better to reach a higher revenue level with a higher fare rather than a higher load factor because revenue is a product of the fare and load factor.
What is your vision for the aviation industry for the next five years.
Short term, no country is in its best shape but in the long term, the growth potential is tremendous for India because it is a very under-penetrated market compared to China.
In order to tap the potential, airlines and airports need to grow. Especially airports in the big cities have to increase capacity because most of the growth in aviation happens through people traveling from big cities so you can build airports in tier-2 and -3 towns but a lot of the demand is for the first tier. So to meet that demand, the first-tier airports have to have more capacity if we want the capacity at tier-2 and -3 cities to be utilised. That is the biggest near constraint that you can’t get slots and parking bays at the top 10 airports of India. Therefore, the growth potential will be stifled till the airports grow.
The Indian airline space is set to become more competitive with two new airlines and one new avatar under Tata. How do you see this playing out given that we have seen the demise of several airline brands in the past due to hyper competition impacting margins?
There are only two ways to compete in a crowded market; either you have a cost advantage or you have differentiation. If you don’t have both then it will be difficult to survive. Ideally, airlines should have both but getting both is sometimes difficult. Airlines’ business is a scale business, and for a start-up airline, scale is not possible, so the only thing they can rely on is product differentiation. When airlines are small, they will have to find ways to distinguish themselves so that they are able to attract customers and get a revenue advantage.
What is your take on Udan?
Udan is focused on connecting small cities to other small cities and there is a need for that. But, connecting small cities to one another needs a smaller aircraft and that takes the cost per seat higher which means the fares become higher and that’s a vicious cycle. So, the bottom line is that if you want to get critical mass via Udan then it needs to reach the metros.
The concept of airlines getting a positive incentive is a good way but if that model could be expanded and replaced with the Route Dispersal Guidelines (RDG) where airlines are required to fly to remote areas for national connectivity, it would be better because then it is a win win. Now you have RDG and Regional Connectivity Scheme (RCS) both could be used because RDG isn’t a viable option with half-empty flights, it increases costs and it’s not environment friendly. But the trading concept was useful and it could be revived again.
What new innovations can passengers expect going forward?
A step towards digitization. Indians used to love getting their boarding passes stamped, there was an argument that it was required but Covid showed that it really wasn’t required. International travel still has it but that will also change.
I understand there are moves to get e-passport kiosks which is great because when your passports are digitally enabled, you just scan the passport and eyes. The reduction of dependence on humans and rubber stamping is something which I see passengers looking forward to.
Airports in the big cities have to increase capacity because most of the growth in aviation happens through people traveling from big cities so you can build airports in tier-2 and -3 towns but a lot of the demand is for the first tier.