0

0

0

0

0

0

0

0

0

This article is more than 2 year old.

We are on a mission to boost economic growth, mobility across India, says IndiGo CEO Ronojoy Dutta

Mini

IndiGo is growing at a furious pace and its growth is good for the Indian economy, Ronojoy Dutta, the CEO of IndiGo, has said.

We are on a mission to boost economic growth, mobility across India, says IndiGo CEO Ronojoy Dutta
IndiGo is growing at a furious pace and its growth is good for the Indian economy, Ronojoy Dutta, the CEO of IndiGo, has said. The airline is among the major beneficiaries of the grounding of Jet Airways, which last operated a flight in April before folding up under crushing debt.
Ronojoy Dutta IndiGo CEO IndiGo CEO Ronojoy Dutta.
Commenting on the collapse of Jet Airways, Dutta pointed out that Jet was a good product when they started. “Their Middle East venture was a success story. Their decision for wide-body aircraft was probably a mistake,” he opined.
In an exclusive interview with CNBC-TV18, Dutta said IndiGo would not make the same mistakes. “We will expand our global operations cautiously. We want to be a global player," he said.
Edited excerpts from the interview.
The Indian aviation industry is really a cautionary example of how not to run airline businesses. You came in December of 2018, you were appointed as a consultant to present a five-year strategy or blue print for Indigo’s growth going forward. You took over as Indigo’s CEO in January of 2019. In the six months into the business, give me a sense of what the five-year road map looks like or flight plan looks like?
When we look at Indigo we think we have four stake holders and we want to give returns to each one of our stakeholders. First and importantly is the nation itself. We think Indigo is serving India and how do we do that – providing air connectivity to small cities is a big part of national growth. There used to be a time when it was growth and railways and river traffic, and now frankly it is all about air connectivity.
So, take a small city such as Raipur where we now fly 18 times a day and it is in sort of a depressed state called Chhattisgarh. Imagine what it does when we fly 18 times a day to Raipur – what it does to the local economy and to the economy of Chhattisgarh, so we are very much a part of nation building. The government is investing in roads and railways and we are saying at least on the airline side you don’t have to worry, we will take care of it.
Indigo is on a mission to boost economic growth and mobility throughout India.
Mobility is also an important aspect. As you know there is lot of migration happening and a country is only strong when there is lot of labour mobility and we are seeing a lot of mobility from eastern part of India to the rest of India and Indigo is part of making all that happen. If you look at affordability, fares have gone down 45 percent in real terms. So this nation building is big part of what we are trying to do and it is not just about providing connectivity, we are looking at social cohesion. So we want Kashmiris to get job in Coimbatore, we want Mangaloreans to travel and fall in love with Manipur, so our vision is trying to make all that happen. So, that is step 1.
Now Step 2; it is good to talk about all this connectivity and nation building but it does not work if we are not returning a fair amount of money to the shareholders. So shareholder returns is a very important part of what we are trying to do. It has been a problem in all other airlines in India but in Indigo we are very focused on providing good shareholder returns.
The third of course is the customer. As far as the customer is concerned, we want to do two things, one is to provide good value and good value comes both in the fare and in the schedule. We want to make sure they are not wasting time, they are productive and you get where you want to in time but the other part of it is experience. So even in the customer experience we are focusing a lot, make sure our prophecies are efficient, that customers are not wasting time, that the environment is comfortable and their experience is worthy of merit.
The fourth is employees. So on employees we want engagement, we want them to be able to grow at Indigo. These are the four things that we are pursuing very aggressively.
So, I will pick up on each one of those in just a bit but let me ask you about the domestic market, market share of over 45 percent you have gained on account of grounding of Jet. How do you see the competitive landscape in India today?
India fortunately is growing at a furious pace. Airline revenues in general grow at twice the rate of GDP and as long as India is growing at 6-7 percent GDP, airline traffic will continue to grow at 12-14 percent. So it is one of the fastest growing markets in the world that provides a lot of headroom.
As far as competitive market share is concerned, we are focused on how fast we can grow because really when Arun Jaitley says that India is impatient for growth, we agree, we are impatient for growth. We think the nation needs to growth really rapidly and it is not just why we are growing in Raipur- its why are we not growing in Allahabad, why are we not growing in Jodhpur. So we are going to grow at a very rapid rate. What that does to our market share I do not know but really you have to ask me what is the market share of oxygen in your lungs, I would say I don’t know but I just know it is good for me right? So, I think Indigo is good for the Indian economy and we are going to continue to push that pedal.
Let me ask you about profitable growth because what we have seen in India, at least as far as the aviation industry is concerned, is not profitable growth with the exception of Interglobe Aviation and now of course SpiceJet. So, what are the levers that you will continue to exercise because the fear is that as capacity gets added on, we will see further depression on yields, what is the situation on that front?
Airlines are a very unforgiving industry and there are many parts to failure and there are only a few parts to success. I think Jet Airways is a good case study in that issue. Jet was doing great I think when they were focusing on narrow bodies. When they first started, corporate India was in love with them because they had a good product, good on-time, they were making money.
Then they took the second step of going into the Middle East and again it was a wonderful success story; very profitable. Then they made a third step and they probably made a mistake. They jumped into wide-bodies too early, too fast, with a fragmented fleet -- some 777, some 8330, let us go to New York and go to New York with a hub in Brussels, then let us try a hub in Amsterdam, and then it was okay, now we are going down the wrong path. So, IndiGo needs to avoid those mistakes. Yes, we are going to expand internationally, but we are going to do it carefully, cautiously, and not make the same mistake.
Give me a sense of what the international expansion story looks like because if I look at the numbers today you are reaching out to about 18 international destinations currently, January to March, 14.5 lakh people have travelled internationally on IndiGo. What is the aspiration, do you want to be a global disruptor?
We want to be a global player, I don’t know if we want to be a disruptor. India does not carry its own traffic. If you look at international traffic in and out of India, whether it is Singapore, Thailand, Emirates, or Lufthansa, they are all gobbling up the Indian traffic and what Air India was supposed to do in being the national airline of India and carrying Indian traffic, it has not worked.
We want to step into that, and yes we do want to grow our market share internationally aggressively. You talked about our market share domestically. Internationally our market share is still small. So, we are taking half of our capacity and putting it in the international market. So we are going to grow at 30 percent a year overall, half of that capacity will grow domestic and half of it will grow internationally. So we have a lot of ambitions and aspirations in that regard. We are going to go to China, Vietnam, Myanmar and we are looking at all the markets around us; not wide body, and not long range.
Not in the near future or not for the distant future as well.
No, not in the near future. Wide bodies are inevitable, we are looking at wide bodies.
When will they become inevitable?
They are inevitable now, when will we implement is the issue and it is not going to be very quickly. Look wide bodies are dangerous animals. If you fly Delhi to Bangalore, it costs about $15,000 for each trip. You fly Delhi to London, it is costing $110,000 a trip. So you can lose a lot of money very fast and this is what we see happening with Air India and Jet. So, yes, we will grow international but a lot of things have to fall in place before we do that. I think we need three to four more steps along the way.
What would those be?
We will see them when it happens, we have it in mind but we are working towards them.
What specifically is holding you back today from moving to the wide body route?
As I said the risk. People say London is such a great market, if it is such a great market why both Jet Airways did and Air India both go under, it is a dangerous market because as I said that each flight costs around $100,000.
So are you making money on the international routes today?
But we are going with narrow bodies, so there is a different between filling 300 seats every day, 365 days of the year and filling 170 seats every day – so that is a big jump. So, in the markets we are flying in we are very profitable and we are very happy to fly those and then we have to cautiously inch away into the wide-body long haul market.
So as you move towards more international expansion what is that going to mean, not just in terms of revenue but more importantly in terms of margins because as you pointed out there are risks involved?
We have really bell-curve of margins, some flights are very profitable, some flights are not and that is true domestically and that is going to be true internationally, some flights are highly profitable. So the very profitable flights internationally are more profitable than the domestic flights but also there are some stragglers in the international market. So we don’t say like this is good, that is better – it is a mix of markets and we have to work our way through all of them.
On the international strategy, how much have you been able to benefit on account of Jet’s demise? The routes are up for taking at this point in time, I know that you have had reservations on the manner in which they have handed out, but how much have you been able to benefit both on account of people, pilots essentially, as well as the routes?
The routes, many of them, are quite attractive. As I said, Jet’s biggest strength was domestic Mumbai, and then the Middle East. So, as Dubai, Doha, all these become available, we are very anxious to get into those and we like those. However, we had 15,000 departures a day and Jet domestically gave us 30 more departures in Mumbai. So it is not like a game changer. Similarly, international, we are getting another 25-30 departures a day. So, these are small numbers in the scheme of things, but these are all very attractive routes.
We have got a new government in place. When in the first term they decided to put Air India up for disinvestment, you did express an interest and then did not follow through with an expression of interest. You are more interested in the international operations of Air India and the government decided not to split. If they were to change the terms and come back now, we are given to understand in July with a new disinvestment plan for Air India, would you be interested?
The history of mergers in the airline industry is not very great. Kingfisher bought Air Deccan, Jet bought Sahara and neither of those turned out to be good investments. So, we are not going to rush into this blindly. There are a lot of things that give us pause. There is the huge debt, thousands of crore sitting there.
Buying aircraft at the right price is very important. Did they buy all the fleet at the right price or will we be stuck with high-cost aircraft is an issue. So these are all things to look at. However, at the same time is it attractive to say they fly to Heathrow, they have slots there, you get more slots in Delhi and Mumbai, you get traffic rights to many cities including the Middle East? Yes that is all very attractive. So, I think there are some rewards, but there is a huge amount of risk. So, again, cautious.
So would it be fair to say that the only reason you would consider looking at Air India would be if the government were to split the domestic and the international operations?
Or if there was another buyer hypothetically, who would say I am more interested in the domestic then we could take the international and these are speculative, hypotheticals, there may not be such a buyer but if you say what is your key interest, it is clearly the international at the right price, with the right fleet, with a lot of caveats international would be attractive.
Have you heard from the government on Air India?
No, I have heard that in July they will ask for expression of interest. So that is the last thing I know.
You were talking about the fleet and 100 aircraft in 2006 and 180 in 2011, 250 in 2015 – when is the next big order likely from Indigo – till when do you believe that you have enough capacity on the order-book already?
Our current order runs to 2024 and as you know there is long lead time for these airplanes – so we in fact talking to both Airbus and Boeing right now, not for delivery next year or year after that but for delivery in 2025 and beyond. But equally aircraft manufactures’ order-books are full, so there is a big backlog. So, in order to get ‘25-26 delivery we need to start talking to them now. Very preliminary talks happening at this time.
That is a change in strategy as well because so far you are stuck with Airbus pretty much right through but you said you are open to talking and you are talking with Boeing as well as Airbus. One of the reasons why Indigo is stuck with Airbus is because you did not have complexity of managing different fleet, so is that now a change we are likely to see?
This fleet complexity, I have done several studies on this at various airlines and upto about 20 aircraft its devastating, so if you are trying to buy 18 of one and 12 of another, you are in big trouble but once you get above 70 aircraft it is no longer an issue. So we would like to have fleet commonality but at what price, if someone comes up with a better price – take the Pratt versus CFM it was a similar issue. Is there a benefit to all Pratt engines, of course, but as you know in engines there is a huge maintenance cost involved and if CFM gives you an overall better price then you go with them. So, I think it is the same issue, whichever manufacturer gives the better overall package we will go with them.
Since you brought up CFM, let me ask you that question because you have placed a $20 billion order for the LEAP 1. Is this primarily a price issue because you have got a better bargain with CFM or is this also part of the de-risking strategy because you have had trouble with Pratt and Whitney?
Pratt, actually I have to give them credit, has been very proactive in managing the crisis. There were four or five issues that came up with their engines and each one has been addressed and the new engines are all coming with the fix in place.
So there are currently no Neos that are grounded?
For us, no. I have heard other airlines have. However, again, I was getting to the point that Pratt has been very forthcoming and giving us enough spare engines. So, we changed engines, but we do not have aircraft on the ground. At this point we have no aircraft on the ground because of new engine. The newer engines was an issue, I think it is gradually getting better, and most importantly in our minds all the fixes are identified. So, that was not the reason why we went with CFM.
It is a question of overall package – what is the initial cost of the engine, then we have a power by hour agreement, so what does that look like, so you look at the life span of the engine going up to 2040 and you do the cash flow under each scenario and you see which is the better one.
Just on the Pratt and Whitney engines, the DGCA has been working with you on these engines. Have you been given an all-clear by the DGCA when it comes to the Pratt and Whitney engines?
I do not think there is such thing as an all-clear. All the regulatory bodies, whether Federal Aviation Administration or DGCA, are continuously monitoring this activity and they continue to do that and they always will. Whether it is a perfectly stable engine or not, they will continuously monitor. So there is no one event that says all-clear. We work with the DGCA and as I said, things are getting better all the time on the new engines.
Let me now address an issue that has caused some degree of concern from a shareholders perspective and that has to do with the differences between the promoters. I know that you put out a detailed statement. So let me just quote to you from that statement – if the current differences were not to get resolved, you shall certainly hear about it, however it serves no purpose speculating about it. In that same statement you go on to say that the differences between the promoters are not about control, they are not about operational strategy, and they are not about management changes. So what are these differences about?
I will not go to plural, I will put a singular. They are no differences, it is a difference and it is really an administrative issue. It has no impact on the company, it has no impact on management, and fortunately for me M Damodaran is very experienced and well versed in all these issues and he is handling it on his own and he is doing a great job. We hope to resolve it soon.
However, there are always differences between promoters. We have to find a company and say okay you have got these two or three promoters, are there no differences? That would be unusual I would imagine.
You are saying it is an administrative difference, what would an administrative difference be for an airline?
It is not airline related and that is the important point. It is an agreement issue between the two promoters. It is in language of what they have agreed to and that really has nothing to do with the airline.
The resolution needs to be in place before October when the current shareholder agreement ends? 
Let me go back and answer the question, there is no reason to be so cagey about it. So, the issue really is, what is called related party transaction.
InterGlobe sells certain services to IndiGo the airline. As an example, the headquarters we are in, the landlord is InterGlobe, so we pay a certain rent. The hotels – our crew stays overnight at various places like Sheraton, Holiday Inn or Novotel. Now in Novotel, InterGlobe has shareholding, so these are called related party transactions and it is a matter of how you deal with them the two promoters are talking about. Now, there is a very clear law on this, you have to have an arm’s length and we have it in place. The only issue they (promoters) are talking about it is, do we need to modify this related party transaction process in any meaningful way.
Is it from a compliance perspective or do they want to change the terms? And which one of the promoters wants to terms to be changed?
So, Rahul Bhatia owns InterGlobe and he is the landlord of our property, he has shareholding in Novotel. Rakesh Gangwal is the one who is saying, I want to take this related party transaction process and change it. As it happens we are following compliance to the law, he would like to add another layer over and above that and they are discussing it.
Also, when you add all the related party transactions, last year there were $30 million and this year they will be going down to $20 million or less. We are a company of many billions of dollars and so it is a very small part of what we do.
Has there been any forward movements since the time that you put out the statement?
Yes, absolutely. Going back and forth with proposals. So, at this point, we are looking at different proposals.
And you hope that well before October this will be a matter that will be addressed?
It is not tied to October in anyway.
It is not?
Because it is not part of the shareholder agreement, it is not part of Articles of Association. As I said, it is an administrative issue.
So there is no reason to believe that there could be an eventuality where the two promoters may decide to go separate ways?
Not because of this. They might decide for some other reason that I do not know of, but no one has articulated anything close to that.
Is this a matter that is as significant as could possibly lead to that kind of a disagreement?
I cannot imagine in the wildest of my dreams how an issue with $30 million of purchases between one company and another would lead to two promoters going in different direction.
 
next story