Armed With A Winning Strategy, Jayant Sinha Vows To Make Air India Profitable Again

by Sindhu Bhattacharya - Nov 10, 2016 09:46 AM
Armed With A Winning Strategy, Jayant Sinha Vows To Make Air India Profitable Again Jayant Sinha
Snapshot
  • “We believe there is a winning strategy for Air India to become a great global airline, which it once was. And because we think we have a winning strategy, we believe we can deliver an excellent financial performance for Air India as well.”

Jayant Sinha assumed charge as Minister of State for Civil Aviation in July this year, after a stint in the Finance Ministry. The former investment banker gained a reputation of being a quick learner there and he has demonstrated that again in his new job, having acquired a good grasp over the intricacies of India’s high-cost aviation sector. He has helped launch the ambitious regional connectivity scheme UDAN (which had been in the works for years) and now promises to revolutionise service standards in the aviation sector. In an exclusive chat with Swarajya’s Sindhu Bhattacharya, Sinha promises a return of loss-laden Air India to its former glory and a new definition of what we know as an “Indian” airline. His next pet project is Air Sewa, which is expected to change service standards in India’s aviation industry. Excerpts:

Q. In the last six months, every airline was competing aggressively, especially on pricing so much so that yields were falling. But last-minute prices have shot through the roof in the last few days.

A. It is important to understand how airline pricing is done. Like any other industry, setting prices is a very dynamic process. If you look in aggregate, prices have been declining for air travel and if you look at the revenue per average seat kilometre (RASK), which is something that airlines track very closely and you can see the data from the latest numbers that Indigo has posted, those are actually coming down. So airline prices in aggregate are declining.

Q. What do you mean by aggregate pricing, for the common man?

A. If you look at the number of kilometers flown and the amount of rupees collected, the rupees collected per km are actually going down. So in aggregate, the cost of flying is going down. Now that’s the overall story and now you have to look at the individual routes over time.

The way airline pricing is done – and there is a yield management framework that all airlines in the world follow – basically all tickets are priced along five buckets and this is dependent on when you are buying these tickets and what the features of these tickets are – refundable/non refundable etc. So essentially what is happening is that if you are buying the tickets ahead of time, when tickets are priced low, you are getting a very good deal for it. When you are buying tickets at the last moment, when you haven’t planned ahead, then yes, tickets in the final packet are available and those are much more expensive. So the same flight, if you bought it a month ahead of time, will be very, very affordable but if you buy it a few hours before the flight or a few days before the flight, the price can be very different.

We have now analysed what percentage are across these buckets and we have found that 0.1-2 per cent is the maximum in the highest bucket. High priced tickets are representing less than 2 per cent in all cases of tickets available. So obviously when tickets are in very high demand, people will have to pay a very high price but if people plan ahead and know how airline pricing works, they can take advantage and get a very affordable deal.

Q. Any moves to make the buckets transparent, because that is a very common allegation and complaint. We don’t know if there are five buckets or 500.

A. That data is being compiled. We are working with online traffic aggregators and with the Directorate General of Civil Aviation (DGCA) to understand all of this better. But the view from industry is that by making these buckets transparent you are hurting people’s competitive strategies and how many buckets they will make available is very much a part of their business strategy. So we are considering and analysing all of this so we can understand if consumer complaints are well founded or not. That is a fact-based exercise.

Q. One of the things people are discussing is the explosive growth in domestic air travel. In ticketing, the percentage growth is in high double digits and for several months. Is airport infrastructure commensurate with that growth and how do we see incremental airport infrastructure as well as usage of existing airport infrastructure?

A. Let’s step back and see how fast traffic is growing and what are the long-term projections. Traditionally, passenger traffic in India has grown between 9-12 per cent in the long term. In the last two years, it has been growing at over 20 per cent. There have been years when it has not grown. There have been variations and we are going through a very high growth phase right now. But if we take a conservative forecast of 10-11 per cent every year for the next decade or so, it is very clear we have to massively expand airport capacity and the projections are we will have to expand airport capacity by 2.5 to three times in the next decade.

Now you have to look at it airport by airport. Certain airports like Mumbai are already congested. We should have added airport capacity there five to 10 years ago. Certain other airports like Bengaluru, Delhi and Hyderabad are well positioned to expand. There we can accommodate growth in air traffic, provided we can make the necessary investment in terminal capacity, runway capacity and so on. Both Bengaluru and Delhi can add a runway and are planning to add a runway. Delhi will add a third and a fourth runway. Bengaluru will add a second runway. So we are going to be adding significant capacity in some of these airports. Other airports like Mumbai, Pune, Guwahati, Patna, Nagpur, Jaipur and Goa are already stretching beyond their capacity. There we are facing a lot of pressure in terms of passenger traffic and landing planes, congestion in the air. Typically, it takes 10-12 years to bring up an airport because it is a very lengthy process. Because you have to first make sure, that you have the airspace to enable planes to come in.

Q. The Navi Mumbai (second airport for Mumbai) has been cleared on paper for 10-12 years…

A. No, that’s not the case. It’s when our government came to power in 2014 that the process actually accelerated. Land, environmental clearances were all pending. It is our government that has cleared all of that and is rapidly trying to get Navi Mumbai developed. We are trying to bring it up by 2019.

Q. And till then is there a gameplan for the existing airport?

A. We are massively expanding the operational efficiency of the existing airport. There are various mechanisms that are being considered, including being more efficient in terms of landing and flights take off. That is movements per hour. We are working on that, we are trying to use the landing slots much better. At the peak time, we would like the largest planes to land so we can bring in more passengers, and we are also looking to see how we can have people fly in wide bodies into Mumbai as opposed to narrow bodies.

Q. What kind of investments do you expect in expanding India’s airport capacity? Obviously the government can’t do all of it by itself...

A. The estimates we have made is that Rs 2.5-3 lakh crore will be required in the next decade or so to expand airport capacity. This does not include land. Thousands and thousands of acres of land will have to be acquired by state governments to be able to set up these greenfield airports, like in Pune or Guwahati.

Q. So how does this money come in? Are you making any changes to the investing environment. There is an airport in Durgapur, among the first greenfield ones, but hardly any flights except Air India land there…

A. The decision on flights is a commercial decision. Airlines have to look at the potential for traffic and they have to decide whether they want to operate flights there or not. Our job is to provide (a) airport capacity from a policy perspective and (b) to ensure that security and safety regulations are strictly adhered to and of course to ensure appropriate regulations of both airlines and airports. So we have to provide the facilitating environment to allow the sector to take off. You have to remember, the sector is very much in the private sector domain, it is not like Indian Railways, which is controlled end-to-end by the Indian state. It is like the telecom industry, which is largely in the private sector’s hands.

Q. Of the Rs 2.5-3 lakh crore required, how much will government bring in?

A. That number does not include the price of land. And land typically will have to be acquired by state governments through their resources. For the Rs 2.5-3 lakh crore, Airports Authority of India will play some role, but it will be a modest role. The vast majority of this financing will have to come from the private sector.

Q. One of the issues that has been engaging our attention is the alleged fraud at Air Asia India, which has been reported by the outgoing chairman of Tata Sons. Is the ministry doing anything on its…

A. The Air Asia matter is now sub judice.

Q. The matter that is sub judice is the other issue, alleged fraud is not part of that...

A. So if there has been any fraud, that is criminal fraud, that is a matter for investigative agencies to pursue. It is not a regulatory matter in terms of air safety. The question that is pending before the courts, to the best of my knowledge, is the matter of Foreign Direct Investment (FDI) policy and whether they have followed the FDI policy. That is a regulatory matter, it would come to our ministry but now it has moved to the judicial process where it is being investigated. So I would like to tell you Air Asia India got its licence to operate in India in the previous government in 2013.

Q. Air Asia India’s licence was the first where the DGCA invoked a clause, which it had never done before, seeking public objections. So it was a process that went on for a very long time. At that time also there were questions on substantial ownership and effective control in an Indian airline but there were no guidelines. So is that something that is being discussed?

A. Obviously with the new policy of 100 per cent FDI we have had to look very closely at substantial ownership and effective control. And we are in the process of finalising what clause will replace substantial ownership/effective control under the new FDI policy.

Q. Why does it have to be replaced?

A. Because in the new FDI policy we have to make clear what we mean by that. Substantial ownership in Indian hands does not exist any longer. It is not substantial ownership any longer. The idea of what constitutes an Indian airline has to be redefined. Previously, an Indian ownership was defined as one in which there was 51 per cent ownership that is substantial ownership and then there were some provisions for effective control.

Q. What is the gameplan for Air India? It is raising fresh working capital loans to fund delivery of the aircraft order it had placed earlier. For that they have asked the Life Insurance Corporation. Also, the public sector banks have a lot of exposure to AI…

A. Let me cut you short and tell you what I can. We believe there is a winning strategy for Air India to become a great global airline, which it once was. And because we think we have a winning strategy, we believe we can deliver an excellent financial performance for Air India as well. And we will also be able to make it a great place to work. Those are the dimensions we are working on right now. And we are very committed to that approach. Make AI into a great global airline, restore financial performance and make it a great place to work.

Q. Great financial performance should make everyone happy. But is there anything in the short term?

A. We have shown operating profit this year…

Q. In the first half of the current fiscal sir, it has slipped back again...

A. You will have to wait and see.

Q. Is there a lot of capacity expansion planned, is that the bulwark of this strategy?

A. Obviously, wherever we think we can expand in terms of profitability and where it makes commercial sense to do so, we will obviously expand into those opportunities.

Q. Two parts to that question. One, the equity support that the government had promised of Rs 30,000 crore….

A. Let me short circuit that question. We are going to ensure robust financial performance for the airline.

Q. On Air Sewa, you have gathered a lot of accolades for helping everybody. What is the plan there?

A. Stay tuned. We have a major announcement coming ahead. The idea of Air Sewa is not merely to respond to passenger complaints on social media. Which is why we have been spending so much time working on it. It is to provide passengers a much better air travel experience, so that we can bring together all the players in the eco-system, so that we can bring passengers a much better travel experience.

Q. A lot of effort has gone in reducing taxation on aviation turbine fuel (ATF). So average can be 2 to 30 per cent. Is there anything being done here?

A. Obviously, the Civil Aviation Ministry has urged all states to reduce ATF charges. We have also sought to ensure consistent ATF tax policies across the country through the goods and services tax (GST) process. Petrol and petrol products are out of the GST right now, but we have been urging that it be brought in the GST framework, so there is consistency across the country. We are also mindful of the fact that tax rates in India for ATF are much higher than neighbouring countries. Those make India’s aviation sector less competitive.

Q. What can the Centre do if the states are not cooperating?

A. Centre can decide on ATF taxes. That is one possibility. It is something that can be brought up to the GST Council.

Q. So Centre can decide the quantum of taxation on ATF?

A. Taxation on petroleum products is done individually by different states. So where regional connectivity is concerned, we are bringing down ATF rates for regional aviation. As far as the national aviation market is concerned, we are trying to ensure consistency across the states by bringing it up as an issue within GST. So both in terms of consistency as well as in terms of the actual rate itself our attempt in civil aviation is to make ATF taxes in India competitive with neighbouring countries.

Sindhu Bhattacharya is a senior journalist.

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