Edgardo Badiali: Taking things slowly at India's GoAir

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Edgardo Badiali has moved back to one of the world's fastest growing aviation markets, India, but that doesn't mean he is any hurry to expand his new carrier, GoAir.

In February Badiali left his home country Italy, where he led low-cost carrier Myair since its late 2004 launch, to return to India, where he previously worked for Jet Airways.

GoAir, with only six aircraft, has a smaller fleet than Myair and is the smallest of India's six low-cost carriers. But Badiali says this is by design and now is not the right time in India for rapid expansion. "We're just the right size to grow small and step by step," he says.

GoAir launched in late 2005, carried 1.8 million passengers last year and now has a 4.4% share of the domestic market, according to Indian Civil Aviation Ministry figures for the first quarter of 2008. India's first and largest low-cost carrier, Air Deccan, has a 14.6% share. This is followed by Indigo with 10.3% share, SpiceJet with 10.3% and Jetlite with 7.1%. India's sixth low-cost carrier, Air India Express, has over 20 aircraft but is primarily an international operator.

Badiali acknowledges GoAir has the smallest slice of the market among India's low-cost carriers but points out growth in India has come at huge costs as all the carriers are highly unprofitable. "You have two or three players which are pushing the pie as much as possible," he says. "Our approach is this market will grow anyway. This is just the beginning of a long journey."

Pointing to SpiceJet, which launched a few months before GoAir, and Indigo, which launched nearly a year after GoAir, Badiali adds: "It is a bit of an illusion for you to be able to come into the market and do such a build up. We believe it is much better to have a more sustainable growth and position the company to be there when the time is right."

He says GoAir will not expand its network over the next six months beyond the current 11 destinations and may even drop one. Over the next 14 months, it will also return four of its older Airbus A320s and replace them with some of the 20 A320s it ordered in 2006.

GoAir already operates two A320s from this order and will take the 20th in 2011.

Badiali says Airbus over the past few months has been trying to convince GoAir it needs to order more aircraft now to keep up with its competitors such as Indigo, which ordered 100 A320s in 2005, and secure delivery slots for the first half of next decade. But Badiali says the current price is too high and he is confident pre-2013 delivery slots will become available as airlines such as Indigo realise they cannot take all the A320s they have ordered.

"Our thought is the prices will come down and aircraft will become available before 2012 and 2013," he says. "Our position is aircraft will come into the market at some point in time. It's better than taking supplemental aircraft at this point."

One of the reasons to wait is the two main barriers to airline profitability in India, airport infrastructure and fuel taxes, have not yet been entirely lifted. Badiali says nearly 50% of GoAir's costs are fuel because fuel taxes, which in India are set and levied individually by each province, average about 30%. He says when including the tax, the price of fuel in India is 70% more than in Europe and this makes it impossible for a low-cost carrier to be profitable despite the high demand. "Nobody is profitable [but] if the fuel costs were the same as Europe no one would be crying."

But Badiali is quick to point out a couple of India's provinces earlier this year cut their fuel tax to 4% and the pressure is mounting for more to follow suit.

Airport infrastructure, which prevents carriers from adding capacity in key markets such as Mumbai, is another big barrier. Badiali complained at the last slot conference in Mumbai in March not a single new slot was made available. "There is no place to profitably place additional aircraft," he says.

But airport expansion and new airport construction projects are underway throughout the country and the long-term outlook is rosy. "At the moment there are a lot of bottlenecks. Some will be there for one more year, some for three to four," Badiali predicts.

GoAir, he adds, will eventually expand with "a tail-end move". It plans to have 11 A320s by next April and then add five more per year. The carrier currently only has only two bases, in Delhi and Mumbai, but Badiali says a third base will likely be selected late this year.

He sees the current race between five low-cost carriers and three full-service carriers (Air India, Jet Airways and Kingfisher Airlines) for a fast-growing domestic market that is now about 40 million passengers annually as a marathon. He adds consolidation over the past year has resulted in only six major airline groups competing at the national level: the newly combined Air India/Indian the merged Jet Airways/Air Sahara (the latter has been rebranded Jetlite) the about to be merged Kingfisher/Air Deccan and the still independent GoAir, Indigo and SpiceJet.

"If you listen to the rumours in the market there will be more consolidation but personally I think it will stay more or less like this," Badiali says. "These six players are in quite a good position. If you are one of the six you are in good position if the market opens up and infrastructure expands, if all the bottlenecks come down over the next year or two."