By Nicholas Ionides in Mumbai
Naresh Goyal, founding chairman of India’s Jet Airways, is energetically leading his carrier in a rapid expansion, focusing heavily on adding to its domestic operations, while planning aggressive international growth
In the same central mumbai neighbourhood as the spacious apartment of Jet Airways founder Naresh Goyal is a bungalow known as The Cairn, which for decades was the home of the legendary JRD Tata. Commonly regarded as the father of civil aviation in India, Tata founded the country’s first commercial airline, Tata Airlines, in 1932. It was later renamed Air India before being nationalised in 1953.
Like his former neighbour, Goyal is working to leave a lasting mark on India’s aviation sector. To many he is already a pioneer, having helped make air travel more accessible to the masses in a country of more than a billion people and creating a respected full-service airline that employs thousands.
But the flamboyant chairman and majority owner of India’s largest domestic carrier does not consider himself a pioneer. “No I am not,” he insists in an interview at his artwork-filled apartment. “We have a very long way to go.”
Uncharacteristic modesty aside, Goyal has undoubtedly had a major impact on India’s civil aviation sector, helping it to grow in the years since the first domestic flight of Jet Airways in 1993. A self-made tycoon, he was not born with a silver spoon in his mouth. He is hardly a big man, but he has big ambition and when he gets a big idea in his head he follows it through with a vengeance.
Goyal got his start in aviation in 1967, when he joined the general sales agent for Lebanese International Airlines, at a salary of Rs300 ($7, or $40 at the time) a month. He later worked with other airlines including Royal Jordanian and Philippine Airlines, but quickly realised that he wanted to be a business leader rather than an employee, and established his own general sales agent, Jetair, in May 1974.
Not long before taking the risk and going on his own, Goyal, at the age of 22, met the legendary JRD Tata for the first time. Twenty-three years later Tata accepted an invitation to view Jet Airways’ first aircraft at the time of its launch. Tata died months later and never got to see just how far this little airline would come. From having four leased Boeing 737s in the first months of operations as an air taxi company, it now has more than 50 aircraft serving nearly 50 domestic and international destinations, with dozens more narrowbody and widebody aircraft on order and enormous network expansion plans.
India’s aviation market was heavily regulated until the early 1990s and for nearly four decades its only carriers were state-owned Air India and Indian Airlines. Their reputations for atrocious service standards and frequent delays or cancellations were legendary – and well deserved – and Jet was one of many new airlines to be approved to start services in a first wave of deregulation in the country. Within a few years most of the start-ups had shut down, however, leaving only Jet and Sahara India Airlines – now Air Sahara – as the lone survivors. The failures of so many and the impact of the new players on the state-owned carriers made the government wary, and new barriers to entry went up. Only in the past two years have they come down again and growth in the market has been phenomenal.
Infectious enthusiasm
“Call me Naresh” Goyal, 56, has an infectious sort of enthusiasm and energy about him and when he wants something done he wants it done “now” – his employees know at that point to drop whatever they are doing and act upon his wishes immediately. His apartment in Mumbai, where he spends around 10 days of each month (his main home is in an up-market area of London) appears more like a military control centre. He shuffles between its many rooms from one conference call to another, barking orders with a commanding voice but somehow managing to maintain a cheerful disposition and a huge smile on his face. At one point his 84-year-old mother makes a brief appearance from one of the rooms.
“This is the only business I know,” grins Goyal in between speakerphone calls with some of Jet’s directors. “For me it is not work. I enjoy it.”
He needs to enjoy it, as he is particularly busy these days. Jet went public in March through an initial public offering that was 16 times oversubscribed and which raised the equivalent of $435 million. It made the determined, some may even call him eccentric, Goyal a billionaire overnight, as he has retained 80% of the carrier.
Using some of the funds raised, Jet is now in the middle of a major expansion. It has dozens more aircraft on order with Airbus and Boeing. It already has an extensive domestic network and added international services in 2004 with operations to the Sri Lankan capital Colombo, followed by services to Kathmandu in Nepal. This year it has launched services to Kuala Lumpur, London Heathrow and Singapore, and Goyal has elaborate plans for much more.
“Five years from today Jet Airways’ revenue will triple. It should be around $3 billion. We already crossed $1 billion in the last financial year and we should triple that while maintaining our 35% EBITDAR [earnings before interest, tax, depreciation, amortisation and rentals] margin,” he says.
“Our future is linked to our country’s future. The economy is opening up so fast and civil aviation is taking place even in the rural areas. This is very important. There are more than 300 million middle class in this country and yet still so many people don’t travel by air. In the United States you don’t have that.”
The government’s easing of many restrictions on airline operations over the past two years has led to spectacular growth in travel within the country, in part on the back of the establishment of new carriers with attractive ticket pricing. Demand for international travel has also soared as the government has allowed more foreign airlines in and let both Jet and Air Sahara operate internationally.
Aggressive overseas growth
Goyal says while Jet will continue to focus heavily on expanding its domestic operations, international growth will be aggressive. Within five years the airline expects to be serving several points in the USA; more destinations in the UK such as Birmingham and Manchester; other cities in Europe such as Milan and Rome in Italy and Zurich in Switzerland; Beijing and Shanghai in China; Hong Kong; Bangkok in Thailand; and destinations in South Africa and Kenya. He says Jet also plans to serve destinations in the Middle East once a restriction on operations to that region by privately owned Indian airlines is lifted after 2008.
The expansion plans are intended to make Jet the first full network carrier in the country, given that the state-owned airlines remain separate in their operations. Air India has medium- and long-haul international services, for example, while Indian Airlines has domestic services and short- and medium-haul international services.
To support the expansion Jet has on order 10 777-300ERs plus 10 options, as well as 10 A330-200s and 10 options, plus lease orders on more A330s. On the domestic front it plans to add more leased Boeing 737-800s over the next year and has another 10 737-800s on firm purchase order. Its fleet currently comprises 737s and ATR turboprops as well as widebody Airbus A340-300Es.
“I do not want to make the mistakes that a lot of US carriers and other major carriers worldwide have made and gone international while neglecting the domestic. Our focus must remain on domestic. This is our largest market and it is growing at 25% per year. That is the bottom line,” says Goyal.
“Having said that, India is a captive market. No other country in the world that I know of has so many of its nationals living overseas. Also last year 18 million people travelled into and out of India and the Indian carriers’ share was under 25%. So more than 75% of the traffic goes to foreign airlines into and out of India. We can change that.”
More than a few financial analysts have expressed concern about Jet’s rapid expansion and the impact the new competition may have on it. JP Morgan, for example, said in a recent research report that Jet’s transformation to a full network carrier with extensive international operations “contains considerable execution and financial risks”.
It says while the airline does have “first-mover advantage” in a market where infrastructure is notoriously poor, it is not as optimistic as Jet’s management in thinking its superior service standards and established network will keep customers from switching to the new airlines with heavily discounted airfares. It also notes that international yields are well below domestic ones, adding that “further industry deregulation and competition also pose a major threat to yields”.
Goyal flatly rejects the concerns, however, insisting that Jet’s future is bright. For him the rush to do so much so quickly is simple: “We don’t have the luxury of time.” In this respect analysts agree. Jet needs to be near perfect in the way it executes its expansion, as the Indian market is changing so quickly after so many years of restraint. Jet today has a dominant domestic market share of more than 40% but there are many new carriers seeking to cut into this, all with low airfares.
But Goyal does not fear the new competitors, such as recently launched Air Deccan, Kingfisher, SpiceJet and Go, which all bill themselves as low-cost carriers and which are discounting heavily. He argues that the new players are only “so-called low-cost carriers”, as airlines in India have many more fixed costs than their counterparts elsewhere.
Does this mean he is sceptical about the new players’ chances of success? “Of course I am. There are very limited slots, and you need parking bays. There is no labour available, and when you take people from someone else your costs always go higher. This is only so-called low cost. It is not the real low cost that you see in the USA and Europe. There are no secondary airports here in India. Distribution costs are still high because the internet usage is not so great. Yes, there are low fares and it is good that travellers are switching from the trains, but with the costs the way they are there is only so much you can do. With two-thirds of your fixed costs that you can’t touch – be it fuel, navigation charges, landing fees, pilots’ salaries – it doesn’t make sense to me.”
He adds: “I always welcome competition. We were born out of competition, out of liberalisation and competition is very important to me. But today with the costs going up, the breakeven of most of these carriers is over 85% [load factor]. If your breakeven is over 85% how can you do it?
“Our labour cost in spite of everything is about 10-11% of total cost. We are very particular about productivity and there are things we can further improve. We didn’t wait for things to go out of control before looking at costs. We are already a low-cost, high-quality airline. Our breakeven is 64% and we have – even with these so-called low-cost carriers around – a seat factor of 71% today. So we still have a lot of seats available [that can be sold at heavily discounted fares to compete with the low-fare airlines]. This is the reality – we have the slots, we have the parking spots at the airports, we have the infrastructure, we have the technical people, the engineering, the pilots – we have a very big advantage.”
Clearly, for Jet to have become such a success has taken a bit of luck, being in the right place at the right time and, especially in India, having friends in high places. But no matter what the critics say, and there have been many conspiracy theories about its financial backing over the years, the airline has prospered because it got things right from the beginning, insists Goyal.
He says board members were chosen based on their international expertise, as were his managers. He also focused heavily on corporate culture, taking lessons from Southwest Airlines and its legendary founder Herb Kelleher.
“I have learned that if you are a chairman of an airline, especially when you start as the owner, people must believe in you like you believe in your doctor. You confide sometimes in your doctor more than you confide in your friends and your family, and my philosophy has always been that people should be able to talk to me,” says Goyal.
“The people who work with me, I don’t consider them my employees. I consider them my family. People say that as we expand, with more people coming in, that we cannot stay a family and that everything will change. I think this is nonsense.”
Goyal also says he has modelled the airline’s service standards on two airlines he admires most in terms of the in-flight experience: Cathay Pacific Airways and Singapore Airlines. He is confident Jet will someday have a globally recognised reputation like them.
“I really believe that there is no rocket science to providing the service that our foreign airline friends have,” he says. “When our new aircraft are delivered in 2007 you will see a product that is the best of any airline in the world. I have been personally involved in this and I can tell you that nobody has ever seen the kind of things that we are planning.”
A bold statement, but the straight-talking Goyal is all about punching above his weight. To him it is not a question of if his targets will be achieved, but when. “But even then I will never be happy. In the service industry you can never be happy. The day you are happy, that is the day when you are asking for trouble.”
| Self made man In the early 1990s Goyal established Jet Airways, which has since carried well over 50 million passengers. Last year he achieved a long-standing goal when Jet began operating international services. Earlier this year it extended its network to London, where Goyal now lives. He was born in Patia, northern India, in 1949. He has a daughter and a son. His wife Anita works as executive vice-president for marketing and sales at the airline. In his spare time he enjoys watching Indian “Bollywood” movies and spending time with his family and friends. Last year he was elected to the International Air Transport Association’s board of governors. |
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Source: Airline Business
