When India opened competition in the domestic airline market about eight years ago, local entrepreneurs rushed to launch airlines.
In general, they had little understanding of the intricacies of the airline business. Their experience ranged from poultry farming to owning a flour-mill, trading and even running a wind-generated power operation. After a couple of years, most found that they lacked the skills to survive in the airline industry or the deep pockets to compete against state-owned carrier Indian Airlines. One after another they left the industry.
But there is one entrepreneur who has stayed the course - Naresh Goyal. His airline ticketing business had exposed him to international aviation circles, has gone on to build an airline - Jet Airways - with almost a third of India's domestic market.
Amid the upheavals of Indian aviation policy, he has built Jet into an airline with a strong reputation. Government restrictions and infrastructural bottlenecks have not stopped Jet from challenging Indian Airlines on trunk routes and forcing the domestic flag carrier to improve its reliability and become more customer friendly.
"The orderly implementation of the well-structured and realistic business plan, the professional management, young fleet and a wide network of sales offices in India and abroad have led to the success (of the airline)," says Goyalm, now founding chairman at Jet.
The airline carried over 3 million of the estimated 11.2 million Indian domestic air passengers in 1997-8 and holds a 27% share of the domestic market. With 22 Boeing 737s, it operates 125 flights connecting 27 cities daily. With an average load factor of 73%, the carrier's annual sales are close to Rs1 billion ($24 million).
Jet is the first Indian private carrier to own its aircraft, a clear signal that the carrier is no temporary phenomenon, but a long-term player in the Indian skies. Last November, Jet acquired another Boeing 737-400 and has three more on order as well as six new generation 737-800s due for delivery by mid-2000. The carrier also has an option to buy 10 additional Boeing aircraft, which it can exercise after the year 2001.
The $486 million aircraft purchase deal is secured by bank loans. Of the total, 85% is guaranteed by the US Exim Bank and 15% by a consortium of foreign banks led by ANZ Grindlays and Barclays Bank. The loan was approved by Exim in October.
The deal demonstrates the banking community's confidence in Jet's financial strength. "The Jet management knows how to run its business. Naresh Goyal has both the ability and strength to run an airline in a professional manner," says a banker who brokered the deal.
While Goyal is the airline's proprietor-cum-chairman, the carrier's Greek chief executive officer, Nikos Kardassis, is an ex-TWA employee. Executive director Saroj Datta is a former planning director at Air-India director, while B P Baliga, who now heads Jet's engineering division was also a former engineering director at the flag-carrier. Capt Gurcharan S Sidhu, who until recently headed operations, had spent over 25 years with Malaysian Airlines.
The only family member involved in the business is Goyal's wife Anita, who heads the marketing division. With experience in the hotel and travel industry, she joined the carrier's sister firm, Jetair, in 1979 and married Goyal a decade later. "Goyal has the ability to pick the right people and put them in the right slots," says an observer.
Jet's flight to success has been guided by one important principle: give customers what they need and never take them for granted. From day one, the company battled to ensure that its product exceeded customer expectations. Its staff, dressed in designer uniforms, are customer-friendly and its new generation aircraft are clean and immaculate. Its regular travellers know that if they have crucial appointments in other cities, Jet will be more reliable than the state-owned carrier. Its on-time performance and schedules are geared towards the convenience of business travellers, who account for 80% of its customers. "Customers will come if your product is a quality one," says Goyal.
A British Airways representative recalls that in 1995, when his airline was scouting for a tie-up with a domestic carrier, a strategy team from London flew to Mumba to identify possible alliance partners. The team was impressed by Jet's operation, and expansion plans. "They have managed to keep their quality and expand, which is very difficult to achieve," says a BA representative.
The airlines' new generation aircraft give it an edge over its rivals. Unlike other carriers, Jet began operations with a young fleet despite the high leasing costs. Four 737-300s (averaging three years old) were leased from Ansett in 1993 and two 737-400s from Malaysian Airlines joined its fleet a year later. Jet now has two 737-300s, fifteen -400s, two -500s and three -800s and plans to add three more 737s by the end of March.
The savings on these new-generation, fuel-efficient, aircraft have offset the heavy lease costs. Maintenance costs are low. Also, a 737-400 carries around 150 passengers compared to a 737-200's capacity of 100. This let Jet carry 136 passengers per aircraft even after creating more room for the business class.
Having a single type in Jet's fleet makes maintenance and training for crew and ground staff far simpler. It also meant less expenditure on spares and lower inventories, while dealing with one type of aircraft also improves the efficiency of the engineering operation. Jet claims that its flights are rarely held up by technical snags.
Jet gained another edge over other start-ups through the ready-made distribution network offered by its sister company Jetair's 85 offices countrywide. This gave it access to a larger market beyond the major cities. Jet opted for computerised reservations from day one.
With 108 interline agreements giving it links to 57 general sales agents for other international carriers, Jet has a wide reach. In addition, it has close marketing arrangements with foreign airlines such as BA and KLM, offering combined frequent flier benefits and through check-in to passengers.
Jet succeeded despite the regulations on start-ups' operations and aircraft acquisitions imposed by the civil aviation ministry to protect state-owned Indian Airlines. The ministry revised equity guidelines, banning foreign airlines from holding shares in domestic carriers either directly or indirectly. This forced Jet to abandon its equity tie-up with Gulf Air and Kuwait Airways, which each held 20% shares in Jet.
Having overcome this setback, the airline's management is finalising its next five-year plan. Jet aims to increase its frequencies on existing routes and to extend its reach by setting up a feeder network with smaller aircraft. Five 70-seater ATRs will be leased to operate short-haul flights in the west, south and north, where Jet sees enormous potential outside the main trunk routes. "The leasing arrangements for these five ATR 72-500s have already been finalised and training of technical personnel is in progress," says Goyal, adding that the proposal has been put before the aviation ministry for approval.
By the turn of the century, Goyal wants to expand his fleet to 30 aircraft to secure a market share of one third and expects Jet to be carrying at least 6 million passengers a year.
Jet's success, however, has been controversial and questions have been raised over the airline's management style. Industry sources say that Goyal has succeeded in influencing four successive governments by gaining political patronage in different parties.
One of the most astonishing examples of Goyal's sway was the swift clearance last October of the Indian Government's guarantee of the US Exim bank-backed loan for the purchase of 10 Boeing 737s worth nearly $500 million. Senior ministry officials say the swift clearance went against the government's policy of only providing guarantees to the two state-owned carriers, Indian Airlines and Air-India.
Goyal has also been accused of manipulating the country's civil aviation policy. Industry sources say his covert lobbying led to the government's refusal to allow the proposed joint venture between the domestic carrier Tata and Singapore Airlines to go ahead. Some even go as far as accusing him of having used his influence to rewrite the country's aviation policy to exclude Tata.
Tata accuses the government of favouritism and of giving Jet a near-free run in the Indian skies. The civil aviation ministry claims that Tata's entry with seven aircraft would create overcapacity, but Jet has been allowed to add 10 aircraft. "The [civil aviation] ministry does not intend to allow competition or attract investment in the civil aviation sector," says a Tata representative, bitterly.
Doubts were also raised over Jet's claim to have divested its foreign equity. A parliamentary committee on civil aviation asked the civil aviation ministry to investigate. Goyal, however, dismisses any accusations, saying that the government was fully satisfied that Jet had complied with policy.
Recent press reports, based on a letter to civil aviation minister Ananth Kumar from a member of parliament, claimed that several employees of Kuwait Airways and Gulf Air had shares in the Jet's parent company - Tailwinds. The letter also claimed that the 40% shareholding previously owned by the two overseas airlines had been transferred to Bahrain Airport Services, and that Gulf Air had direct and indirect stakes in that company. Jet, however, refutes this.
Rivals also complain that the private carrier enjoys operational benefits. Its flights ar given slots just before Indian Airlines' flights on some metropolitan routes. A senior Sahara Airlines official even complains that Jet's parking bays are closer to the terminal, cutting the ground handling time for passengers. Jet Airways dismisses these allegations of preferential treatment as well.
The speculation extends into Goyal's overseas operations and his sources of funds. As a privately owned firm, Jet Airways' figures are outside public scrutiny. Jet Airways is fully owned subsidiary of Tailwinds, registered by Goyal in the Isle of Man, with an equity base of $20 million. The carrier's balance sheet and source of funds are closely guarded secrets. "It's the airline's corporate policy not to disclose profit and losses," it says.
Despite the controversy, Goyal is optimistic about the future growth and development of Jet Airways. Boosted by strong domestic growth and India's liberal economic policies, Jet Airways' expansionist path across the Indian subcontinent looks set to continue apace.
Source: Airline Business
