Why Airlines Need Competition .
Taking flight
Naresh Goyal wants Jet Airways to be India's first global brand—and to escape its domestic market
IT IS not only a lust for power that inspires Naresh Goyal, the founder and chairman of Jet Airways, India's biggest private airline. Nor is it a need for vindication, important though this may be to a man whose application to fly to America was held up for two years by allegations of terrorist connections. Like many Indian entrepreneurs, Mr Goyal says he has a patriotic dream. “I want to produce a global Indian brand,” he says. “That's the passion for me, that's what drives me. The people of this country, we have the capability to produce a global brand.”
Jet, with its orange and blue logo, may well be the first. It is the only private Indian carrier flying long-haul routes—ferrying 23% of passengers between India and London, for example. On August 5th its first plane landed in America, launching a daily service from Mumbai to Newark via Jet's new hub in Brussels, and this week it began flights to Toronto. A new direct service between Mumbai and Johannesburg will be launched soon, and with 40 new planes on order, Jet will add more destinations next year, including San Francisco (via Shanghai) and Chicago. Mr Goyal, who owns 80% of the airline, predicts that by 2009 its international operations will contribute half its annual revenues, increasing them from $1.7 billion last year to $3 billion.
Mr Goyal started out as a travel agent acting for foreign airlines in India. At industry gatherings, he became known for having committed the world's flight schedules to memory. He has since lost none of his taste for detail. Last month Mr Goyal ordered Jet's top managers in Mumbai and Delhi to “adopt a plane”, which they must periodically check to be sure it has been properly cleaned. (Mr Goyal says he would love to do the same himself, but does not have time.)
The international expansion is partly about healthy demand. Over the past five years air traffic to America from India has grown faster than from anywhere else, increasing by 23% in the year to May compared with the previous 12 months. Coming the other way, the number of inbound passengers to India grew by 19% in 2006. By Mr Goyal's estimate, up to 80% of these passengers are of Indian origin, though now resident in Canada, America and Britain. So that is where he is expanding. “I want to operate where there is a captive market, and there are 30m Indians overseas—or, whatever, people of Indian origin,” he says, with a flick of his hand, suggesting he does not see the distinction. If these people do want to fly Indian, they may well want to fly Jet. Its service is outstanding. Air India, the state-owned carrier, is crummy by comparison, though it is improving.
But the expansion is also about escaping the dreadful conditions in India's domestic market. As well as having the fastest-growing aviation market in the world, India also has one of the most crowded. In 2003 the emergence of several low-cost carriers led to a price war. At the time, Jet controlled almost half the domestic market. Mr Goyal says Jet remained profitable during the struggle that has since ensued, but there is no hiding how much it suffered. Its market share has fallen to one-third—and that includes the custom of Air Sahara, a carrier acquired by Jet in April for $346m that it has since rebranded as a low-cost carrier, called JetLite. And in the past four years the main Indian stockmarket index has increased five-fold, yet Jet's share-price has fallen by 40% since its flotation in 2005.
Mr Goyal estimates that the Indian industry lost $500m last year. After some consolidation, prices are starting to rise. Nevertheless, despite his experiment with JetLite, Mr Goyal says low-cost carriers are not feasible in India. The country lacks the infrastructure and readily available skills to be had in Europe. “Here there are no alternative airports,” he says. “India has nothing called low-cost, only low-fare and low-margin. This is irrational pricing which will make the whole industry sick.”
So by expanding abroad, Mr Goyal hopes to escape his troubles and his competitors at home. Seats on domestic flights, such as between Mumbai and Bangalore, are sold abroad at premium prices. Inside India they are often sold at a loss. Moreover, India's other private airlines are not yet licensed to fly internationally. For that, airlines must have been in business for five years, which bars Jet's rivals. (That includes Kingfisher Airlines, launched in 2005 by Vijay Mallya, a flamboyant brewer. It too has global ambitions and excellent service—dished out by an all-female crew wearing distinctive tight-fitting red skirts.)
Although Mr Goyal does not think much of the low-cost business model, he admires his rivals in one way. In May 2005 Jet's application for a licence to fly to America was held up after a firm based in Maryland, also called Jet Airways, accused Mr Goyal's company of being a money-laundering outfit for al-Qaeda. Mr Goyal says some of his local competitors were behind the claim, which was later withdrawn. But he seems to have a sneaking admiration for the imaginative way in which they allegedly tried to impede him. “It's good, no? They dine and wine with me, we enjoy a cocktail together,” he says, erupting into a high-pitched giggle that punctuates his rapid speech. “Indians are very creative.”
A sprinkle of stardust
And so, for that matter, are a striking number of Jet's directors. They include several actors and musicians, including Bollywood's biggest star, Shah Rukh Khan. Mr Goyal denies, with a giggle, that these celebrities have been recruited to add glamour. “No, they add value,” he insists. “Shah Rukh, he's very clever.”
Yet their presence fits Mr Goyal's taste for networking. Striving to build India's first global brand apparently means mixing with India's other new billionaires, such as Lakshmi Mittal, a steel magnate, and Mukesh Ambani, of Reliance Industries, India's biggest private company. All of them, he says, have the same patriotic obsession: “making India great”. So is that all they talk about? “No,” Mr Goyal wheezes. “We talk about girls.”
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From The Economist print edition
Source: http://www.economist.com/
Naresh Goyal wants Jet Airways to be India's first global brand—and to escape its domestic market
IT IS not only a lust for power that inspires Naresh Goyal, the founder and chairman of Jet Airways, India's biggest private airline. Nor is it a need for vindication, important though this may be to a man whose application to fly to America was held up for two years by allegations of terrorist connections. Like many Indian entrepreneurs, Mr Goyal says he has a patriotic dream. “I want to produce a global Indian brand,” he says. “That's the passion for me, that's what drives me. The people of this country, we have the capability to produce a global brand.”
Jet, with its orange and blue logo, may well be the first. It is the only private Indian carrier flying long-haul routes—ferrying 23% of passengers between India and London, for example. On August 5th its first plane landed in America, launching a daily service from Mumbai to Newark via Jet's new hub in Brussels, and this week it began flights to Toronto. A new direct service between Mumbai and Johannesburg will be launched soon, and with 40 new planes on order, Jet will add more destinations next year, including San Francisco (via Shanghai) and Chicago. Mr Goyal, who owns 80% of the airline, predicts that by 2009 its international operations will contribute half its annual revenues, increasing them from $1.7 billion last year to $3 billion.
Mr Goyal started out as a travel agent acting for foreign airlines in India. At industry gatherings, he became known for having committed the world's flight schedules to memory. He has since lost none of his taste for detail. Last month Mr Goyal ordered Jet's top managers in Mumbai and Delhi to “adopt a plane”, which they must periodically check to be sure it has been properly cleaned. (Mr Goyal says he would love to do the same himself, but does not have time.)
The international expansion is partly about healthy demand. Over the past five years air traffic to America from India has grown faster than from anywhere else, increasing by 23% in the year to May compared with the previous 12 months. Coming the other way, the number of inbound passengers to India grew by 19% in 2006. By Mr Goyal's estimate, up to 80% of these passengers are of Indian origin, though now resident in Canada, America and Britain. So that is where he is expanding. “I want to operate where there is a captive market, and there are 30m Indians overseas—or, whatever, people of Indian origin,” he says, with a flick of his hand, suggesting he does not see the distinction. If these people do want to fly Indian, they may well want to fly Jet. Its service is outstanding. Air India, the state-owned carrier, is crummy by comparison, though it is improving.
But the expansion is also about escaping the dreadful conditions in India's domestic market. As well as having the fastest-growing aviation market in the world, India also has one of the most crowded. In 2003 the emergence of several low-cost carriers led to a price war. At the time, Jet controlled almost half the domestic market. Mr Goyal says Jet remained profitable during the struggle that has since ensued, but there is no hiding how much it suffered. Its market share has fallen to one-third—and that includes the custom of Air Sahara, a carrier acquired by Jet in April for $346m that it has since rebranded as a low-cost carrier, called JetLite. And in the past four years the main Indian stockmarket index has increased five-fold, yet Jet's share-price has fallen by 40% since its flotation in 2005.
Mr Goyal estimates that the Indian industry lost $500m last year. After some consolidation, prices are starting to rise. Nevertheless, despite his experiment with JetLite, Mr Goyal says low-cost carriers are not feasible in India. The country lacks the infrastructure and readily available skills to be had in Europe. “Here there are no alternative airports,” he says. “India has nothing called low-cost, only low-fare and low-margin. This is irrational pricing which will make the whole industry sick.”
So by expanding abroad, Mr Goyal hopes to escape his troubles and his competitors at home. Seats on domestic flights, such as between Mumbai and Bangalore, are sold abroad at premium prices. Inside India they are often sold at a loss. Moreover, India's other private airlines are not yet licensed to fly internationally. For that, airlines must have been in business for five years, which bars Jet's rivals. (That includes Kingfisher Airlines, launched in 2005 by Vijay Mallya, a flamboyant brewer. It too has global ambitions and excellent service—dished out by an all-female crew wearing distinctive tight-fitting red skirts.)
Although Mr Goyal does not think much of the low-cost business model, he admires his rivals in one way. In May 2005 Jet's application for a licence to fly to America was held up after a firm based in Maryland, also called Jet Airways, accused Mr Goyal's company of being a money-laundering outfit for al-Qaeda. Mr Goyal says some of his local competitors were behind the claim, which was later withdrawn. But he seems to have a sneaking admiration for the imaginative way in which they allegedly tried to impede him. “It's good, no? They dine and wine with me, we enjoy a cocktail together,” he says, erupting into a high-pitched giggle that punctuates his rapid speech. “Indians are very creative.”
A sprinkle of stardust
And so, for that matter, are a striking number of Jet's directors. They include several actors and musicians, including Bollywood's biggest star, Shah Rukh Khan. Mr Goyal denies, with a giggle, that these celebrities have been recruited to add glamour. “No, they add value,” he insists. “Shah Rukh, he's very clever.”
Yet their presence fits Mr Goyal's taste for networking. Striving to build India's first global brand apparently means mixing with India's other new billionaires, such as Lakshmi Mittal, a steel magnate, and Mukesh Ambani, of Reliance Industries, India's biggest private company. All of them, he says, have the same patriotic obsession: “making India great”. So is that all they talk about? “No,” Mr Goyal wheezes. “We talk about girls.”
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From The Economist print edition
Source: http://www.economist.com/
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