‘Low fares are not sustainable’

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India will feel the heat, warns IMF

: When Wolfgang Prock-Schauer addressed the media during Jet Airways inaugural flight to Doha from Mumbai last month, it became clear that he was not going to relinquish his position as chief executive officer of the airline. Prock-Schauer spent a good deal of time in 2007 denying that he was joining rival Kingfisher Airlines as its CEO. However, being there when it mattered the most, would quash all rumours, Prock-Schauer knew. He said it as much. "There is nothing I can add to it, except that I am with Jet." Now that the air is clear on that front, Prock-Schauer can focus on his work. Jet has lost market share in the last one year, its thrust on international operations is growing, and the airline’s senior management is quitting, the last being Carl Saldanha, who resigned as chief financial officer. All this means that the burden doesn’t get any less for Prock-Schauer. In this interview with FE’s Viveat Susan Pinto he responds to questions on how he is leading the airline through this phase. Excerpts:

Would you attribute Jet’s fall in market share from 31.2% to 22.6% in the last one year to merely a fall in capacity share or are there other reasons for it too?

The fall in market share is a function of the fall in capacity share. If you look at our capacity share, it fell to the same extent as our market share. All airlines put together added 40 aircraft last year. We, however, added only 2-3 aircraft. As a consequence, our capacity share fell and so did our market share. But if you take Jet and JetLite together, we have a combined market share of 30%. That’s a good figure.

Going forward, we will double our ATR fleet from 7 to 14. We will also look to add two 777s to our fleet. We took a conscious decision in 2007 about not adding too much capacity in the domestic sector on account of the overall capacity expansion that was happening there. This year, however, we are likely to add capacity in the domestic sector. This will impact our market share.

What do you have to say about the low fares in the marketplace?

They are not sustainable. In an environment of high costs, it simply doesn’t make sense to price your tickets at Rs 500. We are not into irrational pricing. We would rather price appropriately keeping our product and profile in mind. We do offer some tickets at Rs 750 plus surcharges. But that is for select routes at certain times of the day. It doesn’t happen every time.

What are your realisations at the moment?

Since it’s a lean phase at the moment, you can see much more of this Rs 500 fare game. We are not doing it, but I hope it can be contained because it could lead to widespread discounting and price wars, which is not good for the industry. Obviously, with lower fares, realisations are lower. During the peak season, in December, for instance, that wasn’t the case.

Kingfisher is a strong competitor today. Do you feel threatened by them?

The Air Deccan-Kingfisher combine is a competitor we have to take seriously. Kingfisher has a good product. Deccan has a good reach. This is a competitor we cannot take for granted, at all.

Vijay Mallya, chairman of Kingfisher Airlines, once joked that his company’s strategy was so clear that his planes came retrofitted with in-flight entertainment. Jet, in contrast, decided to go in for in-flight entertainment after Kingfisher’s success. Why was it so?

You have to understand that the average age of Jet’s fleet of aircraft is about seven-and-a-half years as opposed to that of Kingfisher, which is much younger. Six years ago the question of in-flight entertainment in all classes didn’t arise. It now has. So we have configured our new aircraft with in-flight entertainment systems. However, our older aircraft do not have in-flight entertainment in them. So, it is a mixed bag, I agree. Don’t forget that we have been in existence since 1993, while Kingfisher has been around for the last three years. That’s the big difference.

Do you think Kingfisher’s product is sustainable in an environment where costs are high?

Let me answer this question by speaking about ourselves. Despite competition in the marketplace, our J class numbers have been growing steadily. It stands at 9% of our total passengers as of now. This has happened in the face of stiff competition from players such as Kingfisher and Indian. This implies that there is a market for a good product. But it will come at a price. You cannot have fares of a low cost carrier for a product like that. It doesn’t work.

What are you doing about economy class? That’s the bulk market for you.

We have reconfigured economy. We have taken out one row from both economy and business class. We have all the goodies of a full service carrier in economy class including frequent flyer programmes, personalised service, etc. We haven’t ignored the economy.

What kind of market share are you eyeing in the Gulf sector?

Our plan is to have 10 flights to Gulf. That would mean one million seats in terms of capacity. It’s small when compared with the market size, which is 16 million seats. We hope to make a mark with the right product, positioning and pricing.

How large is the India-Gulf market in terms of passengers?

Eight million in terms of passengers. It’s the largest and also very competitive because there are many carriers flying to the Gulf region. The next is the India-US market, which is 4 million in terms of passengers. This one is equally competitive. The irony today is that there is no market that is not competitive. We have to up the ante as we get into each one of them.

You did up the ante on the India-London route?

That’s correct. We are the number two carrier after British Airways on that sector. In fact, 70% of our passengers are of Indian origin. So, that worked for us. Besides, we have a strong home base. We fly to 45 destinations. These have contributed to us emerging as a strong player on that route.

Are you depending heavily on high service levels for your global operations?

That’s correct. Service levels are key to getting passengers. We are going the whole hog to see that our service levels are intact with training programmes, etc.

But what are you doing to stem the attrition in Jet? It’s been a serious issue of late.

It’s not an unusually high attrition that we are seeing. We are prepared for it.

But senior hands have been quitting. What do you have to say about it?