If it were possible, the pioneer of low-cost air travel in India would love to run every airline company in the country like an Udupi restaurant?low on aesthetics, high on functionality, utilitarian and profitable. Meet Captain GR Gopinath, a former Army officer and an award winning sericulturist, who floated India?s first no-frills airline, Air Deccan. He spoke to FE?s Radhika Sachdev

Do you feel vindicated that your no-frill model has proved robust during this difficult time in the country?s aviation history?

I?ve always felt that the low-cost airline model is more suited to the needs of the Indian market. It?s an inclusive business model that is both robust and scalable. India, where the disposable income is still far lower than in developed countries but where the consumer base is large, the low cost model works best.

The reality is that only 2% to 3% of our population (roughly 40 million) is flying. This may have gone up from 0.5% to 2% during the last term of Praful Patel, led by the low cost revolution, but the rest of the 98% are still traveling by road or rail. The empty planes obviously indicate that this 98% can?t afford the high fares or are not willing to spend. Surprisingly, instead of targeting this 98% and stimulating demand in them for air travel, the airlines have initiated measures only to attract a small segment of the population, that is the upper crust 2% that is already using their services.

Just by expanding capacity for this small segment, how do airlines expect to fill planes and increase revenues? They will only end up cannibalising each other. In the process, all of them will continue having empty seats and piling up their losses, except, as I understand, Spicejet that managed to declare profits last quarter and also Indigo. In my view, the airlines must target the balance 98% to grow. No extent of capacity addition will suffice if we can get even a small percentage of this 98% to travel.

Globally, it is the low cost airlines that are driving growth in this sector. They are run efficiently and are profitable, be it the Southwest Airline in USA, Goal in Brazil or Easy Jet and Ryan air in Europe. For a country like India there are lessons to be learnt.

How do you explain that while occupancy went up by almost 18% in 2009, according to Directorate-General of Civil Aviation, airlines continue to run losses?

On the face of it, Indian civil aviation has grown almost five folds in terms of passenger numbers in the past six years. However, a closer look will reveal another side to this story. For a population of over a billion people, 50 million tickets (assuming that the same person buys on average two tickets every year) translate into merely 3% of the Indian people having access to air travel.

We currently have an estimated 250 million strong middle class and clearly not even a sizeable chunk of this relatively affluent class is flying. The growth in air connectivity and passenger carriage that marked the ?boom years? from 2003 when India?s Air Deccan was launched till approximately 2007 have become a thing of the past.

The aviation industry like all other businesses has been impacted by the global recession but the situation in India has been more challenging on account of ATF (aviation turbine fuel) that makes up 40%-45% of ticket costs as compared to 35% that is the global average. This, coupled with poor and expensive infrastructure leads to huge fuel wastage and diminished asset utilisation. In this dire situation airlines have resorted to canceling booked orders or delaying deliveries of new crafts. Flight schedules are being ?rationalised? to drop Tier II sectors off from the map and fares are heading north to the extent that ticket prices of full and low-cost airline are now almost on par. It is undoubtedly an alarming situation and inimical for the sustainability and long-term growth of the industry.

Is there scope for full service carriers to cut fares through cost management?

The low-cost model is not just about cutting costs, saving on fuel or pruning a few overhead expenses like food etc. Fundamentally, this model is all about having a low-cost culture in all areas of operations, coupled intelligently with innovations, extreme efficiency, high asset utilisation and stimulating market demand by targeting the bottom end of the pyramid and ultimately increasing consumer base.

A low-cost airline, for instance achieves high density seating (by flying 180 passengers in a single class configuration on an Airbus 320 aircraft while a full service airlines offers 145 seats on the same aircraft), lower ticket distribution costs (20%-30% lower than full service airlines), intensive technology interface with the end consumer, eliminating the need for travel agents and expensive GDS systems and by tapping avenues for ancillary revenue (for example sale of food or travel insurance etc) which incidentally converts costs into revenue. The low-cost model eliminates the need for frills and middle men ensuring not just increased distribution costs, higher aircraft utilisation and quick turn around (based on innovations and intensive technology engagement) but also a lower cost base for the business resulting in lower fares for the consumer. Each and every expenditure must be scrutinised and question asked. Can my customer afford it? Ideally, this is what all airlines must aim for.

The basic philosophy is not very different from that of a self-service Udupi restaurant in stark contrast to a full-service air-conditioned restaurant. While a plush five-star hotel can charge more per customer than a simple Udupi, it will eventually loose out on turnaround and footfalls compared to a standalone Udupi restaurant where a customer can?t linger on beyond his/ her meal. It is not to say which business model is superior. It?s just that by positioning a product or service for a larger consumer base, its possible to stretch manpower and resources at your disposal, thereby ensuring higher asset utilisation and efficiency through innovation in a manner that brings down the cost.

But aren?t full-service carriers finally ridding themselves of all frills and trappings? Jet and Kingfisher have both trimmed their fleets and have expanded operations in Jet Konnect and Kingfisher Red, respectively.

Cost efficiency will succeed not just by imbibing a culture of cost efficiency; it must also be backed by the ability and commitment to innovate in every function from marketing to IT and HR. I do believe that the low-cost business model is best suited to the needs of the Indian environment. The way forward for the aviation industry should be to focus on increased occupancy which will help cushion the impact of rising costs by driving up volumes to offset the cost margin that needs to be realised per seat. If the aviation industry is to recover from the present nadir it is absolutely critical that airlines focus on increased occupancy and continue stimulating market demand.