Part 2

Summary

The speaker reflects on starting a low-cost airline in India, inspired by Southwest Airlines. Despite challenges such as low aviation penetration, high ticket prices, and limited infrastructure, they believed in the potential for growth. The speaker highlights the hurdles of establishing a low-cost carrier in India, from regulatory obstacles to competing airlines. They expanded aggressively to avoid being overtaken by competitors but faced financial difficulties, especially with rising fuel costs and economic challenges. Eventually, they exited the airline, predicting success for Indian and SpiceJet, while foreseeing struggles for other full-service carriers.

Takeaways

• ✈️ The speaker draws inspiration from Southwest Airlines' model but notes that India is a different market, with lower aviation penetration.
• 📉 At the time, India's aviation penetration was less than 3%, lower than even Sub-Saharan Africa, with just 13 million passengers annually.
• 🏙️ While London airports handled 80 million passengers in 2002, all of India's airports combined handled only 13 million, highlighting a massive business opportunity.
• 💼 When starting a low-cost airline, the speaker realized India's aviation market was monopolized, with high ticket prices making air travel accessible only to the wealthy.
• 🛫 The aviation infrastructure in India was underdeveloped, lacking internet access, credit card penetration, and alternate airports, which are crucial for a low-cost airline model.
• 📉 Despite market challenges, the speaker believed in the potential for a low-cost airline to change the market, driven by consumer demand for affordable air travel.
• 💡 The goal was not only to offer low fares but also to connect unserved cities across India, driving significant expansion.
• 📊 As the airline expanded, new competitors like Kingfisher and SpiceJet emerged, putting pressure on prices and increasing operational challenges.
• ⛽ Rising fuel costs and a competitive pilot market led to financial losses for the airline, making it difficult to sustain profitability.
• 🤝 Eventually, the airline merged with Kingfisher as investors sought an exit, citing financial difficulties, rising oil prices, and the 2008 financial crisis as key factors.

Q & A

What inspired the speaker to establish a low-cost airline in India?

The speaker was inspired by the Southwest Airlines model, which focused on fast turnarounds, minimal service, and efficient aircraft utilization. Upon returning to India, he noticed a significant opportunity in the aviation market, as air travel penetration was very low compared to other regions, with only 13 million passengers in total, and flights being mostly limited to business people or the wealthy.

How did the state of the aviation industry in India differ from that of other countries at the time?

The aviation industry in India was underdeveloped compared to countries like the UK. For instance, London had five international airports handling 80 million passengers, while all of India's airports combined were handling only 13 million. The industry was controlled by a few carriers (Jet Airways, Sahara, and Air India), and ticket prices were prohibitively high for the average Indian traveler.

What challenges did the speaker face in starting a low-cost airline in India?

Challenges included low internet and credit card penetration, outdated rules and regulations, limited airport infrastructure, and a lack of alternate airports to avoid monopolies. These factors made it difficult to establish a low-cost airline, but the speaker was determined to push through and bring affordable air travel to the masses.

What strategy did the speaker use to convince the government to support the low-cost airline initiative?

The speaker realized that presenting the idea of making air travel affordable for the common people was powerful enough to cut through bureaucratic red tape. He believed the government would roll out a 'red carpet' for such an initiative, as it aligned with broader goals of accessibility and economic growth.

How did the speaker's airline plan to differentiate itself from other carriers?

Besides offering lower fares, the airline aimed to connect a lot of cities that were not previously linked by air, thus expanding the reach of air travel to underserved regions of India.

What led the speaker to exit the airline industry in 2007?

A combination of factors led to the speaker's exit: rapid expansion created operational challenges, competition increased with new airlines entering the market, and investors were looking for an exit strategy due to rising fuel prices and financial pressures. Additionally, political factors and the global banking crisis of 2008 made the situation more difficult.

What role did fuel prices play in the difficulties faced by the airline?

Fuel prices skyrocketed from $17 to over $140 per barrel during the airline's operation, which dramatically increased operating costs. As a result, fuel costs accounted for more than 50% of the airline's ticket price, making it difficult to maintain profitability, especially when price increases led to lower occupancy rates.

How did the competition from other airlines impact the speaker's airline?

The entry of multiple new airlines like Kingfisher, SpiceJet, and Indigo increased competition, putting pressure on ticket prices. Additionally, these airlines poached trained pilots and engineers, leading to a strain on manpower and further operational challenges for the speaker's airline.

What was the investor response to the growing competition and operational challenges?

The investors, who were mainly private equity players, were reluctant to pump more funds into the airline as losses mounted. They viewed the airline as a target for acquisition and sought an exit strategy, which ultimately led to the decision to sell the airline.

What is the speaker’s prediction for the future of Indian airlines?

The speaker believes that low-cost airlines like Indigo and SpiceJet are likely to be successful. However, full-service carriers like Vistara and Jet Airways will continue to face challenges unless they separate their domestic low-cost operations from international full-service operations, as the domestic market does not support the traditional full-service model.