Boe­ing com­mer­cial air­planes are on a steady course and the US-based com­pany has laid out its strate­gies in the world mar­ket in general and In­dia in par­tic­u­lar. In an in­ter­view with Edi­tor-in-Chief Jayant Baran­wal, the Se­nior Vice Pres­i­dent of Boe­ing (Asia

SP's Airbuz - - Front Page -

Jayant Baran­wal (Baran­wal): How do you see the air­lines in­dus­try in In­dia mov­ing at this point of time, par­tic­u­larly un­der the new gov­ern­ment regime? Is it stag­nant or grow­ing or reversing...and why? Di­nesh Keskar (Keskar): The new regime has been in place since May of 2014, so it’s been over a year-and-a-half. In my opinion it is clearly grow­ing be­cause you can see the steady stream of de­liv­er­ies hap­pen­ing at many air­lines. The big­ger ev­i­dence of that is the highest growth rate that In­dia is ex­pe­ri­enc­ing in both do­mes­tic travel and in­ter­na­tional travel to a cer­tain ex­tent. Do­mes­ti­cally we are grow­ing at the rate of 20 per cent which is phe­nom­e­nal com­pared to any­thing now. The to­tal num­ber of pas­sen­gers fly­ing in In­dia is still around 75-80 mil­lion do­mes­ti­cally and whereas in China it is very smaller num­ber but the rate of growth and the pro- pen­sity of peo­ple to travel in their dis­cre­tionary money avail­able to travel, all of that clearly point­ing to­wards growth. So I think, yes while I don’t see the new avi­a­tion pol­icy in place I think what we have in terms of huge air­ports that have mod­ernised over the last two years some in this regime, some be­fore such as Mum­bai, Delhi, Ben­galuru and Hy­der­abad and of course started with Kochi as PPP (pub­lic-pri­vate partnership), I think the ca­pac­ity has been cre­ated and the growth con­tin­ues, peo­ple have the money to travel and the eco­nomic GDP growth in In­dia will con­tinue to grow.

I know the goal is to get to over 9 per cent but we are cer­tainly do­ing well right now and we are touch­ing around 7 per cent and all this points clearly lead me to be­lieve that in spite of some of our in­fra­struc­ture con­straints we are grow­ing the fastest in the world. Even if you saw the rate of growth in De­cem­ber it was even

higher at 25 per cent so all looks well to­wards the growth. It is mostly be­cause of fuel price which is the fun­da­men­tal rea­son why it is grow­ing. The ex­change rate is go­ing in the re­verse di­rec­tion but what mat­ters in In­dia is the price which is based in dol­lars, mul­ti­plied by the ex­change rate and that num­ber is still go­ing down and hence things will con­tinue to get bet­ter. Baran­wal: You will fully agree that In­dia’s full po­ten­tial is com­pletely un­tapped? Keskar: Oh, I won’t say it is com­pletely un­tapped but it is un­tapped. It re­lates to Tier-II and Tier-III cities and air­ports as well. Our po­ten­tial largely de­pends on go­ing from met­ros to the sec­ondary cities and even at some point in time the ter­tiary cities which you call Tier-II and -III. I think what is go­ing to be re­quired for this con­tin­u­ous ex­plo­sive growth to sus­tain is to get flights be­tween Tier-II, Tier-III and within Tier-II and Tier-III now. Within Tier-II it is fairly quickly pos­si­ble, within Tier-III is go­ing to take at least an­other five to seven years. For ex­am­ple, flights be­tween Nag­pur and Luc­know, I con­sider both of these air­ports as Tier-II air­ports, there is enough op­er­a­tions around them and traf­fic of five mil­lion plus and yet there are no di­rect flights in such cities. There are many such Tier-II cities where the air­ports al­ready ex­ists and we feel that once the air­lines start of­fer­ing flights the mar­ket will de­velop. The mar­ket won’t de­velop overnight but cer­tainly there is po­ten­tial for the next growth to come from these Tier-II cities. Right now most of the met­ros are linked to the TierII cities but now we need to start get­ting flights within the TierII cities. That is where the un­tapped po­ten­tial is go­ing to come from. Pas­sen­ger is com­ing on to the air­plane but I think a lot of that mi­gra­tion has hap­pened which is what has led to the all-time high growth of 20 per cent in the In­dian do­mes­tic mar­ket. I think there is still po­ten­tial but.

I must tell you that I have been watch­ing care­fully the im­prove­ment un­der the lead­er­ship of Rail­way Min­is­ter Suresh Prabhu on get­ting bet­ter trains, bet­ter on-time, bet­ter fa­cil­i­ties for the train trav­ellers and all that is go­ing to play a bal­ance. Let me tell you that there is enough to go around for both the avi­a­tion mar­ket and con­tin­ued pros­per­ity of the rail­way pas­sen­gers. What is go­ing to make the dif­fer­ence is go­ing to be, what kind of money I have avail­able and what is my pro­file. What I mean by that is if a fam­ily of four is go­ing on a va­ca­tion and it can af­ford to go by pay­ing ad­di­tional money on the air­plane and sav­ing sev­eral hours or they would rather pre­fer to save the money and take 15 hours of train jour­ney, these two op­tions are not with us. There is go­ing to be both kinds of peo­ple and that’s where the growth will con­tinue and I think to sep­a­rate your sec­ond ques­tion on the un­tapped po­ten­tial, it is there and it is go­ing to hap­pen with some tran­si­tion of rail­way pas­sen­gers but more of flights be­tween TierII and -III cities and at some point of time from Tier-II to -III cities in the fu­ture. Re­mem­ber for Tier-III, a lot of in­fra­struc­ture and im­prove­ment is needed and that is why it is go­ing to take five to seven years as many do not even have good air­ports right now. Baran­wal: Di­nesh, can you give some ideas how to sus­tain and grow the trans­for­ma­tion of rail­way pas­sen­gers to be­come air trav­ellers? Keskar: That is go­ing to only hap­pen, Jayant, if they sell a few seats on each flight at a low price. All air­lines are of­fer­ing good fares but of­fer it to few seats on each flight or on flights which they know are not go­ing to be filled up by the time the day of travel comes up. It is those seats when a trav­eller sees a good fare, for flights ad­ver­tised for as low as 2,500. I am not say­ing on a Mum­bai-Delhi flight but there are flights in that range those are the ones that are go­ing to be at­trac­tive for a rail­way pas­sen­ger to

shift from railways to the air­lines for two rea­sons—nov­elty and speed. These are the rea­sons that the shift will con­tinue. It is not go­ing to con­tinue if the Mum­bai Delhi fares stay at a min­i­mum of

6,000 or 7,000 all the time and the other fares stay in line. For ex­am­ple if you have a 10-hour jour­ney from Nag­pur to Mum­bai which I have done a few times and on that if you charge a fare of more than 4,000, chances are that no rail­way pas­sen­ger is go­ing to shift to pay about 4,000. The af­flu­ent peo­ple are pay­ing about

2,200 for first class AC and I think they have a ten­dency to shift if they do ad­vance book­ing and fly for about 3,000. They are able to fly for about one-and-a-half-hour in­stead of about 12 hours by train. Some peo­ple will al­ways like go­ing by train and some peo­ple will al­ways value time. All these prag­mat­ics will come into play but none­the­less no mat­ter what each seg­ment will be rep­re­sented and that you won’t have an is­sue of growth in the traf­fic. Baran­wal: What do you think is the so­lu­tion to serve smaller cities? Tier-II and -III des­ti­na­tions in terms of ca­pac­ity build up, in terms of the size of the air­craft and so on? Keskar: In par­tic­u­lar the Air­ports Au­thor­ity of In­dia (AAI) has done a rea­son­ably good job in terms of Tier-II cities get­ting air­ports ready and a sig­nif­i­cant num­ber of air­ports that have been im­proved and there are more to be im­proved in the Tier-II level. In the Tier-III level you need to im­prove not only the air­port it­self, the runways, the fa­cil­i­ties, the nav­i­ga­tion, the ATC tow­ers. All of that is go­ing to come into play and when that is hap­pen­ing, you clearly need all the help you need to get not only from the gov­ern­ment, AAI and but po­ten­tially from pri­vati­sa­tion—the pub­lic-pri­vate partnership will con­tinue and that is what is go­ing to hap­pen. So a lot of money will be needed for that. It will all not come from AAI, but will come from other sec­tors, other peo­ple. The state gov­ern­ments have a role to play in this kind of a situation be­cause they will be ben­e­fit­ing from that. For ex­am­ple, in Ma­ha­rash­tra be­sides three of four air­ports, there are other air­ports that are not do­ing that well. Baran­wal: What kind of mix of ca­pa­bil­ity build-up is ad­vis­able for In­dia which is an evolv­ing mar­ket as you know— max­i­mum num­ber of seats ver­sus op­ti­mum num­ber of seats and over­ca­pac­ity ver­sus right ca­pac­ity? Keskar: Ex­actly, Jayant, I have been very vo­cal on this point. The over­ca­pac­ity is what has led to sig­nif­i­cant trou­bles for In­dia in 2008-10 when the fuel prices went out of the roof. We are in a for­tu­nate po­si­tion right now be­cause op­er­at­ing costs have come down sig­nif­i­cantly mainly be­cause of the fuel com­po­nent. It used to be 40 to 45 per cent of the to­tal costs and now has come down to 20 per cent. If you have over­ca­pac­ity and then you will get into a fierce fare war. I don’t con­sider what is hap­pen­ing today as a sig­nif­i­cant fare war. It is there and the air­line is try­ing to es­tab­lish the mar­ket, and they are do­ing a few things but it is not a fare war to be con­cerned. But if you have over­ca­pac­ity and a pas­sen­ger is be­ing faced by five other air­lines clearly the fares are go­ing to go down and they may go down be­low the cost that is when we need to watch care­fully. I am a firm pro­po­nent of ad­e­quate ca­pac­ity not over­ca­pac­ity. Yes, air­lines can have four or five per cent ad­di­tional ca­pac­ity and some seats can be sold at low fares to at­tract first time trav­ellers than hav­ing over­ca­pac­ity which is go­ing to be a prob­lem. The so­lu­tion for In­dia is re­ally the right ca­pac­ity or slight over­ca­pac­ity not over­ca­pac­ity. Baran­wal: What kind of fu­ture do you fore­see in the con­text of air­line op­er­a­tions with the fuel prices which are cur­rently quite down now but def­i­nitely may go up? Keskar: Of course they will go up, not in the fore­see­able fu­ture. What I mean is that in the next six to 12 months, no­body is ex­pect­ing fuel prices to go higher than 50 or so. In that en­vi­ron­ment I think peo­ple can try growth, peo­ple can try new mar­kets by con­nect­ing Tier-II cities. That is what is pos­si­ble in terms of ex­per­i­men­ta­tion in a low op­er­at­ing cost en­vi­ron­ment. You can­not play these sce­nar­ios when the fuel prices are high, can­not take risk to fly an air­craft like a 737 which can take up to 180 pax. In today’s mar­ket where you build a route is you start with a 100-seater and then you build a route and you even­tu­ally be­come a 737 route and that is what some­body like SpiceJet can do with the Q400 and then build that route and hand it over to a 737. We don’t have very many small air­planes in In­dia and be­cause of that hav­ing a low fuel price will al­low us to de­velop some mar­kets in a low fuel price en­vi­ron­ment which would not have been pos­si­ble oth­er­wise. Baran­wal: So you agree that some role can be played by air­craft which is not more than 100-seater ca­pac­ity? Keskar: Ab­so­lutely. We have al­ways said that about the air­craft be­low 100-seater. By the way we don’t make planes be­low 737/100 and to match Air­bus A319. Be­low that is a wide open mar­ket. There is a lot of crowd­ing in the be­low 100-seater, the Chi­nese are en­ter­ing that mar­ket, the Ja­panese with MRJ, the Rus­sians with SSJ, of course Bom­bardier is in that mar­ket and so is Em­braer. And all these peo­ple, we feel their pres­ence is needed as you can­not start with 150 or 180 pas­sen­ger air­plane. You just won’t get that kind of traf­fic on the first day. These air­planes are com­pli­men­tary to us. You may have seen in our forecast that we don’t pre­dict that there is room for many planes in this seg­ment as they have range lim­i­ta­tions. When they are fly­ing dis­tances of one, one-and-a-half hours, we do have roads and trains. We have to take into ac­count go­ing to air­port one hour ear­lier, go­ing through se­cu­rity, wait­ing for the air­plane and then take off and at the other end, get­ting down, wait­ing for bag­gage and the travel back, and the amount of time that you are tak­ing is go­ing to be sub­stan­tial. That is when train or road will come into play. It is why we be­lieve that not many of these will have a mar­ket in In­dia. Baran­wal: Any com­ment you would like to make on the price war which con­tin­ues to take place in In­dia. Does it re­ally make busi­ness sense, Di­nesh, af­ter all? Keskar: Clearly no­body can make money on a sus­tained ba­sis be­low cost. But what I am also ob­serv­ing that when I go on­line to


check prices I lit­er­ally never find flights avail­able at that price, num­ber one and what that means that they may be sell­ing five seats out of 180. I don’t know the ex­act num­ber as I don’t know the air­line rev­enue man­age­ment, but they are sell­ing hand­ful of that to at­tract peo­ple. Rev­enue man­age­ment is not what we see in US or Europe or Asia, these guys are try­ing to at­tract peo­ple to come on their web and if the pas­sen­ger sees 2,000 fare and ends up as a 2,700, the pas­sen­ger says he is okay with the ad­di­tional 700 spend. That is how things are work­ing but you are a savvy avi­a­tion per­son. You have fin­ished 50 years in the in­dus­try and you know the busi­ness well. You can go on the web­site today and com­pare with the ad­ver­tise­ment, you will be lucky to buy one ticket on those prices ad­ver­tised. They are avail­able but it gets filled up within five min­utes of that fare com­ing in. It will be all gone, very quickly. Baran­wal: What kind of po­si­tion­ing Boe­ing is will­ing to have in In­dia in view of the mar­ket dy­nam­ics evolv­ing so fast? Keskar: Look, we have been quite pleased with our wide-body place­ment in In­dia. If you re­mem­ber Air In­dia was pre­dom­i­nantly 747 then sub­se­quently they be­came 777 and 787 today, that is their whole suite. Look at Jet, they do have some A330s on lease and they have pre­dom­i­nantly 777 and 787. These are the only two air­lines today who are fly­ing in­ter­na­tion­ally long haul. We feel our po­si­tion­ing in the wide-body mar­ket in In­dia is ab­so­lutely won­der­ful and our mar­ket share is very high. When you come to the 737 and A320 type of mar­ket, in terms of de­liv­ered air­planes we have a rea­son­ably good mar­ket share. I know that there has been a lot of talk about IndiGo buy­ing 250 now and 180 and those are air­planes they are buy­ing are for the next 10 or 15 years. Jet has not placed any or­der for the next 10 or 15 years, Air In­dia has not placed an or­der, nei­ther has SpiceJet though they are in talks for that. Jet has re­cently or­dered 75 Max re­cently at Dubai Air­show. SpiceJet has or­ders placed two years ago at In­dia Avi­a­tion. So we are pre­dom­i­nant in the nar­row-body mar­ket. We are also putting more air­planes this year into Air In­dia Ex­press. If you look at the num­bers an­nounced world­wide and not just In­dia where in our de­liv­ery share was much higher than Air­bus though Air­bus sold more planes in 2015. The point I con­tin­u­ously make to peo­ple like your­self who are so­phis­ti­cated jour­nal­ists, who un­der­stand this, is that at the end of the day or­ders are or­ders and de­liv­er­ies are de­liv­er­ies. De­liv­er­ies are the one you can take note and bank it.

I mean if you go on to the Air­bus web­site, which I did yes­ter­day when I was trav­el­ling from US to here, I no­ticed that the King­fisher or­der is still on their books for the nar­row-body. And when they speak of their mar­ket share, they add it. I am not pick­ing on King­fisher, but I am giv­ing an ex­am­ple. You and I know the prob­a­bil­ity of de­liv­er­ing those air­planes and we know that the air­line is not go­ing to take that or­der. If you look at our bal­ance of de­liv­er­ies you clearly see that these are de­liv­er­ies. The bot­tom line is there is one thing on or­der and of course I am not say­ing any­thing neg­a­tive on or­ders, peo­ple like Sin­ga­pore, Qan­tas, Cathay, ANA and all when they or­der, al­ways with­out ex­cep­tion they take de­liv­er­ies of those air­planes. But in In­dia we have seen King­fisher or­der A330s, A340s and you know how many of those re­ally came to In­dia, and all the jour­nal­ists wrote about it and at Paris Air­show one year, there was blitz of all these. If you look at de­liv­ery share in In­dia right now, it does not take much to fig­ure it out, we are pretty com­fort­able of 50:50 share on the stan­dard-body or nar­row-body mar­ket and very dom­i­nant mar­ket share in wide-body. I think we have pretty good po­si­tion­ing of the Max com­ing to the mar­ket soon. The 787 re­li­a­bil­ity has sta­bilised in In­dia today. About 1,350 to 1,400 flights a month with the 787 now and re­li­a­bil­ity is close to 99 per cent which is ap­proach­ing world av­er­age. So we feel very good in our po­si­tion­ing and mar­ket dy­nam­ics. Of course, our scope is grow­ing and we are look­ing at over 1,740 air­planes worth $240 bil­lion with wide-body and Max com­ing on line and in the fu­ture we are look­ing at new mid­dle of the mar­ket air­plane and all of that will po­si­tion us very well in the In­dian mar­ket. Baran­wal: Di­nesh, how would you view the progress of IndiGo in In­dia? Keskar: I can­not com­ment on that as I am not aware of what they do, but I am ab­so­lutely im­pressed with the way they run the op­er­a­tions, I am im­pressed with the growth they are ex­pe­ri­enc­ing and I be­lieve they have reached now 100 air­planes, right and it is phe­nom­e­nal. I don’t know their facts well, but they have done a great job for the In­dian avi­a­tion and for In­dia and they run a very good busi­ness. Baran­wal: How do you po­si­tion the 787 in the next 10-15 years? And also we hear of re­ports here and there of mi­nor prob­lems on 787? Keskar: Jayant, you are a so­phis­ti­cated guy. Even the best of air­planes have 99.6 to 99.8 re­li­a­bil­ity what that means is that four out of ev­ery 1,000 flights you are go­ing to hear some­thing. And lit­er­ally we have thou­sands of flights ev­ery day. Air In­dia is do­ing 1,400 flights a month. When you do 1,400 flights a month and have a dis­patch re­li­a­bil­ity with around 99 per cent, sim­ple maths will tell you are go­ing to have about 10 to 15 flights where you are go­ing to have a snag. It is a high num­ber and we are con­tin­u­ing to work on that and our goal is to get at 99.2 and even­tu­ally at 99.4, so when you have these three or four flights, most air­lines in the world, in­clud­ing United and if it is de­layed no­body writes about it even if there is a de­lay of eight hours. It’s not a story in the US as there are so many flights ev­ery day. In In­dia, I am sure even IndiGo does not run 100 per cent dis­patch re­li­a­bil­ity, nei­ther does Jet, but when­ever some­thing hap­pens to Air In­dia it gets writ­ten. I don’t think so it is out of the or­di­nary and it will con­tinue to hap­pen. We will con­tinue to work with Air In­dia to make sure that their re­li­a­bil­ity gets higher and higher but we don’t ex­pect that they will run or any air­line in the world will run 100 per cent of the flights on time in the next 15 years. Baran­wal: How many 787 do you ex­pect in the next 15 years fly­ing in In­dia? Keskar: As you know, 21 are fly­ing today, six are sched­uled for de­liv­er­ies in the next two years and Jet has 10 more, clearly 37 at least in the next five years and as they get ready to or­der the next batch, we will have to look at it. But if you have seen our forecast of 1,740 new air­craft, about 300 in that cat­e­gory, in the next 20 years are go­ing to be in the wide-body which we dom­i­nate. There is not a sin­gle A350 or­der in In­dia, there isn’t a sin­gle A330­neo or­der in In­dia, clearly we will have the lion’s share of the wide-body mar­ket go­ing for­ward. We don’t spec­u­late what air­lines will or­der. I am giv­ing you the facts. For your in­for­ma­tion that 37 units of 787 and a to­tal of 30 units of 777 have been de­liv­ered in In­dia the last few years and will be de­liv­ered in the next five years. Today, Jet flies, as you know, 10 num­bers of 777. Air In­dia will soon get the three brand new air­planes which they have de­ferred till 2018. The de­liv­er­ies of wide-body air­craft from Boe­ing con­tin­ues to hap­pen. I won’t give you num­bers for the next 10 or 15 years, but I am giv­ing you the 37 and 30, that is 67 wide-bod­ies of Boe­ing will be de­liv­ered in In­dia be­cause they are con­trac­tu­ally there. I don’t see a whole lot of ac­tiv­ity on the Air­bus side in the wide-body mar­ket.

Bon­homie: SP Guide Pub­li­ca­tions CMD and Edi­tor-in-Chief Jayant Baran­walwith Di­nesh Keskar

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.