Apr 20, 2012 03:53 PM IST | Source: CNBC-TV18

Up, up and away, the IndiGo way

Rahul Bhatia says he doesn’t know what the term ‘entrepreneur’ means. To him, it’s just someone at the right place at the right time and someone who gets the right reins. Bhatia returned to India in the mid 1980s after spending a few years in Canada studying to become an electrical engineer.

Rahul Bhatia says he doesn’t know what the term ‘entrepreneur’ means. To him, it’s just someone at the right place at the right time and someone who gets the right reins. Bhatia returned to India in the mid-1980's after spending a few years in Canada studying to become an electrical engineer.

By 1988, a telecom business he was keen to launch hadn’t taken off and Bhatia was ready to go back to a PhD and a university lectureship, when his father’s ill health forced him to stay back and look after the family’s airline services business.

InterGlobe Enterprises was born in 1991 and manages India’s most profitable low cost carrier - IndiGo - a transport technology business, a mid-market hospitality venture, an ultra luxury boutique offering and is now entering into retail space as well.

In an exclusive interview with CNBC-TV18, Rahul Bhatia, the managing director of InterGlobe Group Enterprises explained why sticking to the fundamentals is so important to him and on how he has learnt to manage the system and how he defines his passion to win.

Below is an edited transcript of his interview. Watch the accompanying videos for more.

Q: Were you taken aback by the fact that your profits were questioned in an open letter to employees by the chairman of another aviation company in this country?

A: We, like every other airline, submit our financials to DGCA every year. It is open for scrutiny. It’s for anybody to figure out if we are fudging the books or not.

Q: As you said, you submit your accounts which are audited by KPMG to the DGCA; it’s there for public consumption, there has been a lot of questions on whether your sell and lease back arrangements are driving the kind of profits, you have come out and defended that argument as well. Where do you think this tends from and why do you think it’s not going away?

A: I suppose that question probably is better posed to the person who is saying what he is saying. My own message to the team internally is just keep your heads down and keep focussing on what we have; we have seen some early success. The only thing that concerns me, at times, is success brings complacency and sometimes some misplaced arrogance. There is one message that is consistently given out to the team is - we have a business to run, in the context of aviation, Indigo is still a very small company.

Q: How have you managed to get successful, and what makes you work, why are the others failing where you seem to be working? I know that it’s because of the fleet optimization and keeping your costs down. I know you think about every rupee that you spend; you don’t have in-flight entertainment systems, in-flight magazines, you try and extract the maximum number of miles from every liter of ATF. But what is the key differentiator that allows you to successfully operate a low cost airline where others have failed?

A: In simplistic words, I think that the religion at IndiGo is quite simple. Firstly, the airline business is never short of foolish ideas. At IndiGo, people are trained to essentially analyze thoughts of people and ask themselves the question. If we were to implement this, does it actually generate more customers, which hopefully should translate to greater profitability or not? If it doesn’t, just drop it.

To give you simplistic example - I think it has taken the company 5.5 years to make a decision on whether to serve a warm beverage on the plane or not? Should we be doing it today? To my mind, we shouldn’t be. But finally, the management of the company over ruled my views and we have warm beverages on board. It’s just that it adds complexity to the level of service on a plane. Would people not fly IndiGo if you are not serving a warm cup of tea or coffee? I don’t think so.

Q: So why did you give it?

A: At the end of the day, the business has to be run by people who run the business. I am essentially just a shareholder. Finally, I suppose the views of the management must prevail.

In 2005, when Bhatia and his US based NRI partner Rakesh Gangwal gave airbus a single largest order for a 100 aircraft, the industry was in shock at the sure audacity and skeptical about their flight map. He proved the skeptics and critics wrong. Six years later, Bhatia has placed on order for another 100 aircraft worth USD 15 billion at the Paris Air Show leaving the industry in shock once again.

Q: As far as Indigo is concerned, there has always been emphasis on getting the backend right and then aligning the front end to the backend as opposed to other airlines where the constant obsession is with the front end, perhaps, not enough on the backend.

A: I suppose you are right because when you look back at 2005 for the airline, at that moment, taken a punt of making a large order on an aircraft and then repeating that last year. I suppose, in many ways, it reflects what the company actually plans.

Q: The current burst is we have seen the cycle before in India. Why do you believe so many people have failed if it is such a slam lug opportunity?

A: One has to be absolutely careful about keeping cost under check. Why are others failing? It is better to pose that question to the people who are failing. But I really think the difference between the companies that are making money over the ones, which are not, actually lies in the cost structure of the business.

Q: Do you believe the cost structure when four companies like Kingfisher, and perhaps to some extent, Jet Sahara because of the strategic misadventures like buying out Deccan and Sahara, running Jetlite, Jet Konnect and full service airlines; it was again a comeback to the airline in frontend and the backend wouldn’t really change much in terms of cost. You were just putting out what your marketing was telling you in terms of new offerings to the customer?

A: At Indigo we are not believers in acquisitions or mergers. If you look at the aviation history around the world, you will find out that that even when two of the best performing airlines have chosen to come together, a few years later, when you look back at it, it ends up being a zero sum game.

What they discover through the journey is that a lot of those advantages more often than not get completely mitigated by the lack of integration of cultures.

Q: So there is no question of you trying to pick up an Indian aviation company?

A: I think not till Rakesh and I have about the last cent invested in this business; we do not think so.

Q: Do you believe that it was because you had a very clear customer promise that set you apart from the rest of the business?

A: Punctuality to us is more powerful than the fanciest meal that could be served on that plane, as simple as that. One thing that we missed is that being a low cost operator has no relationship whatsoever with being low quality. This has got nothing to do with it. These are completely separate issues and we will be able to deliver to the country a world class airline and being low cost at the same time.

Q: Do you believe the time is right now for foreign carriers to come into India since you do enjoy competition?

A: Our view, and on occasions, I have been misquoted on this - why does government entertain a change in policy? Just because one or two specific companies actually are in trouble.

Q: It's not the first time it has happened in the aviation business?

A: But that doesn't make it right.

Q: Do you think that at this time point in time, given the state of the industry, it would help the industry to allow FDI?

A: Let me actually ask you a different question. You look at a country like the United States of America. So, you have had an operator like Southwest that has delivered profitability consistently year on year for 30 years. In those 30 years, many airlines in America have come, lived and gone. Has it prompted the government of the United States of America to change investment policy because companies are failing?

That’s my issue and I just find it fundamentally unfair. We think it’s unfair that the government has tended to place a premium or inefficiency and we just find it disheartening.

Q: Do you believe there are takers in this market?

A: Obviously, people who are pushing for FDI must have takers and that’s why they are pushing for it. Whether there will be takers or not in the future, time will tell.

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Q: There has been a lot of speculation on why you are not doing the IPO. When you are going to do the IPO, you don’t need the money, perhaps you don’t want the kind of scrutiny that will come with listing. Where do things stand as far as the IPO is concerned?

A: Talking about scrutiny, I just want to let you know that the company is obviously audited by two world-class firms. I would like to think that our book keeping is as conservative as you could ever lay your hands on. I would like to think that the company’s disclosures are as stringent as you would have with the listed company.

Q: What would drive you to an IPO because we understand that you did appoint merchant bankers, but then shelved the plans? So, there was clearly the motivation to go public and then you have pulled back or was that media speculation?

A: It’s like anything else; you explore options all the time. You will look at 20 different things at a certain moment in time. We are open to all kinds of options. For the moment, we don’t think an IPO is in the offing.

Q: There is speculation of how Air India was done in because of politicians playing politics with bilateral. The sense is that perhaps the same sort of thing is happening now to favour some companies and it includes yours as well. Do you believe that once again this is competitors indulging in loose stock?

A: Let me answer this in several parts. India has had a policy of companies having a moratorium in terms of being able to fly overseas for five years and some fleet size of 20 aircrafts.

I would like to think that India is probably the only country where we have a regulation as ridiculous as I just stated. So one, we come into being, we today singly carry more customers than any other airline in India. We have completed five years; we made an application to the government last year in March to access unutilised route authority to markets around the world. I believe we just got relief on a part of our application as recently as yesterday, which is exactly 12 months after the application was made. There is not a single individual in the government who can intellectually tell us why the government is reluctant to release sovereign rights to Indian carriers.

Are we less national than Air India, are we less national than some of the foreign operators who fly here unfettered? If I am not mistaken I think there was a cabinet decision on this matter several years ago. So the question is - Are we flaunting that cabinet decision by not allowing people to fly overseas? It’s the question meant for the government of India and not for us.

Q: How do you deal with the fact that you are in a business, which is dependent on government regulation, which sees a lot of hectic political lobbying.

A: We deal with it with a great amount of difficulty.

Q: Is it imperative to learn to manage the system?

A: To an extent, yes.

Q: Have you learnt to manage the system?

A: Have we? I just mentioned to you that we have waited a year to get approvals.

Q: What depresses you the most?

A: It has got to be lack of accountability. I have been to many key decision makers in this country. Every time, we have a conversation, intellectually, we agree with what you are saying and then it stops.

Q: How much of you temperamentally and in terms of working style is now part of the IndiGo DNA?

A: I am far remote move from the business, Aditya and his team run the business and they do an outstanding job. Rakesh and I set the mold upfront, and then from thereon, it’s being implemented by Aditya and the folks.

Q: So no micro management? No, checking your BlackBerry?

A: I shouldn’t be saying this, but if there is one thing I am held guilty for is providing people with an excessive amount of autonomy because that’s the only way to do it.

Q: Coming back to a short-term story, Q3 was a difficult quarter. Do you believe that you are going to be able to close the year with profit?

A: Yes, I can say that confidently, the year is over and we are profitable. Profits for this year are significantly lower than last year because fuel has been where it has been. But the company is distinctly profitable for the year and the year that just kicked off looks much more promising than the year that’s gone by.

Q: I know you don’t believe in hoardings and you don’t believe hoardings can actually drive customers into your planes, but you have now started advertising in a fairly significant manner. Were you waiting for a brand to establish itself to gain credibility and recognition before you started your advertising campaign?

A: IndiGo has always believed that the most powerful sort of way to proliferate the brand is word-of-mouth experiences and we continue to rely on that. We have had a few tactical ads more recently around on time and a few other things. I love our tongue-in-cheek advertising, but generally the company is quite reticent about spending money in advertising.

Q: You aren’t comfortable with it? You don’t like to do media interviews. You are fairly inaccessible, it takes us a whole year to be able to get time with you, and you don’t enjoy this, do you?

A: I don’t. It’s just different people have built differently, but it is what it is. The fact is that I am sitting with you having a conversation.

Q: So, you have changed then, haven’t you?

A: You are relentless about this and some day you got to just give in and say, ‘let’s have a cup of coffee and chat’.

Q: What are you most passionate about besides the airline or besides all of the other businesses that you continue to sort of drive within the hospitality category?

A: I think it’s about doing the job well, looking at it and feeling good about what you have put together.

Q: How do you define success, what are the parameters that you judge your success by?

A: I think giving whatever you have embarked on, giving it the best shot that you can, to me, is success.

Q: Do you believe you have given your best shot?

A: We try everyday, it’s a daily battle, we just keep going at it every single day.

Q: What would you say has been your big achievement so far?

A: There are no big achievements. Life is a journey, different milestones that happen – some of your making, some others that come to you on their own, but it’s a journey.

Q: But you are committed to the aviation business?

A: I would like to think so. I would like to think that given the commitments we have out there we are committed to this thing for the very long term.

Q: So what drives you to continue doing that?

A: Our game at Indigo is quite simple. You have got to just make sure that during the periods of famine, you are less starved than the competition and hope to ride the crest when you do get to a point where things start to look better.

Q: What is the one principle that you live by?

A: I think you have to have honesty and purpose in whatever you embark on doing and try to do the very best you can. At the end of it, even if you turnout to be unsuccessful, atleast you can tell yourself that you gave it absolutely everything you had. I think the biggest regret one can have is chase something and not give it everything one has. In the unfortunate circumstance that it does not turn out right, you don’t want to leave yourself with the understanding and the disappointment that you did not give it everything that you could.

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