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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. s 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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