Ronojoy Dutta, CEO of InterGlobe Aviation, which operates India’s largest airline IndiGo, says the privatisation of Air India (AI) is a welcome move and India’s aviation market is big enough to accommodate two or three airlines.
Tata Sons has emerged as the frontrunner to buy AI. “The Tatas will be a formidable force. No question. But my point is that there is room for two or three airlines,” said Dutta, a former executive of United Airlines Inc.
Dutta spoke to Moneycontrol in a Boston hotel where the 77th annual general meeting of the International Air Transport Association (IATA) took place. Here are the edited excerpts:
AI is being privatised. Do you see that changing the market dynamics?
There is room for two-three airlines in India. It is not like there is room for only one. I have spent all my life competing United Airlines versus American Airlines. I worked for 20 years with United and every day I was competing against American. Both airlines survived. IndiGo and Air India will compete as well.
Will the competition not become tougher as an established business house could win Air India and could tie up with a foreign airline?
The Tatas will be a formidable force. No question. But my point is that there is room for two or three airlines. I am glad AI is being divested. Having an airline that is not run on economics is not good for the industry.
As an example, AI likes to say our bags are free. They are not free … the taxpayer is paying for them. The Tatas will be economically responsible; that is good for the entire industry. I welcome what is happening.
When you say (it is) good for the industry, what kind of changes are you expecting? Are you expecting ticket pricing to become more rational?
Behaviour, the product, the price, competitive nature. I think it will be much more competitive. Before there was almost an “oh, let us protect AI” attitude. That is not economically a good way to go about it. Now it will be an equal playing field. I think it is good for the nation to have AI finally being an economic entity that is responsible.
Two new airlines, including one which will be in your space as it is planning on being an ultra-low cost carrier (ULCC), are coming up. How do you see the market being impacted?
There is going to be a lot more competition. We just need to focus on what we do and what we do well. We are the lowest cost airline. We think that is not going to change. Even with this so called ultra-low cost, you cannot increase the density of the seats.
Can you explain density of seats?
How many seats are there on an airplane?
You cannot go any higher. The aircraft is not certified for any more. The maximum density is already there. The other thing they do is they charge for bags. That the Directorate General of Civil Aviation rules (DGCA) do not allow in India. So, in every cost aspect we are already an ultra-low cost airline. It will be tough for anyone to go below us.
When you put the lowest cost, best quality of service and the best network – that is what we find is our line of defence. People can do many things but we think we have a strong line of defence.
In a July IndiGo analysts call, a participant said that according to his calculations the net worth of IndiGo had turned negative. Is that correct?
Well, I have heard that also. I think that is the book value. It is just an accounting thing. I have not looked at it. But I am sure it is probably true.
If it has turned negative, then by how much, and what are you doing?
I really cannot comment on it. It sounds about right because we have taken a lot of debt. I have not ever looked at my book value and said oh is it plus or minus.
The cap on domestic airfares has been raised. Are you in favour of the government controlling fares?
I am not in favour of the government controlling either capacity or prices. But by the beginning of next year they (government) need to get out of this. We have bought four freighters. We are very bullish on cargo.
Is there a limit on the number of freighters you intend to have in the fleet?
No. We are going to grow.
Are you looking at a double digit number for the freighter fleet? IndiGo has over 250 passenger aircraft. Are you looking at the same kind of numbers for the freighters?
No, we are looking at four. May be the four goes to six and goes to eight. It is not going to be 100 planes in cargo. It is going to be a smaller part but it is going to be a meaningful part.
Any plans for international operations with wide-body aircraft?
Not in the near future. But in the long term, yes.Ashwini Phadnis was in Boston at the invitation of the IATA