The domestic airlines by and large will recover to almost about 90 percent by the end of this year, says VK Mathews.
IBS Software is a major Kerala-based SaaS solutions provider to the travel industry globally, managing mission-critical operations for customers in the aviation, tour & cruise and hospitality industries. In an interview, VK Mathews, founder and executive chairman of IBS Software, talks about the blows rained by the pandemic on the travel industry, how the company faced the crisis and the emerging trends.
Airlines, your major customer, has been in desperate straits since the outbreak of COVID-19. Could you give an overview of the extent of distress in both domestic and international markets?
Aviation is one of the hardest-hit sectors in 2020. Globally, the GDP went down by about 3 to 4 percent. And the travel sector lost about 65 million jobs and $4.7 trillion in revenue. When it comes to traffic, revenue passenger kilometre (RPK), the measure as revenue paying passengers and the distance travelled, dropped by about 66 percent. So, the revenue may have declined by as much or more. That's the kind of depression the sector faced.
How did IBS fare since the outbreak of COVID-19? Were your revenues hit?
We did well under the circumstances. Whether an airline operates say 100 flight or 1,000 flights, they still need our system to fly. They need a cargo management system, a passenger management system, a loyalty management system, an engineering maintenance system, a crew management system and flight operations. So, nobody could actually dismiss our service as we addressed mission-critical operations.
And these systems are so important, even when such a calamity is affecting them because that's the one which help them optimise their operations. But having said that, we had to give discounts, deferrals, waivers and things. We are a partner to the industry, and we definitely need to show consideration in the light of what the industry is going through.
We had to recast our plans because 2020 was a lost year. Our recurring revenues grew, but our total revenue dipped a little bit. The top line dropped by about 10 to 15 percent.
After the pandemic, the airlines have been looking to cut cost especially with a plunge in passenger traffic and escalation in fuel prices. Since the digital solutions offered by you help in maximising yield by increasing efficiency and reducing cost, were there more takers for it?
Actually, very much so. We are world leaders in providing logistic solutions for the freight industry. Our platforms were found to be immensely beneficial by the customers during this period especially for what kind of a fleet network, what kind of aircraft that they should use, and how they should use it. All of those optimisations are a big disruption done by our system.
People usually pay for the job as they use and the unit price that we have with customers is agreed on the estimated volume of business. An airline which is having more air bubbles have more passengers, more loyalty members, more engines to maintain, more crew to handle or more flights to operate, will pay more of course, but the unit prices will come down. So, there is economies of scale. It also means that we have certain thresholds, and if the numbers slide below it, that threshold holds.
Though passenger traffic plunged, the cargo operations of most airlines were robust. Did it help the airlines to keep afloat?
Cargo operations did exceptionally well and it is the silver lining during the period. It was up by 120 percent in 2020 and the growth is continuing. The cargo carriage rose by 12 percent for April-June 2021 quarter compared to the same quarter in 2019. The cargo’s share of the total revenue used to be about 10 to 12 percent. Today it is coming to something like 33 percent or one-third of the revenue.
Going forward will COVID-19 have a disruptive influence on the travel industry? If so, what will be the changes in perception that will redefine it?
One of the three major trends emerging after COVID is acceleration of the personalisation trend. If you know what the customer needs, you will be able to sell it so easily.
The second trend is direct to consumer or D to C, what we actually call disintermediation. It means that I take the products and services directly to the consumer bypassing all other non-value adding things. When we order something, we don't know where it is, but it may be coming from New Zealand to us directly.
Next is virtualisation. I deliver you everything that you want not just the ticket. An airline sells to its travellers not just the seat and hotel room, but a lot of ancillaries like excursion or car hire, which may not have any connection to flying. Digital connectivity enables us to aggregate those things, productise, personalise, package and deliver it to the customer.
Have you developed new solutions for the customers to tide over the pandemic crisis?
Customer loyalty management is number one agenda for everybody and customer retention is the key. Some of the biggest loyalty management programmes like for Air Canada, Latam in South America and China Eastern in China are run by us. Many more are in the pipeline and we are developing and piloting some. We also have retail programmes that help airlines to sell whole lot of things besides seats and the cargo solutions that take services directly to the consumers.
How long will it take the aviation sector in India and abroad to recover?
I would say the domestic airlines by and large will recover to almost about 90 percent by the end of this year. India can recover very fast if we can achieve progress in vaccination. In countries dependent on domestic traffic such the US and Europe, by July this year, 80 to 90 per cent of the service has resumed. But only 60 percent of the flights are in operations and the load factor is 35 to 40 percent., meaning they are not productively utilised.
As for international traffic, it will take one more year. The International traffic as of July is only back by about 15 percent. It's because of the unpredictability of the policies, travel restrictions etc. See, I'm not really sure whether I'll be able to come back as planned from another country.
What are your expectations for the coming years?
We are back to growth in 2021. We will grow faster from 2021 to 2025, by about 5 percent. Earlier we were growing at 20 percent. Our expectation is that our company will grow at 25 to 30 percent in the next four years which is really good. And we also have good EBITDA margins.
So far you have depended on PE firms for funds. GA invested $60 million and later Blackstone invested $170 million. Will you be going after other funding avenues like IPO for your future activities when the economy stabilises?
Not at present as we have good PE investors. But we will look at going public after the pandemic is under control. We should be able to do that in the next 18 to 24 months. That’s because we have shown resilience which nobody else could do in the industry and we are back to growth. The travel sector is impacted but we are a technology company and our relevance is higher during the difficult period.