In a candid chat with Travel Trade Insider, C.S. Subbiah, Chief Executive Officer, Alliance Air spoke about a range of topics, from potential in the regional connectivity market to introduction of a new low cost distribution platform. Following are the excerpts from the interview.
Q. What kind of potential do you see in connecting metro cities to smaller ones and regional destinations to each other?
A. There is a latent potential which has remained untapped. The entire vision to connect tier-II and tier-III cities started about three years back. So, realizing the potential in these markets will take some time. It is important to first create awareness about the benefits of the aviation sector in smaller Indian destinations before marketing individually as airlines. We were the first airline to begin operations to Bathinda, which surprisingly has the largest military cantonment in the country. We were told by defence personnel there that if they take our flights one can reach to a place like Kerala in 6 hours time which otherwise used to take a time of 48 hours or more. A military person with limited holidays wants to make best use of his time and such air connections are a relief for them.
We have 400 air strips in this country. We were content with 35-40 major airstrips and another 10 on the fringes. Now in the last three years almost 25-40 airstrips have become operational and close to 50 airstrips are being examined to see if they can be utilized. So, as more and more airstrips are coming into the picture, what’s going to happen is that the interiors of the country will be better connected. For example a person travelling from Chennai to Varanasi for pilgrimage has to reach New Delhi first to board a flight to Varanasi. A direct connectivity between Chennai and Varanasi opens up a lot of new possibilities.
These direct connections from interiors of India to secondary metros or major metro cities like Bathinda-New Delhi or Ludhiana-New Delhi offer alternate options for passengers to connect. Two years ago we were surprised to know that Jaipur was not connected to Lucknow leading to the commencement of flights on the sector by us. The pink city, a hugely popular tourist destination and Lucknow being the capital of the largest state in India were not connected and that was an opportunity. Earlier, passengers from Jaipur had to travel to New Delhi for an onward connection to Lucknow, which resulted in the total travelling time of 6 hours. Now it takes 1 hour 45 minutes on the route. In fact there is also an opportunity to connect places like Vijayawada to international sectors like Singapore. Presently, a traveller from Vijayawada has to visit Hyderabad or Chennai for international connections. Such a model can be replicated on the international routes as well.
Q. Is profitability a concern on regional routes as some airlines in the recent past that started operations regionally closed down their operations?
A. Considering that there is a cap on fares on the regional routes operated under the UDAN (ude desh ka aam nagrik) scheme, it looks like yields are depressed. However, as per the UDAN scheme there is a subsidy given in order to mitigate the losses of airlines operating on regional routes for the first three years and also offered exclusivity on flying to these sectors for the same period.
But it is also important that the route stabilizes after one year of operation. If it doesn’t then it is a cause of concern. However, in our experience most of the Regional Connectivity Scheme (RCS) routes are showing very good potential. There are routes which are cyclical like tourism centric sectors for example Jaisalmer to Jaipur which are in demand in winters but not in summers. Such routes may be a little matter of concern but for three years if you sustain operations, I think there is enough potential.
Q. What kind of growth are you looking at this year?
A. We carried close to 1.63 million passengers in 2018. We are targeting 25 per cent growth over the previous year in terms of passengers carried on our flights. This growth is subject to various factors like the airports of the routes we have got under the UDAN scheme need to be ready on time and there should be availability of qualified manpower like security.
Q. Can you please throw some light on your fleet status?
A. We have a fleet size of 20 aircraft. Alliance Air is one of the oldest airlines in the country. It was operated under a different perspective in the first few years of operations, purely meant to connect the northeast. I am talking about 90s when none of the private carriers were willing to connect the region to rest of the country. So, it was that time the national carrier, Air India took the responsibility and created a subsidiary and started to connect the north east corners and other places of the country.
Subsequently, we have rehashed the strategy from 2015-2016 onwards and come up with the slogan, ‘Connecting India’. We have desired to have a uniform fleet which is group of ATRs 72-600. These aircraft are part of Airbus family and one of the most popular turbo props in the world. We are expecting couple of more aircraft to join this year. So, with the existing fleet of aircraft we are trying to increase the number of hours of flying so that we can optimise our entire fleet and at the same time we are expanding with the addition of new aircraft. Our average age of ATR 72-600 is two years which means that we have one of the youngest fleet in the country.
Q. Are you also looking at starting international operations like connecting North East to the ASEAN region?
A. No, we don’t have any immediate plans to start international operations. The reason is that we have won a lot of routes under UDAN. Our priority is to look into these routes which will give us immediate connections and revenues. Air India our parent company has already one of the largest networks in the world today. Air India is connecting 42 destinations globally. So, as of now our focus for Alliance Air is to be a leading regional airline and offer convenient connections to tier-II and tier-III cities. Our model also well connects us to the existing network of Air India.
Q. The current challenges that the Indian aviation sector is facing like high fuel prices, profitability concerns and infrastructure keeping up pace with the growth. What’s your take on it?
A. The fluctuation in the prices of the aviation turbine fuel (ATF) is a major challenge. The jet fuel prices were touching $86-a-barrel in early 2018 but it slipped below $60-a-barrel in December 2018. Today the ATF price is about $71-a-barrel. The jet fuel prices will be dampener if it crosses $80-a-barrel mark. However, ATF prices are influenced by external factors which are not under our control. Today if there is a crisis in oil rich Venezuela – 10,000 km away from us, we see fuel price rising here. I wish jet fuel prices can be controlled to $60-a-barrel, which will be a relief to airlines. Such challenges slow the induction plans of airlines. Slots are also a problem being faced in major metro cities. We need to develop adequate parking facility because further induction of 50-100 aircraft by Indian carriers is expected in the near future.
Q. Do you think airlines need focus more on ancillary revenue to help their profitability?
A. If you take the best airlines that are focusing on ancillary revenue, it can’t contribute more than 20 per cent to the overall business. This segment of revenue can come handy provided other factors are favourable. Ancillary revenue can add to the bottom line of a carrier only if factors like cost of jet fuel and human resource is under control. The core income of an airline is selling seats. The model in the aviation business is not cost plus pricing. We depend on our sales.
If the market demands a particular price, we have to match that price. Your cost may be ‘x’ if the market demand is not more than ‘x’ you can’t make any money. This explains why airlines operate under a thin margin scenario. Again most of the low cost carriers (LCCs) in the world don’t depend on ancillary revenues but are looking at efficiency of their operations and one of the significant parameters is employees per aircraft. Even in Alliance Air we have taken that into consideration and our employee per aircraft ratio is 35 at present which is one of the lowest in the world.
Q. What is you distribution channel strategy?
A. Presently, we are on the GDS. We were using the Air India platform to reach the market. However, we took a decision a year back that we will split our distribution channel into two to bring down the cost of operation. So, we are adopting a low cost distribution platform which we will launch in next 3-4 months. We will still continue to be on the GDS platform for all our networking connections to Air India. We are going to utilize both the platforms to strengthen our penetration in the market. One will help us to network the whole world through Air India, the other one will help us to bring down our operational cost.
It is a web based platform that we will be offering to all the travel agents in the country, offline as well as online. This platform will be available for the Indian market. Any international passenger can use the Air India platform and connect to our network. We will be reaching to OTAs through application programming interfaces (APIs) and offline travel agents will be provided login ids. We are working on the remuneration model but likely it will be a model that Air India Express is following. There will be a transaction fee for our agent partners. It is an important project for us. Today direct bookings account for 15 per cent to our business while rest come through travel agent network. Travel agents continue to be important especially in smaller places like Bikaner.
I still believe GDS will remain in the market in spite of the changes in the airline distribution network. However, the system will evolve. Every airline is looking at direct bookings on their website and single GDS platform to cut down their cost.
Q. What is the one thing that you like most being in the aviation industry and one that you dislike?
A. The thing I like most about our industry is how it helps people across the world to connect. It is a tremendous experience. When I joined aviation in the 80s, connection was hugely important. The world has become a smaller place today. I still remember my maiden journey to Japan from Bangalore, which used to take 14 hours. Today in 8 hours one can reach there from the same destination.
Challenge is the dynamic nature of this business. For example in 2000 when the Gulf war broke out, overnight it caused panic in the market. The jet fuel prices rose to $120-a-barell. When the severe acute respiratory syndrome (SARS) virus broke, the entire Chinese market was closed for almost 4-6 months. Such scenarios can create havoc for our industry.