Pankaj Srivastav, Director (Commercial) and Member, Board of Directors, Air India spoke at length with TF on Air India’s strategy of countering private players with attractive schemes and fares. Encouraged by positive response on new international routes, the national carrier may further boost its international connect with flights to Washington in coming months. All this and a lot more in an exclusive interview:
Air India has signaled its intent of taking on private airlines by recently rolling out a mega sale on the domestic route. Share with the rationale behind this and how has been the response?
Mega-sales like these are rolled out, primarily, to take care of two things: to tackle competition and sell-off unused inventory. Talking purely about the domestic civil aviation, we found out that every airline was coming up with a sale or the other. So, the move is to counter that, on the one hand. On the other hand, we also see that, at least, fifteen to twenty percent of our inventory is left unsold, especially during the lean season –which stretches for many months in India, given the climatic conditions.
This twenty percent of the inventory, which we know for sure will remain unsold is to be deployed. We have rolled out scheme whereby travelers can book flight tickets at extremely cheap rates that can be used for up to next three months for travel. It gives enough elbow-room for passengers to plan their trips well in advance. Although, it also true that there are many who rely on last minute bookings. However, in order to capture the market better, we come up with sales like these. It is not unique, as almost every airline has come up with flash sales to boost numbers. But, the response to the sale has been over-whelming, simply amazing.
But fares as low as INR 699, all inclusive, is surely not making the airline any money?
Each airline has got its own cost structure and economics. All airline pitch their fare according to what suites them the most. I have seen that many of them have predatory pricing mechanism in place. At INR 699, no one is making profits, which is for sure. So, if we are able to book a certain percentage of our inventory, well in advance, at INR 1499 that would take care of certain aspects of capacity. It does not dilute your business because you are going in with a certain percentage being already sold.
How long will this rat race to acquire larger market share continue? How long can airlines doll out tickets at these sums?
It is simply a clash of who is mightier; who can make the other bleed to death. We have seen, in the past, airlines like East-West, Damania, Air Deccan and, most recently, Kingfisher packing up. It all happens in the market, at a time, when there is a surplus of capacity. While operating, airlines sometime lose sight of costs involved and come out with such prices to fill up capacity. But, it is a fact that fares will remain under pressure as more and more capacity is being pumped in. Market share is a function of capacity share.
How are you engaging with agents and consumers? How is Air India working on its outreach?
You must have observed that, over the last six-eight months, Air India has actually stepped up on advertising campaigns. Hardly any week goes by now, when you do not hear about the airline. We are looking at all options, whether it is digital, electronic or print. We work on, both, corporate campaigns and tactical advertising. In terms of perception and visibility in the market, Air India has gained considerable ground in the last few months.
Talk to us about your international offices and stations. Air India has recently unveiled direct connections to Vienna. Media reports suggest that your USA presence might get further strengthened with direct flights between the two capitals.
We have, actually, been very ambitious in our international expansion. In the last three years alone, we have introduced nine new sectors. The journey started with the arrival of Boeing-787 type of aircraft in our fleet – which ideally work for any flying between ten to twelve hours. It gave us market reach to entire Europe, whole of Australia and the Far East. We started our new routes with flights to Birmingham. We followed it up with flights to Rome and Milan in Europe, and Sydney and Melbourne in Australia. We have direct flights to Colombo, Moscow and Vienna.
Which one of these new routes has commercially worked well for you?
With the exception of Moscow, most of the international routes have been extremely satisfying. Factors like the state of the Russian economy came into play, but the other eight are doing well. It has been little less than two months that we have started the Vienna route and it is being very well received.
What factors do you attribute these phenomena to?
It can be attributed to the outbound, which is growing very rapidly in India. There is a huge upwardly movement of the middle-class youth, who have adequate disposal incomes on their hands. Moreover, Southeast Asia, as a market, has already saturated. Most of the Indians have already seen Singapore and Bangkok. So, the Indian outbound is looking for newer destinations and shortest possible routes to get there. Vienna, actually, fits the bill. It is the gateway to Central, as well as, East Europe. Most of the major destinations are within 250 kilometers by road.
How about the plan to connect Washington DC with New Delhi? Any news on that front?
Well, that is the plan. As is it, we are the biggest operator to the USA at the moment, connecting four major cities. Having said that, we are keen on connecting Washington DC, but I think it will happen sometime later during this year, or by the early 2017. We are awaiting some more resources to join us. It takes a lot of resources, both, in terms of aircraft and crew to operate such a long-haul flight. So, training is under process, both, for pilots and the cabin crew. Also, our commitment to operate Hajj flights during the Hajj season takes away a lot of resource from us. So, possibly, we will look at Washington only once the Hajj season is over.
It will be a great political signal and a commercially profitable route, is not it?
Yes. Connecting two of the world’s largest democracies is something, I believe, everyone is looking forward to. Add to that, there are about two hundred thousand Indians living and working in the USA’s capital. They prefer to take flights from Washington rather than driving down to NY. Major beneficiaries of this omission are gulf carriers.
So, you are likely to eat into their profit once operational?
Well, we do operate direct flights on international routes and passengers do prefer direct connections. So, we eat into their chunk in any market we operate in.
Looking at the larger picture, domestic airlines are finally making some profit. Domestic numbers are looking up, is not it?
It is true that the overall outlook has improved in the latter half of 2015 and in early 2016. It has much to do with the ATF prices going down, but now we are seeing an upward movement. So, it remains to be seen that how long and how high ATF prices can go. If we are heading back to where we were two years ago, then profitability will surely take a beating.
What is your reading of oil prices? Where do you see it heading and stabilizing at?
I think it will stabilize around fifty dollars to a barrel.
What about new routes in the domestic sector? What are plans for the coming months?
We have introduced a number of new routes. It was felt that tier-2 and tier-3 are not very well connected to each other, or to tier-1 cities. It is largely because of the kind of aircrafts we operate, which do not permit us to fly to those airports. With the focus of creating more connectivity, we started getting more ATR aircrafts; we already have acquired three ATR 72-600 aircrafts. We have connected a number of cities like Vijayawada, Bhilai and Durgapur. We have positioned one ATR in the Northeast which boosts our presence in the region. Another ATR will cover Agatti in Lakshadweep. We have introduced Bhopal-Jabalpur-Hyderabad and return, four times a week, and Bhopal-Raipur-Pune and return, thrice a week.