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How GoAir managed to stay profitable when most rivals lost money

GoAir's ability to make consistent profits has surprised many but the airline says it follows the proven low-cost carrier (LCC) model to a tee.

twitter-logoManu Kaushik | January 10, 2015 | Updated 13:38 IST
How GoAir managed to stay profitable when most rivals lost money
The airline's CEO Giorgio De Roni claims that net profit for the current year will be significantly higher than last year.

Someone's pain is someone else's gain. One would assume that the fall of SpiceJet brought Schadenfreude moments for its arch-rivals GoAir and IndiGo.

It is believed that these airlines are likely to take away the passenger traffic from SpiceJet that would translate into higher market share, better revenues and, in a way, increase profits.

However, whatever gains GoAir and IndiGo make would be an icing on the cake as both airlines are already profitable.

The success story of IndiGo is well documented but its closest competitor GoAir's profitable run is still new. The Mumbai-based GoAir, which is promoted by biscuit-to-textile major Wadia Group, is making net profits for the past two financial years - Rs 104 crore in 2012/13 and over Rs 5 crore in 2013/14.

The airline's CEO Giorgio De Roni claims that net profit for the current year will be significantly higher than last year.

GoAir's ability to make consistent profits has surprised many but the airline says it follows the proven low-cost carrier (LCC) model to a tee.

Broadly, the LCC model involves cost control and asset sweating. Roni says "the airline uses its planes for 13 hours per day, which is roughly an hour more than its competitors."

More asset sweating means better utilisation of fleet, which results in spreading the overall costs to a larger number of hours.

"We have kept the internal processes simple to keep the shortest possible turnaround time," he adds.

A number of initiatives have also been taken to keep tight control over consumption of aviation turbine fuel (ATF), which contributes 50 per cent to GoAir's cost.

For instance, while taxiing (travel from terminal to the take off point), GoAir operates just one engine instead of two.

It has also reduced the size of the in-flight magazine to bring down on-board weight. The airline is hiring more female cabin crews.

Almost 80 per cent of its passengers are males who typically weigh more than females. More female cabin crew onboard keeps the overall aircraft weight low.

Roni says hiring more female crew members is not intentional. "We like to go into granular details of saving fuel and exploit every opportunity given that we take about 50,000 flights a year," he says.

Last year, high ATF prices and a depreciating rupee led to a dramatic drop in GoAir's net profits.

However, the sharp reduction in ATF prices - 31 per cent drop since January last year - has come as a breather even though Roni says it has not helped much in the first nine months of the current financial year.

"The drop has happened in recent months. If compared with nine months of 2013/14, the average drop is less than three per cent," he says.

Kapil Kaul, CEO (South Asia) of CAPA agrees. He says "GoAir will see much better financials from third quarter (of the current financial year) as fuel costs have gone down and capacity has been rationalised significantly. Over the past two-three years, the airline has been running smart and efficient operations with focus on costs."

For the nine months ended December 2014, GoAir registered passenger growth of 24 per cent. This is far higher than the industry growth rate of 9.14 per cent between January and November 2014.

GoAir's average market share between January and November 2014 stood at 9.2 per cent as against IndiGo's 31.3 per cent and SpiceJet's 18.2 per cent during the same period.

Its low market share is due to the smaller fleet size (19 Airbus 320s) as compared to the other two LCCs.

GoAir, however, has aggressive plans to increase its connectivity by adding new cities and adding capacity to the existing ones.

The airline flies to 22 domestic airports which include both business and leisure destinations. It plans to increase its metro-to-non-metro connectivity, which currently stands at 74 per cent of the total capacity.

Metro-to-metro route capacity is some 20 per cent. In 2011, the Wadia group ordered 72 Airbus A320 neos, which will be delivered starting April 2016.

Again, the introduction of Airbus 320 neos is in line with the standard LCC model of the use of a single aircraft type fleet.

The neo is an updated version of Airbus's most popular single-aisle A320 and is roughly 15 per cent more fuel efficient than the older version. "We plan to pass on the (lower) cost to our customers in the form of more affordable fares," says Roni.

Operating a no-frills airline is like a tightrope walk. The situation can go haywire at the drop of a hat. GoAir can keep the growth momentum going by sticking to its guns.

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