India Lands in Europe
22 September 2007 Naresh Goyal
Indian long-haul carrier Jet Airways may have just pulled off a major coup, by making Brussels its European hub. Founder Naresh Goyal tells Nigel Ash how he is building a global empire from scratch.
Naresh Goyal, the charismatic chairman of Jet Airway, India's largest domestic carrier, which is now aiming for international success, does not talk McKinsey or walk the MBA way. And this is not the only thing that sets him apart from other rising Asian entrepreneurs – at 58 he is older than many other first-generation business moguls, which makes him a man in a hurry.
When the Indian airline market was deregulated 14 years ago, Jet Airways was just one of many start-ups anxious to cash in – albeit with official encouragement. Today, the airline controls 23% of the Indian market. However, international expansion was largely restricted by the lack of slots in Europe and North America, until Goyal spotted an extraordinary opportunity that no other major airline had been prepared to seize.
SLOT IN THE MARKET
Brussels Airport might serve the European capital, but there are only so many legislators, eurocrats and lobbyists that want to fly in and out. The airport had, in addition, suffered from the demise in 2001 of national carrier Sabena and faces the looming loss of DHL's European hub to Leipzig, along with 1,400 jobs.
Here, explains Goyal, was an international hub for his airline that has no slot limitations but would allow him a key access point into Europe and a transit stop for North America.
Jet Airways' original international route, London-Mumbai, has since been joined by Mumbai-Brussels-Newark in August and Delhi- Brussels-Toronto in September. And in November, Bangalore- Brussels-New York (JFK) will be added.
Goyal says: "In Europe there are slot problems at London Heathrow, Frankfurt and Paris, and almost every airport is congested. Brussels is not. It is also centrally located, less crowded and a lot of languages are spoken." He adds that Jet Airways gets good facilities and discounts from the Belgian airport, which has been undergoing major upgrading of both runways and terminal facilities.
Jet Airways' only major long-haul competitor based there is Brussels Airlines, which is not a threat since, as Goyal explains: "They fly in Europe and Africa to former French or Belgian colonies where we don't fly. They will feed us traffic from Africa and we will use them as a feeder airline for our European traffic." Brussels Airlines does fly to North America and Asia, but not to India.
Brussels brings another advantage. The two main constraints on airline growth, particularly in India, are the lack of pilots and inadequate infrastructure. Goyal says: "Pilots continue to be a challenge, and Jet Airways doesn't yet have its own flight training school."
Goyal announced earlier this year that Jet Airways is planning to train between 150 and 200 new pilots a year at its own flight training academy, and he revealed to CEO magazine that this will take place at Sabena's old flight deck school in Brussels, which was sold off when the airline collapsed. He says: "We are creating a relationship, not a financial partnership, where we will use the Sabena school facilities to train up to 200 pilots a year." In addition, for Jet Airways' pilots hired from Europe and North America, Brussels provides an attractive location.
Brussels may also yield yet another advantage. In 2006, Goyal announced plans for a cargo division of Jet Airways. DHL, which is moving its European hub from Brussels to its vast new facilities in Leipzig, is leaving considerable infrastructure behind. Goyal says: "We are still studying the cargo airline, and we are talking with Lufthansa. But we are looking at Brussels as the hub because of the facilities there."
Jet Airways' core business is the domestic Indian market. Goyal explains: "The Indian economy is growing at 9.4% this year. Domestic air traffic has risen 40% while international air travel is rising between 18% and 20% annually. At present there are 300 million middle class people and 30 million rich, so there is a huge market there.
"At the same time, India has a huge population of younger people, whose purchasing power is rising rapidly, and we have to take advantage of that market as well."
With its international expansion ambitions, Jet Airways is basing its route planning around the expatriate Indian market. "We have 20 million Indians living all over the world. There are over a million in the UK, 2.2 million in the US, which is growing, and a further 800,000 in Canada. In the Gulf, there are four million. Around the globe, most Indians are doing very well – in the US, for instance, the per capita income of Indians is above the US average."
Earlier this year, Goyal said he wanted to make his airline one of the top five by 2013 but, as he explains to CEO magazine, he did not mean in terms of size or revenue. "I am talking about quality of service. I believe we already provide the best product. Within five years, I want that to be recognised. I want us to be there with Qatar, Emirates, Singapore and Cathay Pacific.
"We are the only airline that has looked closely at economy class and made it radically different. Our business class, which we call Premier, is as good as first class on most airlines and we believe that no one in the world can match our first class."
Goyal maintains that it is the quality of service that is setting Jet Airways apart. He has boasted that passengers will soon be waiting until they are on board a Jet Airways plane before eating.
Goyal is anticipating load factors of over 75% on the new North American routes via Brussels and he has no intention of competing on price. "We don’t want to think about load factors and putting extra passengers on board. We want to make money. We will not do crazy things like cutting fares to fill up the aircraft, which will make the company bankrupt. We want to be a profitable airline and we want to do something that is good for shareholders."
Goyal is deeply suspicious of consultants, insisting that Jet Airways’ rapid growth has been achieved without them and with little or no strain on management structures. He says: "We are an entrepreneurial company. I do not believe in bureaucracy and red tape. We have hands-on managers and bonuses because nobody does free business any more – everyone wants an incentive, otherwise they will not perform."
Goyal admits that one of the carrier’s strengths is its lower cost base in India. However, it does struggle with the costs of aviation fuel and landing and navigation service, which account for 30–40% of fixed costs for airlines in India compared with 20% in Europe.
With his energy and appreciation of what it will take to become a truly international long-haul carrier, Goyal looks set to take Europe and the US by storm, carrying India's onward march towards economic superstar status.