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EXECUTIVE INTERVIEW: GOAIRIt’s slow going for India’s low-cost operators. TOM BALLANTYNE hears whyMumbai-based GoAir won’t pick up the pace until good times are on the horizonTaxing problems for LCCsJehangir (Jeh) Wadia, managingdirector of family-owned, low-costcarrier (LCC) GoAir, believes thatIndia’s budget operators must face upto reality. Overcapacity, ticket pricewars and a high government taxation regimemake it virtually impossible for them to cutcosts in the same way as their counterpartselsewhere.Take just two expenses: tax paid togovernment and cash forked out to petroleumcompanies. Together, they represent astaggering average 60% of total costs.“If you compare that to the averageLCC abroad, it wouldn’t be more than20% there,” said Wadia. “The governmenttaxes are archaic. They haven’t beenreformed. They haven’t been benchmarkedat the international standard. They areeffectively the same taxes that have beenaround for decades. They haven’t taken intoconsideration what they need to do in orderto help grow the industry.”The biggest bone of contention, in fact, isa sales tax on fuel, payable above the actualcost. It varies between 20% and 40% fromstate to state. Wadia’s airline pays an averageof 27%.GoAir launched in November 2005 with asingle A320 flying between Mumbai, whereit is based, and Coimbatore. Within 12months it had carried 1.2 million passengersand grabbed a 4% market share. Now it hasa fleet of seven A320s operating 67 dailyflights to 13 destinations.While that may sound impressive, Wadiaargues that in Indian terms it is slow going.“Everyone in India seems to have gone madbringing aircraft in. Yes, it is aggressiverelative to Singapore or other airlines inAsia. But compared to some of my airlinecompetitors, is it is pretty conservative,”he said.The reason is simple. “Moving forwardthere are certain issues with the aviationindustry in India. Costs are too high,revenue is low. Today ... everyone is losingmoney. The simple conclusion is that the‘Today everyone is losingmoney. The simple conclusionis that the more aircraft youhave, the more money you lose’Jehangir Wadiamanaging director, GoAirmore aircraft you have, the more money youlose,” he said.Wadia believes it could take anywhere upto three years for the industry to take a turnfor the better. “Taxes have to be reformedand the number one tax that needs to bereformed is the sales tax on fuel. If that camedown to say 4% we would see tremendousgain overnight,” he said. But, if this doesn’thappen, especially with the current amountof capacity coming into the market, a carriercould go under in the next six to 12 months,he said.Wadia, who heads the Wadia Groupwith interests in a wide range of businesses,from textiles to clinical research, has anotherwarning: a further round of fare wars withthe potential to spark further losses isimminent.India is a seasonal market with Octoberto June the peak. June through to October isthe low season. “I think the low season willextend to November if not early December.That means there will be a prolonged lowseason due to extra capacity. The price warwill be excessive and it will start kicking infrom June,” he said.Yet, in the face of all this gloom, Wadiais confident GoAir will not be one of thecasualties. He has fewer aircraft than manynew Indian carriers, therefore his lossesare less. His 100% equity in the companymeans he has 100% of assets to sell whilecompetitors have sold so many of theirs thatthey have few left. “My company is 100%funded by my family and therefore we havethe ability to sell up to 49% to raise moneyif we need to,” he said.GoAir is looking at various proposalsfrom outside investors, including foreigninterests. Its strategy takes into account thatthe good times may not arrive for a while. Ithas 10 A320s on firm order and another 10under option. The first won’t be delivereduntil late this year. Further deliveriesare spaced out to fit in with an expectedimprovement in market conditions in abouttwo years.16 ORIENT AVIATION INDIA MARCH 2007