Daybreak - Can cheap seats come with extra legroom? We ask the man behind India’s first budget airline

Episode Date: October 4, 2024

Every time you take a domestic flight and don't have to break a fixed deposit to buy a ticket, you have Captain GR Gopinath to thank. In 2003, he  launched Air Deccan, India's first budget airline.  Before that, only the rich and powerful could afford to fly. So, planes were like mini 5-star hotels – you would be waited on hand and foot, would have access to luxurious lounges, get served gourmet food. And of course, it came with an outrageous price tag to match. With Air Deccan, flying was finally democratised. And soon enough, others followed. Everyone wanted to copy the Air Deccan playbook. Cut to now. The only successful airline in India at the moment have followed the budget route, with Indigo as the market leader. On the surface, things look great. India is home to the third largest domestic aviation market by volume. Domestic passenger numbers have more than doubled in the last decade. In June alone, more than 13 million people flew domestically. But if everything is going right behind the scenes? Then why is the flying experience getting so bad? Tune in. Why do women freeze their eggs? Take the survey here.Don't forget to send us your recommendation for this Thursday’s Unwind segment. The theme is “your favourite murder mystery.” Send them to us on WhatsApp as a voice note or as a text message. The number is [phone] Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission. We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture,

how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode,

please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Before we begin the episode, we have a tiny request. Most of you have been listening to Daybreak for a while now, but turns out you have not rated us yet. So, could you please spare us? a moment to drop us a rating or a review on whatever streaming platform you prefer, Spotify or Apple.

It really helps us. And now, on to the episode and thank you, Netwarks. Sir, so I have a big question to start with. I want to know if hypothetically today you had to launch a national airline, what would it look like and what would you do differently? Yeah, I mean, obviously the circumstances today, the time today is different. from what it was. It was a huge success then because we were the first low-cost airline and nobody believed it's possible.

That was Captain G.R. Gopinat. You may know about him, or maybe you don't. In case you don't, let me just put it this way. Every time you take a domestic flight in India and you don't have to break an FD to buy a ticket, you have him to thank. Okay, let me explain. Captain Gopinat introduced India to the concept of budget flying.

Back in the early 2000s, 2003 to be specific, he launched Ayrtec. Now this was India's first low-cost carrier, or LCC. Before that, only the rich and powerful could afford to fly. So planes basically look like mini five-star hotels. You'd be weighted on hand and foot, you'd have access to these really luxurious lounges, you'd get served, gourmet food, you know, the works. it was an all-out experience. And of course, it came with an outrageous price tag to match.

Until, one fine day, a young serial entrepreneur from Karnataka, who was retired from the Indian Army, came along and decided, you know what, enough of this. Everybody should be able to fly. And it was this simple yet powerful idea of his that completely revolutionized flying in India. So I had to fight with the government to work. to get them to believe in my dream.

Because the question was, how can they be a low-cost airline? Because the aircraft costs the same, the fuel costs the same, the salary costs the same, and the pilots cost the same. So how can you have a low-cost airline? So I just gave them a few concepts.

I said it's like a Udipi, Hotel. People come in and eat and go. So similarly, you know, not exactly the same kind of analogy. The aircraft has lands and immediately it takes off, unloads and takes off. On the conventional airlines where the aircraft lands, but waits for passengers from the other airlines. Ed Akin wrote the budget flying playbook in India. And it did some really, really crazy things, like selling thousands of flight tickets for the price of a mango bite toffee.

One-roupie tickets were their thing. I mean, Snickta, could you even imagine something like that today? No, it's crazy. But that big bold pitch is exactly what put Air Decc in on the map and eventually made it the third largest carrier in the country just three years after it was launched. But here's the thing. Success is a double-edged sword.

Because suddenly, everybody wanted to come in and copy-paste the Deakin Playbook. Up until then, this was an industry dominated by a handful of players. Now, there were a bunch of newbies all emboldened by Deakin's success. Go-Airs. spice jet, jet light, and of course, indigo. So, less than three years after its launch, AirDakin was no longer the only airline offering dirt cheap tickets. It was very tough because we had a huge lack of resources.

They didn't have airport space. We didn't have pilots. We didn't have engineers. And about five to six airlines came suddenly. But eventually, you know, it's, you know, Unfortunately, the air deacon story ended less than five years after it started. Over the years, many of its competitors also had the same fate. But if you cut to 2024, budget flying looks drastically different from what it was back then. There's a very interesting scenario playing out right now.

India is home to the third largest domestic aviation market by volume. Domestic passenger numbers have more than done. doubled in the last decade. More airports are being built across the country than ever before. On the surface, things are looking better than ever. But in many ways, we are back to square one. One single airline dominates 60% of the market share here in India. And no prizes for guessing which one it is.

I'm sure you know we're talking about Indigo. The remaining 40% is split between everyone else. But we all know what happens when we're. one company starts monopolizing an industry. The customer tends to suffer. And in this case too, we are seeing that play out in different ways. Delays, cancellations, and just a generally uncomfortable experience overall. And there's the fact that flying, might I mention, isn't even that cheap anymore.

Budget flying seems to be drifting further and further away from the original no-frills model, the Udupi restaurant model, so to speak. But if everything is going right behind the scenes, airlines are expanding their fleets like never before, a record number of people are travelling, then why is the flying experience getting so bad? Or is it? Hello and welcome to yet another special episode of daybreak.

I'm Snigda and I'm Rahal, and every week, Snigda and I come together to talk about something in business and tech that interests the both of us. And it won't just be us. Depending on what we're talking about, We will be joined by some really interesting people on the podcast. In this episode, we speak to Captain Gopinat about how budget flying works and what today's

airlines are getting wrong. And this episode is special for another reason. We spoke to some of our daybreak listeners who also happen to be frequent flyers. We wanted to know what matters more to them, service or price. The answers are pretty interesting. So stay tuned. I had a very eventful Tuesday afternoon this week. We went to the Jakhur Aerodrome here in Bangalore along with our sound engineer Raji.

So, this is a place which is basically like a mini airport about 20 kilometres away from the main Kempercorda International Airport. These days, it's mainly used for flight training and it is also where a lot of companies keep their charter planes. One of those companies is Deccan charters. Okay, so picture this. The three of us pull up to the aerodrome. It's an unusually warm day. We're lugging all of this heavy equipment with us, Mike, stands, the works.

And there isn't a plane in sight. There's just a lot of barren land and some slightly overgrown patches of grass. There are a couple hangars here and there. And then tucked away in a corner is the Deccan Charter's office. And their own personal hangar where we are happy to report we actually did see some pretty nifty helicopters. But we knew very little about said helicopters So we ooed an hour for a little bit

And then we continued on our mission To meet Captain Gopinat and to ask him What happened to budget flying? But this is daybreak So we were not just going to ask him the straightforward question We wanted to get the real picture So we framed the question a little bit differently So that actually brings you back to that question I started with

I was really excited to hear your perspective on this but if you were launching a airline, a national airline once again today, what would it look like and what would you do differently? One quick disclaimer before we begin. This episode, as we mentioned earlier, was not recorded in our usual studio settings. So despite all our best efforts, especially Rajiv's, you may notice that the audio quality is not usually what it is. Please do bear with us. Okay, so now that's out of the way. Back to Captain Gopinard's. I think we need to, today with challenges a little different, my challenge is so different. I hardly had any funds, so nobody believed in my dream. So I cobbled together a small amount of five crores, I started the airline.

Then once it started success, then people we know found that it was a great idea and people then put money. Then I raised a lot of money as equity and gave them shares. Today you've got a huge network of two airlines. So there are only two airlines and the third one is leaping. This is Spice Jet, which is recovers and false again, recovers and false again. The two airlines Captain Gopinath is talking about are Indigo and Air India. By the way, when we say Air India, we mean all the four airlines owned by Tata. So Air India, Air Asia, Air India Express and of course Vistara.

In third place is Spice Jet, which, like Captain Gopinat mentioned, is struggling to state. in the game. There's also, of course, Akasha Air, but it is still nowhere close to the other three. And that's it. India should have had at least about 20 airlines for this country's size. Like in Europe, right? We don't have that. So there's a big opportunity. For another budget airline, though, so? For a budget airline, there's no opportunity for full service. There's no opportunity for full service because budget airline has got efficiency, it's got new aircraft. The full service also has got new aircraft. The full service has got older aircrafts.

So why would anybody say and sit in the economy of India and pay more just because I'm going to get some free food? Nobody's going to sit in it. The first thing you see is one of the price. The price here is 500 rupees cheaper, you go into that. So right now Indigo is making money. There's a huge network. And also when you start an airline, those people also put a flight next to you, which they also did in my time. If they got 500,000 flights, you've got only 10 flights.

They'll put 10 flights just before you. So that they'll get very cheap. So your price, your aircraft goes empty. So, but that's what confounds me, right? Like, again, like a full service airline is not a viable option, which I understand. But as someone, like an outsider, of course, I'm just assuming if you go in as a brand new LCC, then isn't it just a race to the bottom? Because someone will always be able to undercut your price.

Yeah, not someone. They established airlines, because in America there is what is known as a predatory pricing law. So similarly here now, that's the reason I said there's a different challenge now. Then the one that I had because it's difficult to get also funding now because people feel that how are you going to succeed if you're asking. When then they didn't put funding because they said, how is you going to succeed? There's no internet. You can't do low-cost airline with our internet. and that model was not there in India.

It will not work. Everybody says it will work in America, but it will not work here. But an entrepreneur always comes with an idea which beats the market. So who's always going to come now? Because right now we do not have that kind of Ryanair in India, ultra-cost lower. We do not have where they give tickets at zero cost. Do you think that's a viable business model in a country like us?

Yeah, it's worked everywhere, right? Because they put it at zero, but not all tickets are at zero. You know, he'll put about five tickets on every flight. At zero. So it's like return of the one rupee. Yeah, because it will stimulate the market. Yeah. Right?

And then he makes money on the other goods that he sells. Then you go at one rupee, but come back at $2,000. So you make an average of $1,000. So that's how you succeed. Okay. So one thing is pretty key. clear. LCC is the way to go. Captain Gopinot basically said it has to be a budget airline or nothing. Now, he mentioned the poster child of budget airlines, Ryanair. I'm sure you've heard of

this infamous Irish airline. It's not your average budget airline. It's an ultra-budget airline, with a bit of a reputation thanks to its controversial CEO Michael O'Leary. Did you really want to charge to use toilets on Ryanair planes? Yes or no? Yes, but not because I want the money. We'll give the money away to charity. I want to get rid of three toilets. If I can get rid of the two toilets at the back of the planes, I can add six extra seats.

With six extra seats, I can lower everybody's airfare by another 5% all year round. Yep, that's the guy. He's also the person who once said that selling standing tickets on flights would be a good idea. But the thing is, controversial or not, Ryanair has figured out the budget flying business model.

And it's quite simple. You sell dirt cheap tickets, sometimes practically for free. But you also cram as many seats into the plane as possible, so it is always running at full capacity. And then you charge for everything else. Snacks, extra legroom, carry-on baggage, though works. At some point, he even said he might charge for breathing on the plane. When Ryanair came, he was so successful.

He said, I'm not interested in... giving you good service. I'm not in the service business. When I said it sometime, when Malaya came, I said, we are not in the fashion business to give you fancy airasters. We're not giving you

gourmet, give you, you know, gourmet food. We are here in transportation. We'll take you from point A to point B on time with your packs. Rest everything is we are not focusing on, except

our smile is free. So we were focusing on service. But now because when the airline is successful in the low-cost airline, because there's so much focusing on the bottom line to grow, they lose their customer focus. They think that because it's lowest fare, the customer will love it. But another airline also gives low fare but gives good service, they'll switch there. But unfortunately, not easy to give that kind of efficiency as in Ryanair.

Ryanair has got away by giving bad service but he's so efficient and so simple that he has kept everything people that don't care, they curse but they go. Okay, that may not make for the most comfortable flying experience but it is the only way for an airline company to turn a profit. But like Captain Gopinart said, no one has been able to crack efficiency the way that Ryanair has. The only way you can afford to sell a few hundred or even $1,0001,000,

is by ensuring that the plane is running at full capacity. Because otherwise, breaking even when you're factoring in the cost of things like jet fuel and a bunch of other overheads is just impossible. And then the next big challenge is figuring out the routes. How many routes can your airline cover? How many cities and towns can it possibly connect? Back in the day, Aidecken managed to pull off something pretty revolutionary. It connected small, two-tier and three-tier

towns to big cities. So it would use these 70-80-seaterplanes, usually 80 hours, for regional routes and bigger air buses that could accommodate well over 100 passengers for larger cities with more demand. And when we were talking about strategy, right, in the early years of Deccan, what you did for Tier 2 and Tier 3 cities, and then I know you went on to also run a regional airline. Do you think you take a similar approach this time as well, or would you have to rethink? Yeah, there are two ways. One is you can start with full-streeties. service airlines, then add the ATR like what ATGO did. The other one, you start with that, it's because you require then low investment, but when

you start with ATRs, you have to go to routes, you have to be very smart because if they put an airbus with the ADR, and if a bus gets 100% occupancy and the ATR gets 100% occupancy of let's say 42 passengers, 48 passengers, and or 72 buses in ATR and Airbus is, let's say 190 or whatever, then the Airbus is cheaper. And a Bangalachana if you have 180 passengers and so on, their cost per seat is cheaper. So you will not be able to beat them. But if you, but it has other advantages you get into the ATR fast, you get out of it fast. So you have to choose alternate routes or timing because there's so many airports that are not corrected.

so you have to choose those areas and then start. But of course, that danger is there that they'll come. That's what they did to me. But your costs are so low that they will withdraw usually. So you have to get, the key is to get low cost in operations so that you can give you low fares. And innovation in all your technology, innovation in pricing, innovation in your revenue management.

Okay, recap time. Here's what Captain Gopinard's hypothetical new national airline would look like. Air deck in 2.0, if I may. First and foremost, it would be a low-cost carrier. Captain Gopinat was clear about one thing. Budget is the only way to go. Then, a la Ryanair, you drop ticket prices while also making sure that you are maximizing the number of passengers you can accommodate on the flight. More passengers, the cheaper each seat cost is for the airline.

Then you charge for every single add-on, you connect a bunch of small towns with big cities, and there you have it, the perfect no-frills budget airline. But how do passengers all of us feel about it? And is this what we really want? We asked you guys, daybreak listeners. So stay tuned. Conventional wisdom around egg freezing often writes it off as yet another scammy product

of the booming fertility industry. But as to women in our early 30s and late 20s, we know things are not that straightforward. But why shouldn't we be able to hack the system and prolong our fertility? We have a hypothesis. We believe that women opting to freeze their eggs are career-oriented and in their 30s. We also believe that most people who don't want to go through with freezing their eggs opt out of the procedure because it is just too expensive.

In an upcoming episode of Daybreak, we want to dive into the real-world complexities that drive a lot of women to opt for procedures like egg freezing. We want to hear from you. from you. Do you agree with our hypothesis? This survey isn't just for women who have undergone the procedure. It's also for those of you who have considered it at some point in your life. We want to glean from all your experiences and why you make the decisions you make. And of course, it goes without saying that the results of this survey are completely anonymous and confidential.

We will reach out to you for more details only with your explicit consent. The link to the survey will be in the show notes of this episode. It'll only take a couple of minutes. to fill in and now back to the episode. Welcome back. If you are a regular daybreak listener, you may recall that we asked you, our listeners, about your flying experience. And I'm happy to report that quite a few of you actually reached out to us. 20 people wrote to us. Now these are people who take multiple flights every month. Some of these people even fly a couple times every week. I mean, I'm honestly

just exhausted thinking about it. But it would be fair to say that they are all pro flyers. Now, a little while ago, we spoke to Captain Gopinath and we got a sense of the ideal business model for a budget airline. But we want to understand what people really want. And by people, I mean us, you know, people actually taking these flights. What matters more to us? Good service or cheap tickets. So, we sent out a bunch of questions to everybody who responded to us on our WhatsApp number. And then we got to have longer conversations with four of them. A big shout out to Prachi, Yash, Shavareh and Antrachsh for giving us their time. They're all working professionals residing in different parts of the country in different lines of work. Rahil, can you walk us through

the questions that we asked them and what was the objective of all this? So the objective was to understand what frequent flyers want from their flying experience. Of course, we wanted to know how often they fly, we also wanted to get a sense of which airline they generally opt for. And then we went in and asked what matters more to them when it comes to air travel, you know, price or comfort. Straight off the bat, the general consensus is that the flying experience just isn't that much fun anymore for a variety of reasons. I appreciate the flying experience that comes with Vistara or Air India.

If it's indigo, it's mostly bad. Hardly ever ugly, but never good as well. If you ask me about the flight experience, I would have to say that it has been somewhat disappointing due to excessive crowds at the entry and security areas of the airport. Flying domestically has been a true pain of late. I have been outside the country for about four months now, so I can't speak to the extremely recent times. But right before I left, I took several flights to tend to work and personal commitments. And most of them were delayed. For example, recently I went to Prajagraj and I paid a $400 for a pre-booked local veg meal and I was expecting a small meal.

But in flight I received two small vada pows wrapped in a plastic which was cold and unappetizing basically. So yes, all four listeners had similar concerns. Things just seem to be a lot more chaotic these days. Indigo, Air India, Vistara were the most important. popular choices for all four of them, and that did not come as a surprise. But here is where things get interesting. When it comes to the price or comfort question, we got some surprising answers. We were expecting people to straight up save price. But multiple people said it depends on the duration of the flight. For longer domestic flights, they do prefer more comfortable carriers.

And three out of the four listeners we spoke to said they enjoyed the overall flying experience Vistara had to offer. But they were also aware of the fact that their days traveling on board Vistara flights were numbered. The airline is in the middle of a merger with Air India, so it will technically cease to exist by sometime next month. And with that, a doopoly will be solidified. We will have Indigo with its mammoth, you know, over 60% market share. And then we will have Air India,

which has swallowed up a bunch of the other competitors and returned to relevance. Right. I know Captain Gopinart is not a big believer in the full-service airline model. And I do see his point. But clearly there is a demand for it, right? And I'm not just saying this based on the conversations that we've had with our listeners. I mean, even Indigo has announced recently that it will be launching a business class on select routes. Right.

And you do have a point there, Snikta, because this isn't just happening in India. Globally, we are seeing a bunch of budget airlines starting to offer certain premium upsells. It's sort of like economy plus. Okay, so Spirit, Southwest, which are some of the biggest airlines in the West, are all going down that route. They'll offer somewhat of a tiered model. So you can opt for no frills or you can cough up some extra cash and get a few luxuries like food and priority boarding.

In some senses, it does make sense to premiumize, right? Especially because per capita income and people's discretionary spending has been increasing considerably over the years. It's pretty well documented. With that, there's also, of course, been a considerable increase in air travel too. Right? There are far more people travelling by planes.

The idea, of course, here is to squeeze as much money out of you as possible. So it's basically a really far cry from the one-rupee ticket days. Right, which is also why, you know, the likes of Air India and Indigo, they're betting big on future growth and they're willing to take risks like premiumization because they believe it will pay off in the long run. They're also adding up to their fleets like never before. Indigo has ordered 500 new planes. Air India, under its new Tata management, has ordered about 470.

Even relatively new airlines like Akasa have close to 60 planes on order. And they've also been expanding their routes even beyond India. Okay, but the thing is, there's a reason most full-service airlines crash and burn. metaphorically speaking, of course. It comes back to the fact that this is a business that's built on high volumes and low margins, right? Captain Gopinat spoke about that a little while ago too. Basically, airlines seek to gain a lot more from doing things like Ryanair, cramming in as many seats as possible to bring down the cost per seat. Right?

Because there are just so many variables airlines have to consider. Things like jet fuel costs, manpower costs, geopolitical tensions, anything. could send them over the edge. I mean, Air Deccan is the ultimate example of how things can suddenly go south. So I almost succeeded. It was not that easy. But when the oil prices went up by four times, and when pilot salaries, which we started at 1 lakh, went to 6 lakhs,

and the engineer salary which started at 25,000 went to something like 3 lakhs, 4 lakhs, every price went up we were not able to give that kind of ticket at that time and so therefore there was a glut of airlines combined combination of this and that

and so my calculations did not prove right because I was a bit ahead of time so it is fair to say now that we are kind of making our way into the second chapter of budget flying in India and this time

around it does not seem to fit perfectly into the Udupi restaurant mold, nor does it fit into the five-star mold. It seems to be somewhere in the middle. And airlines in India, at least for now, will have to tread the fine line between both. But one part of the story that has stood the test of time since the air deck in days is this. It is survival of the fittest. Every day at the end of the daybreak episode, you've been listening to Snigda or me telling you about the Ken and why you should subscribe to access all our premium offerings.

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