‘Air Deccan was sabotaged by IndiGo operator InterGlobe’

It’s been more than a year since serial entrepreneur Captain GR Gopinath sold his budget carrier Air Deccan to billionaire Vijay Mallya but any conversation with the pioneer of low-cost aviation in India still steers to it.

The visionary admits to missing being part of the aviation action but he is not ready yet to start another no-frills airline. In an interview with DNA Money, Gopinath gives the countdown to Air Deccan’s crash and its rival IndiGo’s role in it.

Looking for peaceful resolution with Mallya…
When I did the Air Deccan-Kingfisher deal, I thought that one man must always give direction to the company. Like someone said - a bad peace is better than a righteous war. Similarly, good or bad, one leader, one person, is better than two good leaders because when things go wrong, and they are sure to go wrong, you’ll blame each other. Nobody takes the responsibility or has the accountability. Though I continue to differ in public, in private and board meetings, I keep telling him that we need to build an inclusive business model.

Low cost is about offering a product that matches the consumer’s ability to spend…
I once asked who our customer is. It is anybody who wants to get the lowest fare over everything else. There are lot of other things but anybody who gives primacy to lowest fare is our customer.

So, our product is defined by safety, lowest fare, on time and baggage safety. All this is measurable. So I said you ought to figure out what the consumers can pay regardless of whatever ideas you have. If this is what a consumer can pay then everything is designed around that to give him the product at that price. It’s like an Udipi self-service hotel. It’s about designing a product to suit a large number of people who can’t afford an idli at Rs 10 but can at Rs 2.

That’s what a low-cost airline does. It is about designing a product to suit a consumer’s ability to spend without comprising on what is integral.

Airlines brought the current crisis upon themselves ….
Mallya and I got together for two reasons. One was to consolidate in terms of resources and people. Second was to set up a huge network. Also, we both agreed, though in different ways, that a full-services airline needs a low-cost airline. But after the merger, certain things have happened that are not desirable for the country, not desirable for the consumer, and not desirable for the airlines themselves. All of them have realised this. The problem was brought on by airlines themselves. By all getting together and putting a minimum fare. I feel cartelisation has happened and low-cost airlines have become part of it. They all thought that by putting a minimum fare, they would increase revenues and reduce losses.

But what has happened, and is now visible, is that occupancy has come down to 50% and losses have gone up. All stakeholders are responsible for this. The government also is a stakeholder.

Deccan scaled up swiftly to survive….
I don’t think I scaled up very fast. In some sectors, you can be small and be in losses. You can also be big and have losses - like Ryanair. The reason I went the way I did was obviously because of my optimism and my beliefs. Also, because of some circumstances.

You can give low cost when the size becomes big. If you have a larger fleet and a larger operation then the cost per kilometre comes down and when cost per kilometre comes down, volume goes up. When volumes go up, profitability is surer. The whole thing was, in the space I was in, there was no way to build a sustainable business unless you built an inexhaustible consumer pipeline.

The reason I scaled up was because there was no other way I could challenge Jet Airways if I didn’t have size. They were trying to kill me. On Bangalore-Chennai, we were Rs 1,400 and Jet was Rs 3,300. At half the price and 80% occupancy, we were in profit. Then, Jet put a Bangalore-Chennai flight half an hour before mine and put a fare below mine. They did so by putting fares below their cost because it was easy for them to recover that money by increasing fares marginally on its 300 other flights. That’s how People’s Express was killed. That’s when America brought in the predatory law.

That’s when I said, my god, these people will kill me. The idea was to snuff me out of business. So I said I must scale up. When I scaled up, I was facing a combination of problems - salaries were going up, fuel prices were rising, huge congestion at airports, I wasn’t getting parking at the right places. There was also excess capacity in short term. All this was making me lose money.

“Sabotage by InterGlobe Technologies (which operates IndiGo) that was the final blow …”
But the thing that broke the camel’s back was information technology. See, initially when I started, nobody wanted to give me IT. The IT I needed was given to me by a local firm called InterGlobe Technologies. That firm, one year after I launched, started its own airline. The owner lied through his teeth that he was not starting an airline.

People came and told me he was starting an airline and I was scared. When he started the airline, he did not take his own IT, which he had given me. He used the same IT as Ryanair, an Accenture’s product called Navitar.

When I started, none of reservation system firms were ready to come to me. They asked how low-cost airlines would work in India when everything has to be sold through the Internet and the only 2% of India has Internet and 2% credit card. So, they were asking for a minimum deposit, minimum guarantees.

InterGlobe Technologies came and said they will do it. And, they initially did a good job. They were a bright bunch of kids who did a fantastic job. But I told them that since they didn’t have the system running, I will not pay them for six months because that’s the only way to ensure that they really deliver. I said I won’t pay any deposit and won’t pay a single dollar for six months. They agreed, I give it to them, but they should have put more money into the backbone, architecture, servers and all the other things to make it robust. When we became big, whatever guarantees we had given them was increased by ten times. We told them that by the end of the third year, we’ll fly one million passengers. We were flying 8 million.

They were supposed to invest in making their IT robust. But the IT collapsed and I couldn’t get more money from customers. I was short, on an average, of Rs 400-600 per seat. The rate I was charging was less than half of Jet Airways’. When I started, Bangalore-Delhi Jet was charging Rs 12,300. At Rs 4,000 and 80% occupancy, I was in profit. It said something for my business model. But I was in profit only in the initial six months. Later I was facing a loss because I was not getting Rs 4,000; I was getting only Rs 3,600.

It was a combination of a lot of factors but a large part of this was because the IT was not behaving, it was collapsing.

Then we realised that this chap, who had given me the IT, had my data. So, each time my IT collapsed, passengers migrated to his airline. So why would he do anything? We then realised it was sabotage. I was scared to file a criminal complaint because if he pulled the plug, the airline would have crashed. Then I would have won the case but the airline would have gone because you can’t book the ticket. In hindsight, I feel that if he had put more money in the IT system and made it succeed by selling to more airlines, then he would have made more money than his airline.

All IT companies are making huge amounts of money. Reservation is big business. Ryanair flies 58 million passengers, which is all through Navitar System. Air Asia, Virgin Blue are also its clients. And these companies, whether it is Saber, Galileo or any other, are getting all their back-office work done in India. This guy (InterGlobe) had this advantage.

The thing is that nobody gets an opportunity to break into this because nobody gives you a live platform to build. This guy got the opportunity on a platter to build his system on an airline but he is short-sighted plus unethical.

I didn’t want to take a chance. I said maybe I’ll pull it off, maybe not. And I did not know how long this loss would continue. I didn’t know how to clear and fix some of these things. I didn’t have another business to keep it going. It was a question of staying power at that point in time and I thought it was too much of a risk to take. I would have risked the money of investors, public, public institutions, bankers and suppliers. I had 4,000 employees. All this was too much and it was playing on my mind. I said I must do what is good for the company. And the day I met Mallya, I took the decision.