In eight years, Jet Airways' marketshare has rocketed from 6 per cent to 42 per cent. Now, Naresh Goyal is poised to beat giant Indian Airlines and go global. But with a fare war in the offing, can he stay on top?

By Abir Pal

It's the third week of June, and Naresh Goyal has just returned to London from the Paris Air Show, where he has been proudly showcased by Boeing and ATR (a French-Italian aircraft manufacturer) as a happy customer. Yet, sitting in Jet Airways' London office, the airline's non-resident Indian (NRI) Chairman is going ballistic. Just the day before, back home in India, a leading financial daily has carried a report that says the Indian government and some other private investors are intrigued about his airline's true ownership. At the cost of expensive front-page ads, Jet overnight ''clarifies'' its position, and also gets the investors mentioned to send in their denials. But the retraction, which Goyal had so badly wanted to see printed in the same newspaper, is nowhere in sight.

It's easy to see why Goyal, who travels four months a year, should attract enemies or envy. In barely eight years, the airline employee-turned-entrepreneur has created India's most successful private airline with total assets worth Rs 2,000 crore. It operates the youngest fleet of 33, racked up $542 million (Rs 2,547 crore) in revenue and flew 5.9 million passengers last year-a 42 per cent share. Of the dozen or so airlines that took wing soon after the industry was privatised in 1992, Jet is just one of the two that have survived. Better still, it's the only private airline to make profits; the only other, Sahara Airlines, still loses money and trails way behind with a negligible share on a fleet of nine. And the leader, Indian Airlines, slipped back into the red last year, thanks to a sharp rise in fuel prices. The details: Jet's profits for the year ended March 31, 2001, were Rs 12.50 crore as compared to Indian Airlines' loss of Rs 177 crore.

On his part, Goyal has done little to crush the speculations. And the fact that Jet's holding company, Tailwinds, is registered in Cayman Islands, a tax haven, and profits are wafer thin (some say they are understated) have only added grist to the rumour mill. In fact, some would even have that Goyal is only fronting for a few heavyweight Indian politicians. But the fact remains that Jet has been through two big rounds of borrowings. In 1997, it raised $380 million or Rs 1,786 crore (85 per cent from Barclays Bank and the rest from Grindlays) and earlier this year it finalised a deal to raise $358 million (Rs 1,683 crore) from StanChart through an innovative securitised deal. (Jet and Goyal will chip in with about Rs 240 crore.) Both the loans have been guaranteed by the us Exim Bank. The man himself is nothing but exasperated by such speculations: ''I don't know why some people find it hard to believe that I fully own Jet,'' says Goyal. Yet, how a travel agent-turned-entrepreneur never had any problems raising money is an enduring mystery to many.

What must have hurt Goyal as much as the report itself is the timing of it. Five years after Jet put in an application with the government to fly nearby international routes, the proposed new aviation policy could finally bring it the go-ahead. (Indian Airlines, which could get revitalised following its proposed sale to a private bidder, already flies to some Middle-East and Far East destinations.) More importantly, Goyal has been scouting for an investor with whom he could place shares of his closely-held company. The money will help Jet consolidate its marketshare and acquire bigger aircraft to fly more destinations in India. Understandably, bad press is the last thing he needs.

A Short Haul

If Goyal's enemies are using all the firepower they can lay their hands on, it's because the B.Com. graduate from Patiala is a tough man to put down. And that's not just because of his extraordinary skills-relative to competitors-at managing the political environment. It's also because he has the finest business model of the three airlines. Admits Vinoo Kashyap, Joint Managing Director of Indian Airlines: ''There's no doubt that Goyal has played his cards really well.''

Back in 1992, even before Jet was formally incorporated, Goyal was playing for the long term. When the question of what kind of aircraft to lease came up, the answer should have been the Boeing 737-200s. Not only were they cheaper and popular, but there also was a ready pool of personnel (engineering and flight) available for poaching from Indian Airlines. Goyal, however, decided to go for the 737-300s. His rationale: although the 300s were twice more expensive to lease, they were more fuel-efficient (consumed 8 per cent less fuel) and cost as much less to maintain. Besides, these were new generation CFM 3B engines, and Goyal had a feeling that a young fleet would help pull in customers.

He was bang on target. Even as his new competitors such as Damania Airlines, East West-its promoter was murdered in the mid-90s, reportedly by underworld financiers-and ModiLuft struggled with older 737-200s, Jet created a new standard for in-flight service. By the middle of 1996, when ModiLuft, the last of serious competitors, broke up with Lufthansa and subsequently went down, Jet already had a 13 per cent marketshare. Says Goyal: ''I always believed that India could come up with its own international-quality airline. We have the talent, the enterprise, and the skills.''

Although Goyal had been a general sales agent (GSA) for 18 years when he launched Jet Airways, he knew that without a core team of professionals, his venture would soon ground. From Air India, he roped in Saroj Datta (now Executive Director) and Purush Baliga (V-P, Support Services). Rolland Thomas (V-P, Flight Operations) came on board from Malaysia Airlines, and Steven Jagannathan from Singapore Airlines. That it was a disproportionately ambitious project he was trying to pull off never deterred Goyal. Says Datta, Goyal's sounding board and the man who did the spadework for Jet: ''I was very sceptical when he approached me first. But, then, it's very hard saying no to Goyal. He has a way of making you see his way.''

Not surprisingly, Tailwind's board of directors boasts of some big names from the international airline industry. Gert van der Veer, former Chairman of South African Airlines; Harry Tirvengadum, Chairman of Air Mauritius; Ali Gandhour, founder-president of Royal Jordanian, and Victoriano P. Dungca, Executive Vice-President of Philippine Airlines are some who bring Jet credibility-and, ironically, its share of controversy-in the aviation circles. In 1997, when the government forced Kuwait Airways and Gulf Air to sell their 20 per cent (each) stake in Jet, Goyal promptly bought their holdings. Ever since, there's been speculation that the sale was only a gimmick.

But such controversies take little away from Goyal's competence as an entrepreneur (See The 9w Man). For instance, within three months of its launch, Jet managed to swing membership of the prestigious International Air Traffic Association (IATA), quickly followed by an admission into the IATA Clearing House. The memberships brought with them the lucrative ''interlining'' arrangement-for carrying passengers and cargo within India-with international carriers. Today, Jet has 120 interlining arrangements, which account for nearly 28 per cent of its revenue. Interlining is especially lucrative because the fares are in dollars and cost 35 to 40 per cent more.

A Tight Ship

"It's hard saying no to Goyal. He has a way of making you see his way" SAROJ DATTA Executive Director

Having experienced hands on board-a lot of them foreign nationals-also meant that Jet ran its operations much better than its competitors. Right from day one, there never was any doubt that Jet would initially dry lease aircraft instead of buying them (Today, Jet owns half of its 28 737s; the five ATRs are all leased). The economics worked out better that way. Besides, Jet could expand faster by using its precious funds to lease more aircraft than put it all in buying one or two. For example, buying a Boeing 737 could cost anywhere between $40 and $50 million (depending on the configuration), whereas a monthly lease could be as low as $400,000. The decision to go in for one type of aircraft also meant that operational glitches were minimised because of the engineering and flight crew's familiarity with the aircraft.

Aviation turbine fuel (ATF) costs, which typically make up a quarter of operating expenses, were kept in check because, for one, thanks to Jet's supposed ''popularity'' with air traffic control, it gets to fly the favoured high-altitude air corridors (30,000 feet), resulting in better fuel efficiency. For another, flight schedules are planned and adhered to with manic zeal. The result: an average on-time performance of 90 per cent. Says Steve Forte, CEO, Jet: ''In the airline business, delays and the resulting increase in operating costs can make the difference between survival and death.''

To ensure it wooed and retained the right kind of passengers, Jet focused on the business traveller, who historically has accounted for a third of all passengers. But the decision entailed offering superior service. Ironically, Jet picked up rival Indian Airline's service module for the framework and then borrowed a few ideas from KLM for managing systems. The customer interface format was devised by Speedwing, a subsidiary of British Airways, partly because Goyal had seen how putting customers and employees first had helped the British carrier turn the corner.

Today, with more than 17,000 passengers flying Jet every day, the airline has had to keep a close watch over its customer service. On all its flights more than 20 minutes long, light refreshments are served. But on longer flights, passengers are pampered with non-alcoholic drinks, cold towels, and a three-course meal. The 16,500 service monitor questionnaires (SMQs) that Jet receives every month are analysed at various levels to plug service loopholes. Every new flight attendant is put through at least three months of training in the first year, and thereafter several more hours of in-flight and classroom training. Even the shade of nail polish, the length of hair, and what deodorants to use are carefully regulated. Says Ernest Collette, General Manager (Service Quality), who joined Jet from South African Airways: ''If we keep our passengers happy, they will keep us in business.''

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