"If you merge companies-be it Switzerland, Germany, or India- it takes three years, and before that there are a lot of problems''

He joined the Kuoni Travel Group as manager inbound in 1970. Less than 30 years later, he had risen to be its CEO. But come May 15, 2002, and the 51-year-old Hans Lerch and several other board members of the Swiss travel major will be ''replaced'' as the denouement to a year-old boardroom battle, paving the way for a new chairman in the form of Andreas Schmid. As far as India is concerned, Lerch was the man who shook up a sleepy travel industry by spending more than Rs 200 crore in acquiring Sita Travels and SOTC in quick succession. The Indian arm of Kuoni, headed by Ranjit Malkani, is now putting together a war chest of Rs 100 crore for more acquisitions. But the much-publicised IPO may not happen anytime soon, given that the appetite for new stocks in the market is still poor. In India recently, Lerch spent more than two hours speaking to BT's Moinak Mitra about Kuoni's performance in India and what it plans to do to stay ahead in the game. Excerpts from an exclusive interview:

Q. Kuoni began the consolidation trend in the travel business in India a few years ago by acquiring SOTC and Sita Travels. How have the marriages fared?

A. Consolidation is not that easy. Companies have culture and, therefore, merging cultures is difficult. But I must say that our acquisition of SOTC has borne fruit. Then we went into the second step by buying Sita. By and large, it's been only one-and-a-half years that we've bought Sita.

But as is typical of such a takeover, Sita was a smaller company in the Indian context. But that makes merging a little bit more difficult. Cultures are radically different. But my experience is that if you merge companies-be it Switzerland, Germany or India-it takes three years, and before that there are a lot of problems.

"Business travel will grow as the Indian economy grows and I'm sure that this is happening. There is a natural growth of GDP in India''

Have the objectives of the Kuoni-Sita alliance been met?

The objectives were manifold. My objective was that the Sita brand, an important brand, should be used for additional outbound tourists like what we've done with the fit Holidays Division at Sita. We were also interested in the business travel, where Sita was not very strong. That is why we can now deconstruct the branding issue according to Business Travel International (BTI) and, of course, the big business travel clients want to be with the same company worldwide. So we needed to have the BTI representation. But Sita is a good business, it is a good brand.

Last year, Kuoni tied up with Tour Club for a share in the inbound travel business to India. Has inbound travel increased?

Inbound business is often a relationship game. The guy who runs Tour Club more or less monopolises the business from the Middle East. So Middle-Eastern travel companies sending people here do it through him, and Sita couldn't break into it. Rather than missing out on that business, we bought it. Now we have a lot of business from the Middle-East coming into India. Sita doesn't have much to do with it, but they've combined rates now and work through many synergies.

What are Kuoni's strategies to increase inbound and outbound travel in India?

Right now, it is essentially one-third, one-third and one-third. So one-third is outbound-that is the SOTC activity; one-third is inbound, that's the Sita inbound activity; and one-third is business travel. We have different organic growth rates in these businesses. The incoming depends on economic performance, and the growth of tourism in foreign lands, because that's what encourages people to travel. The inbound travel has the lowest organic growth-a more or less European growth of, say, 5-10 per cent. Whereas in the outbound travel business, we have a fast growth rate of, say, 25 per cent a year. It didn't grow that much last year.

Can you tell us what Kuoni has done to increase its share of business travel?

Business travel will naturally grow as the Indian economy grows and I'm very sure that this is happening. There is a very strong natural growth of GDP in India. Companies are growing and the economies are generally global. Although you have video conferencing, travel has never stopped to grow. I'm convinced that even business travel is growing on account of how the economy grows. So Business Travel International (BTI-Kuoni is an exclusive partner of BTI, the world's leading travel management company) has to be better than American Express and will have to handle many big companies. Many big corporates nowadays prefer to deal with a single large business travel organisation. It gives them the best prices and the best accommodation.

When Kuoni started out in India, it had plans to float an IPO. What is the status?

It was an idea and the idea is still on the drawing board. When we talked about an IPO in India, the stockmarket was going out of the range of almost 5,500. So we said it might be a good idea to take the company public. We could maybe get a multiple of 25 or 30 times, or more. But all of sudden, there was a crash and so it didn't work out. Now we are saying that before we go back, we should seriously discuss the idea-we don't see a serious rebound of the India stockmarket. We once said 4,800 points would be sufficient for us to come up with the IPO, but today Mr Malkani (CEO, Sita India) said it is currently at 4,200 points. There has to be a bullish trend in the worldwide stockmarkets for us to rethink about going in for an IPO. But that is a precondition.

What was the impact of Black September on Kuoni?

"There has to be a bullish trend in the stockmarkets worldwide for us to rethink about going in for an IPO. That is a precondition.''

The impact was dramatic, of course. We had a very good third quarter, yet a lousy year. We should have earned approximately $60 million in the last quarter, that was the earning in 2000. But the difference between the last quarter of 2000 and 2001 was around 90 million Swiss francs (SF). We had two months of negative growth.

How do you plan to tackle the loss? Are you still on the consolidation mode worldwide?

We are no longer in this situation. Of course, these two-three months were very scary. I had my CFO just watching the cash positions worldwide. However, it started to come back a bit in December and then on January 7, the bookings picked up worldwide-in Japan, in US, in Switzerland, in India-on the same day.

What is so significant about January 7?

There are two things that are significant. First of all, it came back after only three-and-a-half months and it came back from a level of 20 per cent the previous year to a level of 60-80 per cent the previous year. Secondly, it happened worldwide-the Italians started the booking and then the Americans did that-all on the same day. And then we saw this phenomenon twice more. So today business is almost back to normal and the traffic is rising.

How has the bankruptcy of Swissair affected Kuoni?

First of all, Swissair didn't need to go bankrupt. It is one of the saddest stories in the Swiss economy. It is ridiculous because of a hilariously bad management. The Swissair story is a text-book case of how not to do it. Now when it grounded, it affected Kuoni in as far as we lost the commissions that they owed us-about SF 8 million. The business was not hurt too badly because the few people who wanted to travel during that time, travelled anyway, though it was a bit more complicated for them to travel via Paris or via Frankfurt. In the meantime, another very questionable exercise was Swiss public funding in airlines.

What is the agenda for the May 15 general meeting of Kuoni shareholders?

Now, we had an EBITDA profit of SF 60 million and a net profit of SF 10 million. So we were still positive. But the cash flow at the end of the year was negative. After September 11, we had to revalue our business in the United States, revisit the valuation of our organisation and we had to impair a total of SF 202 million. We also had an aircraft in our Scandinavian operation that came along with an acquisition a year ago. The provision for this aircraft was SF 80 million. All this then made for a declared loss of SF 280 million. One-third of the profits are paid out as dividends and that is the policy, and as we had no profits this year, we won't be paying dividends.

Apart from that, the AGM will elect six new board members. We had this boardroom fight a year ago when our previous chairman Daniel Affolter had to be removed. It was an extremely tedious exercise and was made public. When we had six board members left, everybody's term except for one member's ran out. All these people had said for a long time that they would not be standing for re-election. Many of them were on the board for 12 years. They said that the company now needs a new beginning. One guy would have still been on the board for another 12 months. He was a disciple of Affolter. So the new chairman who will come in-his name is (Andreas) Schmid-wanted him out. So the new chairman asked for his resignation-a tedious, a very tedious exercise again. But this person made it public that on the request of the new chairman, he had to resign. He said he could not serve the board anymore as the board is unduly influenced... absolute nonsense.

So when does Schmid take over?

Schmid takes over on May 15. Now we have a new board of directors whose names were made public a few days ago.

What are your plans for South Asia with focus on India?

Our plans in the Asian region are dominated by India because we have our posts in Singapore and Hong Kong. I have a personal hesitation to invest directly in mainland China. I lived in Hong Kong for a long time. You have a legal problem there as you cannot invest in outbound travel in China, only inbound travel with joint venture in mainland China. Secondly, business in China is done in Chinese and not in English. This is a very significant difference between doing business in India and doing business in China.

Yet China attracts 26 million tourists each year against just 2 million who come to India...

Yes, but if we go to China we'll be interested in the outbound travel because of the speed of growth of the Chinese economy. We are actually interested in outbound travel. Sita is not a predominant force. I'm not trying to expand into India to be able to handle inbound, but if it comes along with a brand, a company an activity, I would like to buy it-it is the icing on the cake. In Sita's case, it is the icing on the cake. Much of every contract you make in China is through personal relationships. In India, if I have to litigate, I can litigate. The democracy lets it function that way. But we know the Chinese environment very well and one day Kuoni will be in China.