U.K. Bose, CEO, Air Sahara: Giving the other airlines a run for their money

THE AIR SAHARA STRATEGY

RELIABILITY: Ontime performance is now up 93%; helping regain customer and trade confidence SERVICE: Goodies on offer include on-board auctions and prizes, better food and three-star airport lounges DEALS: Schemes like Super Sixer, Sixer, Steal A Seat have clicket with customers POSITIONING: Rejigged image to emerge as a top choice for business travelers

The CEO of a Mumbai-based advertising agency-we're not going to embarrass him by dropping names-always insists on flying Air Sahara. Yes, it has something to do with the 10-year-old airline's impressive facelift-limos to pick you up from the airport, great food on board and excellent in-flight services-but also something else. For our middle-aged CEO, who's a closet gambler, the clincher is the on-board auctions that the airline routinely conducts on all its major routes. "I'm hooked," he says with a guilty smile, "it's such a great way to pass time." Last fortnight on the red-eye to Delhi, our man picked up a National Geographic CD collection valued at Rs 2,000 plus for just Rs 1,000 and last month he won brownie points at home for bringing back an useful hand blender for the kitchen, again at a fraction of what it usually retails for.

It's not uncommon to see excited bands of passengers on board Air Sahara flights huddling together to cobble out bidding strategies for consumer durables, suit lengths and luggage. And sometimes if you're lucky there's even a grand prize of a luxury car that you could drive away with on landing. "It's a win-win situation for everyone," says the airline's nattily-dressed CEO Uttam Kumar Bose, as the aroma of tobacco wafts from a pipe on his desk at the Air Sahara headquarters in Delhi's Barakhamba Road. The companies supplying the items for the auctions get fliers visibility, fliers get good deals and the airline achieves its goal of, what Bose likes to call, "flying feelings".

But more on that later. First, does anyone choose an airline just because he can pick up an overnight suitcase cheap? Truth is, Air Sahara has come to mean a good deal more than just good deals. And the proof lies in the numbers. Last year, 1.6 million passengers flew Air Sahara-a 40 per cent increase from 1.14 million in 2001. Impressive because the total aviation market grew just 3 per cent last year, from 12.6 million to 13 million. In contrast, Sahara's main competitors-the state-owned Indian Airlines and private player, Jet Airways, have largely stagnated. Sahara may still be a minnow compared with IA, which had 5.4 million passengers last year, and is still much smaller than Jet, which ferried 6 million, but in the last 18 months it has stealthily crept up from behind to challenge both.

Now, it wants to intensify the battle in the sky. It claims to have a 12 per cent share of the market now, compared to 4.25 per cent a year and a half ago. And it has just acquired seven 50-seater crj-200 planes, each on a seven-year lease. Five big planes, of the Boeing 700 and 800 type, are en route to its hangars and by December this year, Sahara will be operating 155 flights in 26 sectors, offering 14,000 seats up from its existing 63 flights in 13 sectors, offering 8,400 seats. Its passenger load factor (average number of paid passengers per flight) is 70 per cent-plus compared to Jet's 65 and IA's 59.2. Given current costs of operating flights, anything above 70 per cent is considered in the break-even zone. CEO Bose is hoping it'll nudge the 75 per cent mark by the end of this year.

The 9-11 Bonanza

The terrorist strikes on the World Trade Centre (WTC) in New York on September 11, 2001, may have dealt the most crippling blow in history to the aviation industry, yet 9-11 is what Air Sahara probably owes its recent good fortune to. In a twisted sort of way. In July 2001, a good eight years after its first flight in 1993, Sahara decided that it was time to end its existence as an airline that struck most fliers more as an afterthought than the carrier of choice.

Thus far, Sahara had been reluctant to grow big. Now, in the aftermath of the WTC attacks, when it saw that its competitors-IA and Jet--were curtailing their operations, expecting the Indian market to feel the ripples that were wreaking havoc in the global aviation industry, Sahara did the contrarian thing. "It was time to move in for the kill," chuckles Bose.

It began with the bells and whistles. Business class passengers would get free pick-ups and drops and the airport lounges for them were plushed up. But the breakthrough came a little later, in February 2002. That's when Air Sahara created a splash by offering to refund the full fare if any of its flights were delayed beyond 55 minutes. It was a smart move. Few technical snags, one of the main causes for delays, take longer than 55 minutes to be corrected but no other airline had thought of offering refunds.

The buzz had begun. Having improved passenger confidence in its performance, Sahara unleashed a string of innovative schemes. Some of these amounted to attractive discounts, like the Sixer, Super Sixer and Steal a Seat. Others, like online auctions, offered goodies at throwaway prices along with in-flight entertainment.

The results have come swiftly. "Post September 11, planes were still flying with the same direct operating costs and less passengers. Sahara's schemes have done well to fill up seats," says Subhash Goyal, Shairman of Stic Travels and head of Assocham's expert committee on aviation and tourism. A core part of the Air Sahara strategy has been to target business (not necessarily business class) traveller, which comprises 75 per cent of all air passengers in the country. Sahara's roster of corporate clients now stands at a healthy 500, including General Electric, Reliance, ICICI, ITC, McKinsey, PricewaterhouseCoopers and Hindustan Lever. It's won credibility too. Reliance's Anil Ambani prefers flying Air Sahara. So does Infosys' Nandan Nilekani.

Despite repeated salvos from Sahara, Jet has been remarkably dormant. It may even let some of its aircraft leases lapse. Naresh Goyal, CEO, Jet Airways

The IA-Jet Snag

One reason why Sahara has been able to succeed is because of what has been ailing its competitors. The largest, IA, which operates 200 flights and still accounts for 42 per cent of the marketshare, will have posted losses three years in a row when it closes its books in March-end. Since 1993, it has not been able to add a single seat to its capacity. "No airline can grow without constant fleet expansion and replenishment," says IA's Chairman & Managing Director Sunil Arora, who could be exploring the option of leasing aircraft instead of buying.

But fleet expansion isn't a cure-all for IA, which flies at least 50 of its 83 routes purely because successive civil aviation ministers thought a flight connection to their constituencies will shine on their report cards when they go back for votes. ceo Arora has been pleading with the government to discontinue at least some of these operations. But not much has happened. Neither the Rs 247 crore in losses last year nor 2001's Rs 159 crore seems to be a good enough argument for the government to act.

For Jet, the traditional choice of the business traveller, the story is different. Despite the repeated salvos from Sahara, Jet has been remarkably dormant, complacent even. Says Stic Travel's Goyal: "One has to be constantly innovative in a competitive environment." Jet's Executive Director S.K. Datta simply says "Nothing adverse has happened to us." But he's not planning to add to its 40-aircraft fleet. In fact, industry insiders say Jet may even decide not to renew some of its leases on aircrafts.

The Real Sweetener

At the heart of Sahara's strategy-although it has improved on-time performance and in-flight services-is the sweet deals it offers passengers. On the Sixer or Super Sixer deals, passengers can buy multiple tickets in advance at discounts of up to 50 per cent. How long can it sustain schemes, which while weaning passengers away from rivals also drive down yields? After all, Sahara isn't a no-frills discount airline. It offers its passengers both-good deals as well as all the frills. "Sahara's schemes can produce short-term gains. In the long term, service quality, efficiency, and reliability will be all important," says S.S. Sidhu, President, Foundation for Aviation, a non-government research organisation. Others think Sahara has managed to sustain the schemes so far only because of its deep pockets, dug deeper by parent Sahara Group's para-banking operations, which reportedly has assets in excess of Rs 32,000 crore. Indeed, in late January, when BT asked Sahara Group supremo Subrata Roy about how much he planned to invest in the airline, pat came his reply: "Any amount that will be needed to make Sahara the best airlines in terms of quality...money is not a problem for us."

Brave words. Nevertheless, Bose says the schemes don't result in losses. The auction items come at 70-75 per cent less than the maximum retail price and the tickets sold in advance at heavy discounts are for seats that wouldn't be occupied in the normal course. Buyers of bulk coupons, says Bose, end up using some of them on short routes, on which the discounts are lighter. On the 'pay if we delay' front, the airline has paid only 0.03 per cent of the total fare income.

Neither does the increasing costs-fuel costs, which account for 30 per cent of total operating costs have climbed 48 per cent in 2002-bother Bose. He's readying to pull a couple of more rabbits out of the hat. Leveraging the flexibility of the newly-acquired small planes, Bose will use the crj-200s to open up new sectors like Gorakhpur and Allahabad. At the same time, some of these will be deployed on routes like Varanasi, which never fill up the bigger planes, which can be redeployed on prime sectors like the lucrative Delhi-Mumbai, on which Sahara has only five flights a day, compared to IA's 12 and Jet's 11. The dogfight, clearly isn't over.