Simply Fly

by Capt G R Gopinath

  When I went to Toulouse, I made a presentation to ATR officials. It was more about India than about Deccan Aviation. I spoke with passion and fervour about how India was going to be the future of the world, of India’s ongoing economic reforms and progress; about how the country was poised for an aviation revolution. I said India would emerge as the largest generator of employment in the aviation field and spoke about why India needed a low-cost airline, emphasizing that the all-round growth of the economy would definitely make it possible for more people to fill the planes. I added that it was a symbiotic relationship.

  I asked them to ensure they gave me five aircraft and extended all possible assistance, and I asked them to back me to the hilt. If I failed, they would fail too. We were partners in business. They must make money on me in the long-term. If they won in the short-term, and I lost, both of us would lose. If in the long-term I won, they would win too. The long-term perspective was a win-win. I spoke with a conviction about India in which I wholly believed.

  I made it clear that ATR would also have to come up with a complete, comprehensive maintenance package. I would pay an hourly lease rental and they should maintain the aircraft end to end. They would bring in their engineers and take care of the entire logistics and inventory support. They would train our pilots and help my staff to undertake line maintenance. At the end of the presentation, they had bought the idea of India as a vibrant economy in the making and, from their business perspective, a potentially huge market for aviation products. The vibrancy of the Indian economy contrasted with the global slump at the time, and this captured their imagination. Without any cash flow upfront I had got a package from them.

  Although aviation was in recession and there were fewer aircrafts being inducted in the skies, flying schools continued to train and turn out pilots. There were no flying jobs for fresh pilots. Some took up other jobs; some simply waited for things to improve. Most of them enrolled as unpaid freelance co-pilots. They flew for the experience and to log a larger number of flying hours.

  I received calls from within the country and abroad. They were excited about the new project and wanted to contribute to the company’s success. There were calls from senior and accomplished pilots as well. One such call was from Capt. Rajiv Kotiyal, chief test pilot with HAL.

  Rajiv Kotiyal was one of the most distinguished Indian test pilots. He had followed in the footsteps of astronauts Neil Armstrong and John Glenn and trained as a test pilot for two years at the US Edwards Air Force Base. He tailed their career successes too. He was decorated with the Best Test Pilot in the World Award in 2001, an honour earlier bestowed to Armstrong and Glenn. Kotiyal had done a maiden test flight on the Light Combat Aircraft at HAL and had been involved with the design of the light combat jet along with the project director, Dr Kota Harinarayana.

  Capt. Kotiyal was retiring as a test pilot and wanted to get into commercial aviation. He said he had read about my airline and wanted to work with us.

  Capt. Kotiyal was seeking to broaden his work profile and willing to do more than just flying. I was looking for a chief pilot. If I were to attract talent from an existing airline, I would have to pay a quarter million dollars. I took Kotiyal into confidence. I said I would take care of his future if he shared in the common dream and made sacrifices. I asked if he would be willing to manage the entire flight operations.

  Rajiv Kotiyal joined the airline on 1 April 2003 as Employee No.1.

  I am grateful to the people who chose to join me early in the company’s history. They were willing to join me on a great journey to the unknown. It was very important for me that those who joined at the top believed in the dream and in the revolution we were about to create. I made it clear that only those should come on board who shared the conviction that we would revolutionize Indian aviation.

  Most of the people who wanted to join me had no background in commercial aviation. They were not fastidious about so-called best practises. They were ready to innovate, to challenge established norms—in sales, marketing, ticketing, flight operations, in IT and finance. Of course, in hardcore flying and engineering, experience and best practises are never tinkered with. It was, however, possible to do things upside down in the softer areas of finance, marketing, distribution, operations, and the management of engineering and flight operations. Every Deccan employee had the same kind of zeal and energy as I. They dared to ask ‘Why?’ to customary practice and ‘Why not?’ to innovation.

  Not long after Capt. Kotiyal came on board, I received a letter from Vijaya Lucose. Vijaya had begun as an airhostess with Air India before moving on to Eastern Airlines in the US as head of training for cabin crew. Her software engineer husband had returned to India a few years ago and Vijaya had joined East-West Airlines as head of in-flight services. I needed someone to manage the cabin crew operations: induction, training, grooming, and on-board style and services. I found Vijaya Lucose very graceful, intelligent, and impeccably groomed. She had the perfect credentials but I told her at the time that we could not afford to pay her a fancy salary. Vijaya said money was not an issue and joined me.

  R. Krishnaswamy was the next to join us. He wrote me a note to the effect he had just retired as a regional manager for Indian Airlines and was fully conversant with airline operations. I replied that I was not keen on taking people with an airline background and that I needed people who were innovative and flexible. Krishnaswamy asked me not to be too quick in judging him. He came over for a chat and I was deeply impressed by his commitment and dynamism. We decided he would head airport services for Deccan.

  The heads were in place: head of pilots, head of cabin crew and in-flight department, and head of airport services. Mohan headed finance and revenue management and I initially headed sales and marketing. ATR for its part had promised to lend me the head of engineering. The only critical functional head yet to be filled was head of IT who would report to Mohan. Deccan became a functioning corporate body on 1 April 2003.

  The IT system proved to be the biggest challenge. I was, and remain, computer illiterate. I cannot send email nor sit in front of a computer with any degree of patience. The Blackberry is as far as I have got. In the late 1990s, a new metric was evolved for deciding how advanced an economy is. According to it, the highest percentage of the gross domestic output of an advanced economy came from IT-enabled services. I did not like the logic of this new metric for the simple reason that we cannot eat information. We need people to grow our food, run our machines, and build our houses. We need people to keep our cities clean, to teach us, heal us, and care for us.

  I recently read an article about a high-flying investment banker who became a monk. He quit everything because he realized that computers took us far away from the real world; computers don’t give bread and milk. He wanted to recover his links with nature: feel the earth, get his hands dirty. He realized that man does not live by IT alone. Therefore, more urgently than ever before, the world needs a fine balance between the old economy and the new economy; between agriculture, industry, and manufacturing, on one hand, and software, IT, and other services on the other.

  My general views on computers notwithstanding, IT was the single most important factor in ensuring the success of the airline. We needed an IT-enabled image that would trigger instant brand recognition in the consumer’s mind. We needed the trigger to work as an unfailing stimulus– response mechanism: ‘I want cheap ticket, I go Deccan.’ Full stop! Media had been at work for us but we needed to get the nuts and bolts in place.

  We needed all potential travellers to think Deccan, whether they were in Kottayam or Kolkata, Davanagere or Delhi, New York or Nagpur. However, once they thought Deccan we would have to make it possible for them to get the physical ticket. We had to create a ticketing distribution system that allowed the passenger to access the entire inventory of ticket availability on a particular flight on a particular date. The ticketing system was the cornerstone of the airline. Therefore, if the system could enable a passenger to re
spond in a tangible way with a physical or virtual trail, we would be hitting the bull’s eye.

  The answer was straightforward: only a sophisticated Internet-based reservation system could accomplish this. It would be a system capable of responding to a customer’s query and transaction anywhere in the world. It would automatically update itself after each completed transaction. The data would simultaneously become available to all internal departments at Deccan. In addition to the interface it created with passengers, the system would be able to coordinate, and mutually assist, different departments. Flight operations, check-in and processing, HR processes and pilot and cabin crew roster, flight schedules, and other wings of the supply chain including food and beverages and fuel supply would all be dynamically linked so that all the nodes in the airline would always be transparent to operational heads and to decision-makers. It also would allow for some empowerment of the nodes at lower levels, where such empowerment is creative and useful.

  The ticketing system would have to be linked to the bank’s payment gateway, on one hand, and to the call centre and to thousands of new-age agents on the other. The system would be linked to the software system that decides the fare the passenger pays and also be linked to Deccan intranet linking departments within the airline, especially between airport counter and check-in and flight departure.

  The software calculated the fare on the basis of simple rules. It assumed that tickets could be bought ninety days in advance. People buying earlier got them cheaper. The 180 seats on the plane were divided into buckets. Each bucket provided a certain number of fares that were much lower than the others. Bucket one would have, for example, two tickets at one rupee each if bought on ninety days prior to departure. If they were bought on that day, the fare scan moved to the next bucket where tickets were priced slightly higher, and so on. The fare structure was time-sensitive and automatically moved on to the higher bucket even if the tickets were not bought on the previous day. The number of lower fare tickets got smaller as the days passed until the day of travel. Even on the day of travel, the price of the ticket, while being much higher than that which was offered on the opening day, would still be significantly lower than that offered on legacy airlines justifying the overall philosophy of the LCC. Another crucial aspect of the system software was the fact that it had been programmed to bear in mind the profitability of the airline. It worked on the principle that the net average realization on an LCC would recover cost plus a profit, even though the net realization was still less than half that of a legacy carrier.

  The fare-determining software was closely linked to whether I was an optimist or a pessimist. This was my simple insight. Mohan and I were discussing the relationship between the fare and occupancy rates of the aircraft. Mohan had calculated the fare basket on the basis of 75 per cent occupancy. Here I intervened as an optimist and reckoned 100 per cent occupancy. Assuming 100 per cent occupancy, the system would decide a fare that was half that at 50 per cent occupancy. The traveller would find it far more attractive to travel at such a fare and, as experience proved, this was self-fulfilling: fares were indeed decided in such a way that made this actually happen. This was how people responded to our faith in 100 per cent occupancy!

  In addition to the major task of automating and regulating ticketing and distribution, the Internet-based system would also be able to coordinate the activities of different departments. Flight operations, check-in and baggage processing, HR processes such as, pilot and cabin crew roster, flight schedules, and the supply chain, including food and beverages and fuel supply. This would be transparent to operational heads and help in taking sound decisions.

  We calculated that the system would lead to a cost saving of over 20 per cent from reduced ticket distribution costs on the Internet. Savings would also accrue by not having to print tickets. A standard legacy airline ticket is printed in the security press and uses special paper to avoid duplication. Savings would also accrue from transport and logistics of ticket delivery: from the company to travel agents to passengers.

  Airlines are prisoners of three entities: travel agents, proprietary reservation systems (like Saber, Galileo, and Amadeus), and network service providers. All airline tickets must pass through the three systems. These entities control the airlines’ inventory and cash flow.

  The system works this way. There is a ticket consolidator who is a travel agent registered with International Air Transport Association (IATA). The travel agent is the only person with access to the airline inventory. Even the airline cannot sell a ticket at less than the travel agent’s rate. Most airlines have a bonded agreement with the agents.

  There are two kinds of travel agents. IATA travel agents are distinct from non-IATA agents. In India there are 2000 or so IATA travel agents and 8000 non-IATA travel agents or sub-agents. The latter do the bulk of the ticket bookings but it is the IATA agents who get a higher percentage of the commission: 7 to 10 per cent linked to productivity. The non-IATA sub-agents make about 2 per cent.

  Deccan would straightaway save 10 per cent by avoiding IATA travel agents. There was another advantage to this. IATA travel agents were allowed to block and hold seats on different flights simultaneously. They offered these frills in tune with the legacy of full service airlines’ philosophy of pampering passengers. If a passenger is uncertain of his date of travel, the travel agent can block seats on three different flights without paying for the tickets. There is no penalty if the booking does not convert into a ticket. Agents hold multiple tickets on different airlines. The airlines receive the passenger manifest at the last minute. They therefore resort to overbooking which leads to chaos if all the multiple cross-booked passengers for the same flight turn up. However, more frequently they fly with a lot of empty seats and therefore the passengers who fly have to bear the cost of the vacant seats which are always factored into the fare.

  Airlines have to care for the extra passengers unable to board the flight, providing accommodation and meals leading to increased cost and wastage. The airlines are held to ransom by this system.

  The system of travel agents is not a cartel but creates inefficiencies, wastages, and cost overheads. Deccan, by putting the inventory at the command of the passenger, would change all that. It would eliminate the 10 per cent agency commission to the travel agent and also eliminate charges paid for access to the proprietary reservation systems that controlled the airlines.

  The purchase of a ticket to London and onward to Helsinki, for instance, attracts a $4 charge for the domestic segment and $8 for the international segment. This charge is paid to the reservation system. The connectivity between travel agents and the reservation system enables ticketing transactions. The reservation system is provided and controlled by network providers like SITA who charge another $2 per transaction.

  Travel agents have formed associations and, as it often happens, the associations get together and control the airlines. The travel agents and network providers generally made money while the airlines generally made a loss or just managed to survive. The airlines get their money a fortnight or a month after the real time transaction. The delay hampers cash-flow. An airline like Indian Airlines or Jet Airways probably has up to Rs 1000 crore in receivables at any given point in time.

  Other costs borne by airlines included bad debt insurance costs, working capital costs, costs on interest, costs incurred on clearing-house charges, and miscellaneous other costs. The assortment of cost types makes it necessary for airlines to hire an army of accountants whose only job is to reconcile receivables from travel agents and costs payable.

  These processes, and the costs associated with each of them, were eliminated at one stroke by putting the ticketing inventory online. The airline could receive money upfront from the passenger when a seat was sold.

  Sceptics said an Internet-based system for ticket distribution and for resource planning and operations might work in the US or Europe but might not be suitable for India. The LCC system along with the Internet-based
reservation system was functioning in the US and Europe but my detractors doubted that Deccan could do this in the Indian context. Deccan however pioneered the creation of interfaces between customers and the payment gateway and brought in several other innovations in the concept of point of sale, cyber cafes and post-offices included, and broke the monopoly of the system of IATA travel agents. It helped a great deal that the Deccan team was mostly from a non-airlines background and were therefore open to new ideas. As for me, not being computer savvy, I wanted the system to be such that people who have no computer or can’t use one can easily book tickets with us.

  Just as the legacy airlines are in thrall to the monopoly of the legacy reservation systems like Amadeus, the LCCs are also captive to one major Internet reservation system, Navitaire. It was based in Denver, USA. Navitaire owned a software platform called Open Sky for use by LCCs. The company was subsequently acquired by Accenture. The company supplied Internet-based systems to some 30 airlines across the world. Though it was a form of monopoly, its charges per transaction were almost one-eighth of that charged by the reservation systems deployed by legacy airlines.

  The company was rather cool to our enquiries, not regarding India as a very happening aviation market. Navitaire acknowledged India as a software superpower but did not think an LCC model would succeed there. India was a niche segment: only a small minority used credit cards and accessed the Internet. Navitaire at the time had enough business on its plate. I understood the tepid response to us and eventually fixed a video conference with the top man of the company.

  We needed someone to head our IT department. I wanted someone who understood technology, not as an expert perhaps but in a savvy way; someone who understood how technology could be aligned with the direction of the business, and who was able to look at technology from the customer perspective. I wanted someone who could make technology work for the business rather than someone who would become obsessed with the technology for its own sake. At this juncture, I was introduced to Ajay Bhatkal.