Simply Fly

by Capt G R Gopinath

  Vijay Mallya sought to convince me and the board of directors that his survey results correlated losses and the Deccan brand and, by implication the low fares. The results suggested that the Deccan image did not allow us to raise fares so we were losing money. In reality the contrary was actually true, and this had become quite patent: when you increase costs and fares while promoting a low-cost model, losses increase due to falling occupancy. Vijay Mallya leveraged the results of the market research to suggest that we should re-brand again to evoke a closer association with Kingfisher, akin to Kingfisher Lite or Kingfisher Red.

  I was opposed to this move and thought Vijay Mallya was behaving like Tughlak who changed his capital twice. I reminded him about his earlier mindset. ‘We have just changed the brand once spending seventy crores,’ I reminded him. ‘You had wanted to use the Kingfisher bird logo on Deccan aircraft. You had then said that Simplifly is the best possible brand name and that everyone you spoke to said Deccan was the most vibrant brand.’

  He said, addressing me, ‘You know Gopi, when I get off my private jet the first thing I do is take a look at the garbage bin at the airports. You know what I find there? Torn and discarded Deccan baggage tags. It is clear that passengers are ashamed of travelling on Deccan.’ I got back on that, saying, ‘Vijay, people shopping at Wal Mart do not display their shopping as if displaying a Louis Vuitton. Wal Mart is nonetheless the largest retailer and the biggest brand in the world. A passenger on Ryan Air might throw away his baggage tag too, but Ryan Air is in profit.’

  Vijay Amritraj was sitting on the board meeting that day. Pointing to Vijay Amritraj, I said, ‘If Vijay Amritraj here lost his Wimbledon matches, he should improve his game by training and by working hard. He has to change his game and not his name to win the match. I also had this friend of mine who went through a bad financial patch. An astrologer told him to change his name because the numerology of his current name did not augur well. Instead of working out a solution for his financial woes, my friend changed his name. He had to make out affidavits, intimate various agencies, change his ID card, passport and bank particulars. My friend went about wasting time and money on a name change and went bankrupt.’

  Vijay Mallya, however, sincerely believed the brand was preventing him from making money. His way out of the crisis was that he would spend Rs 500; make it look like Rs 5000, and charge more. However, the actual way out for LCCs, as Ryan Air had demonstrated, was to innovate; to use and leverage technology to bring about higher asset utilization. Airlines have negotiated crises by the deployment of technology. Airlines have used innovation, staying power, resilience, and courage. I argued with Vijay Mallya that as oil prices and airport handling prices had risen and average flight occupancy was 50 per cent, we had to do hawkish cost-cutting. He did not however listen.

  I then realized that it was better for one man to run the company, and that anything was better for the company than conflict. Besides, the thought crossed my mind that he had put in a 1000 crores and that had to be respected. This coincided with the time that Vijay Mallya requested me to tell the heads of engineering, revenue management, and airport services to report to him directly. That would allow him to coordinate with them and accrue higher revenues. I agreed and picked up the phone to tell my management team what Vijay Mallya wanted them to do and asked them to report to him.

  This was a moment of trauma for my team. Senior management like Reshma, head of logistics, Vijaya Lucose, head of in-flight, Capt. Preetham Philip and Capt. Sam came over to my office. They had tears in their eyes. They were attached to Deccan and hurt by the way Kingfisher was operating which had very little of Deccan’s core values.

  Vijay Mallya rapidly implemented his new strategy, entirely altering the pricing philosophy. A lower bound for fares was implemented and early-bird fares ended. Occupancy was no longer as important as it had hitherto been. Unviable routes were cancelled but the aircraft were not redeployed to maintain the old utilization levels. Kingfisher flights were rescheduled to precede Deccan flight departures. On many routes the Deccan flights were completely stopped. This caused migration from Deccan to other LCCs such as Spicejet or Indigo rather than Deccan to Kingfisher which had been hoped for. On routes flying both Deccan and Kingfisher, passengers who did not need the frills moved to Deccan.

  There were other unintended consequences of subsuming Deccan under the Kingfisher brand. A repainting and brand-changing exercise began a second time, and in full earnest. The blue and yellow logo and name of Air Deccan were repainted red. The name on some was changed to Kingfisher Red. This was an expensive affair.

  I worried that changing the name of Deccan to Kingfisher Lite or Kingfisher Red would cause brand blurring. Not finding much distinction, passengers travelling Kingfisher Economy would fly Kingfisher Red or Lite. A similar appearance and feel would create cannibalistic competition for the mother brand. Mallya was creating trouble for himself. I told him that this was exactly what happened when British Airways set up Go and KLM set up Buzz. Both airlines eventually killed their low-cost subsidiaries. People stopped using the parent brand as there were cheaper fares on the subsidiary. Singapore Airlines set up Tiger Airways bearing in mind the need to maintain a distinction from the parent brand. Qantas has a similar approach: its Jetstar is a very distinct brand.

  Vijay Mallya and I were heading for a major conflict. I told him as gently as I could, but without mincing my words. ‘Vijay,’ I told him, ‘whatever happens there is something I must say to you. It is about the people who surround you, the majority of whom, with the exception of one or two, are sycophants. This could prove to be a major weakness in the future.’

  I said nothing after that, but we remained good friends. He was likeable on a personal level. He argued his case very strongly, I mine. One day he said that if this was where we were headed, it would be best to merge the two companies.

  I believed a merger would lead to a loss of shareholder value and an erosion of the Deccan brand. He, however, insisted that it was the best way forward, and the decision to merge became a foregone conclusion.

  Vijay Mallya made it clear he wanted to run the company the way he thought fit. He changed its name and the business model. The merger had to be fair to both sides, I said that if Deccan suffered, he would suffer too. I had not sold my stocks but the grapevine had got it wrong and it was rumoured that it was a sell-off. It was as though Deccan’s life system was being extinguished.

  I agreed to the merger. He would have bulldozed his way to that had I not, having consolidated his holding to 51per cent. I could have dug in my feet and created a rift. That would have damaged the company irrevocably. It was with deep pain and sorrow that I agreed to the merger.

  The merger had to be approved by the board, the shareholders, the banks, suppliers, and lessors who were creditors, and the Karnataka High Court. We needed to figure out the holding structure in the helicopter company, Deccan Aviation, the parent company which I had first founded. Mallya said he would hive off the helicopter company into a separate company, which I could run independently. He would not stand in the way. We made a deal. He would have a minority shareholding in the helicopter company and I could have the majority shareholding. He would be chairman and I would be the vice chairman of the merged airline entity to be called Kingfisher Airlines.

  We held several board meetings before we took the decision to merge the two companies. There was a real danger that the low-cost model would die. I received thousands of mails from people. Passengers across the country wrote to me; MPs and ministers, journalists, to some of whom I had become quite close, wrote personal notes to me, about how they felt. They all said they had come to identify with Deccan as an airline that was their own. They said they felt sorry for the passengers who had patronized Deccan and that though they were not sure, the merger would probably put an end to the old dream.

  As a first-generation entrepreneur, I had developed a strong sense of identification with Deccan. Obsessive attachment makes
it difficult for the entrepreneur to allow his enterprise to develop along professional lines. Equity can also be an obsession and can shackle the entrepreneur. It is better to have a small stake in a multi-billion-dollar company than have big stake in a small company. There is always the danger, when one clings to a small company, that a bigger player will come along, introduce better technology, and wipe you out of the market space. On one hand, my heart bled for Deccan which was slipping out of my hands; on the other, I felt an irrepressible urge to build a very large company on the lines of Infosys or Larsen & Toubro. That dormant desire was now awakening.

  Before I could begin to dream anew, I had to resolve one nagging thought: the future of the retail shareholders in the company owning 200, 500, or 1000 shares. At shareholder meetings in the initial stages, they used to ask me: ‘Captain, we admire you and will follow you as a messiah, but enlighten us about one matter: when will the stock appreciate? When will we make money?’ I used to say: ‘I cannot say when, but we definitely will. You have to believe in me.’

  The growth of Deccan was indeed inspirational, but not being able to give a clear answer to the shareholders made me feel guilty. Beyond a point one gives oneself over to the tide of destiny. Some shareholders were unhappy about Deccan’s low-fares policy. Happily, notwithstanding all the turmoil within the Kingfisher–Deccan combine, the wheel of fortune halted at a favourable destination. The promise I had made to shareholders was not belied. Just ahead of the Deccan–Kingfisher merger, Deccan stocks peaked at Rs 330 per share and the Deccan market cap reached a dizzying, bizarre 1.1 billion US dollars. Though I knew the market capital of the company may not be the true worth of the company, I felt redeemed that investors who had reposed faith got good returns. And many original investors including Ladhani, institutional investors and retail investors exited and reaped rich returns.

  My own shares, because I had never sold them, and Capt. Sam’s shares amounted to quite substantial a sum. I decided to channel the proceeds into a new company which I was incubating and begin all over again. Sam came over and said ‘Gopi, you can use my stock in the way you consider fit.’ When I had nothing, I built Deccan. What I had in hand now, a princely sum, would allow me to begin all over again. I thought of Kipling’s poem ‘If’ kept on my desk in NDA and decided to pitch everything on a new venture I was incubating.

  If you can keep your head when all about you

  Are losing theirs and blaming it on you;

  If you can trust yourself when all men doubt you,

  But make allowance for their doubting too;

  If you can wait and not be tired by waiting,

  Or, being lied about, don’t deal in lies,

  Or, being hated, don’t give way to hating,

  And yet don’t look too good, nor talk too wise;

  If you can dream—and not make dreams your master;

  If you can think—and not make thoughts your aim;

  If you can meet with triumph and disaster

  And treat those two imposters just the same;

  If you can bear to hear the truth you’ve spoken

  Twisted by knaves to make a trap for fools,

  Or watch the things you gave your life to broken,

  And stoop and build ‘em up with worn-out tools;

  If you can make one heap of all your winnings

  And risk it on one turn of pitch-and-toss,

  And lose, and start again at your beginnings

  And never breathe a word about your loss;

  If you can force your heart and nerve and sinew

  To serve your turn long after they are gone,

  And so hold on when there is nothing in you

  Except the Will which says to them: ‘Hold on’;

  If you can talk with crowds and keep your virtue,

  Or walk with kings—nor lose the common touch;

  If neither foes nor loving friends can hurt you;

  If all men count with you, but none too much;

  If you can fill the unforgiving minute

  With sixty seconds’ worth of distance run—

  Yours is the Earth and everything that’s in it,

  And—which is more—you’ll be a Man my son!

  —Rudyard Kipling

  [Poem framed and placed on every cadet’s writing desk at the NDA]

  13

  Fortune favours the brave.

  —Virgil

  A New Adventure Beckons

  D

  uring the trying last months before the merger I had begun to incubate a company. It was a logistics company, floated in response to harrowing experiences we had in the early days of Air Deccan. The source of these experiences was spare parts. For want of a spare part, even something as small as a propeller blade, flights were delayed, even grounded. We had these parts airlifted from foreign suppliers. Parts from anywhere in world arrive in Mumbai within twenty-four hours, but from Mumbai, if you committed the package to the logistics system operational in India, it took from two to twenty days for it to reach a small city such as Guwahati or Jabalpur or Jammu. This bothered me and I felt a buzz like that which I had felt when I thought of starting Deccan. I realized there was no cargo airline flying to small cities.

  One day, a flight from Delhi to Kolkata was hit by a foreign object. The pilot lost use of an engine in mid-flight. Losing use of an engine in this way is not uncommon for pilots. Bird or debris hits or, fire or malfunction can disable an engine, whereupon the pilot switches to the second one. On that occasion, however, I was on edge when I heard the news and remained very nervous till it landed safely. Once the aircraft landed in Kolkata, the pilot and the engineer took a walk around. They noticed that one engine was completely damaged by a bird hit. Deccan had high asset utilization in those days. The moment a plane landed one set of passengers disembarked and another set embarked. On rare occasions passengers were made to wait because some problem had arisen. In the Kolkata incident, 180 passengers were ready to board. As they were getting into the coach, the engineer called to say the flight had been cancelled.

  There was a near riot at the airport. Passengers broke our airport counters and manhandled our staff. Television crew covered this ugly incident. We had no spare aircraft and it could take up to twenty-four hours to change the engine. We had a spare engine each in Delhi and in Bengaluru but not in Kolkata. A brand new engine costs about $15 million. We would find it prohibitively costly to locate a spare engine in all the fifty cities to which we were flying. This is a problem for logistics and inventory management.

  Efficient and express logistics support is usually provided by a company that has integrated air-cargo and ground-cargo facilities. An engine cannot be sent by road. It would have taken seven days to reach the destination, and because the road conditions are poor, one loses the warranty on the engine, if it is sent by road. If for any reason you decide to send it by road, the part has to be placed on air-cushioning and transported very slowly. On that occasion we decided to send the engine by air. It took us an entire day to figure out how to send it by air. My team could not find an operator to fly it to Kolkata because none of the aircrafts available in India had the capability to lift an engine.

  Blue Dart is the only cargo-cum-logistics company in India but it did not have an aircraft which could accommodate the engine. FedEx came only to Mumbai and Delhi, and were not permitted to operate anywhere else in India. We were in a bind. Someone suggested the Russian Antonov. We contacted an agent in Dubai but the agent asked for a quarter of a million dollars to be deposited in advance. It would take three days to get an aircraft from Russia. It was frustrating.

  Eventually a solution was found and we sent the engine from Delhi to Kolkata. How did we accomplish this? We sent the engine from Delhi to Singapore and from Singapore to Kolkata via Singapore Airlines Cargo. It took all of six days!

  For six whole days we had lost revenue on the grounded aircraft, an Airbus-320 which undertook 6–7 flights a day. It was traumatic. We cancelled the
flights, faced irate passengers, and refunded their money. In the process it tarnished our reputation.

  I saw that there was no end-to-end logistics company operating to the smaller cities in India. What logistics support we had in the country served only the metro circuit and ignored the smaller cities. I saw this as a great opportunity. Once I began thinking in this direction, I realized that the world’s largest airlines are not passenger carriers but logistics companies. It was not Lufthansa, not Air France, but FedEx and UPS. These logistics companies together own about 1600 aircrafts. FedEx and UPS together earn revenues of over $90 billion a year, and operate in 200 countries. I had read about how Fred Smith built this great company, FedEx.

  Fred Smith first wrote about the hub-and-spokes model of logistics in his MBA dissertation. There is a story about the source of the basic idea but it could be apocryphal. Fred Smith, as this story goes, had heard about the Indian Posts using Nagpur as a hub for sorting and redistributing mail.

  Nagpur is at the geographical centre of India. The Survey of India has a pillar marking this crossing of latitude and meridian. Indian Airlines fights emanating from different destinations used to halt there briefly at night before undertaking the onward journeys. These flights, it is said, used to carry mail emanating from different centres, presumably from Chennai, Thiruvananthapuram, Hyderabad, Mumbai, Kolkata, Jaipur, and Delhi. The planes were parked next to one another in a row. From their cargo holds, ground-handlers would remove large bags of mail and deliver them to the postal hub at the terminal. There, postmen sorted the mail, placed them in new bags, and had them reloaded into the cargo holds of the destination carriers. This is the experience from which Fred Smith is said to have drawn his blueprint for FedEx. Fred Smith got a C Grade for his MBA dissertation but he went on to build the largest integrated logistics carrier in the world and changed the way the world does business.