CEO Interview with IndiGo, CEO & Whole Time Director, Ronojoy Dutta

Transcript

Ronojoy Dutta:

Okay, you can start when you're ready

Peter:

A big welcome to Ronojoy Dutta who is the CEO of IndiGo, India's leading largest low cost carrier. Largest carrier across the board. Welcome, Rono. Great to see you again.

Ronojoy Dutta:

Good to see you, Peter. Thank you.

Peter:

Let's dive straight in. First of all, what's happening in the Indian market?` Is it positive? I see your COVID case numbers have gone down.

Ronojoy Dutta:

Yes I think it's very positive. So what happened of course was last March, we went into a total lockdown, things looked bleak, and most of all, we were not sure if passengers would come back. Is air travel safe? There was hesitancy, et cetera, et cetera. Then we started marching straight up and by February of this year, we were like, "Hey, things are back to normal. We're going to make money again. Soon things look good." And then this April and May things really plummeted and it happened so fast. It took the wind out of our sail, wait, this can't be happening. It was just dropping too fast. So we dropped from 1,200 departures in February to 350 departures by May. It was that sharp a plunge, but all the doctors also told us that, look, these are bell shaped curves. If it goes up fast, it's going to come down fast and they're proven to be right.

Ronojoy Dutta:

So caseload, we went up as high as 420,000 in May, per day increase. Now we are 20,000 per day increase, right? That again tells you how far you've. In the first COVID wave, there was this lag between the COVID numbers coming down and the passenger numbers going up because people were, as I said, were still not sure about air traffic. This time, you can see it's moving lock, stock, and barrel and you know, right in lockstep with each other. As soon as it comes down, revenue goes up. So with COVID numbers being down, Hey, things are looking better again. But when I say that, most of my managers, most of my direct reports, remember you said that last February and look what happened. And so I hope it's not déjà vu, but things are looking good.

Peter:

Well, that's good to hear. And your schedule capacity is up pretty close to 2019 levels now.

Ronojoy Dutta:

So we are, the government of course has put in these capacity caps, but they've been very responsive to us when we said that, look, our booking are looking good, et cetera, et cetera, they turn the capacity or move it up gradually. Right now we are 85% of domestic being allowed by the government internationally after they open up Doha and Dubai and Sharjah, in particular, things have been looking much better internationally. My next push is to get Saudi and Thailand open because those are again, important market for us. Those are not open yet. So international is still lagging behind, like I said, domestic is at 85% international is more like 35, 40%. So I'm trying to push international hard now.

Peter:

So, when you talk about Thailand and Saudi, you're looking for establishment of bubbles there by actual bubbles. Do you work with the Government?

Ronojoy Dutta:

So, there's this big debate about schedule versus bubble and so, and, and I think the issue in the government's mind is once you get to schedule, you get so much connectivity at the other end, you don't know where the people are coming from. If you have a bubble between, I don't know, Dubai to here, you know that there are many countries which are being excluded. You're really looking at UAE numbers whereas if, once you go to schedule, it's like it could be from any hotspot around the world, right? So I think that's why they're more cautious about public so we know it's point to point, we know where the traffic is coming from and gradually I'm sure they'll open up. So the one good thing is now they've said, they'll give tourists to people coming in. Before, you needed special visa of some kind of the other. It was meant for students, citizens, but now they're giving tourist visas starting, I think for travel. I forget when November something. So those are all good sides. So I can't criticise the government for the way they've been moving on this. I'd say I'm quite supportive of the way they're doing things gradually, step by step. Let's take it in a measured way instead of a big bang and then like oh my God, look what happened.

Peter:

You're obviously working very closely with government on each of these moves. There's no point in talking about Thailand if the government's not there either.

Ronojoy Dutta:

It's not just our government. It has to work at both ends, right? Sometimes the other side is more aggressive, we are more cautious. Sometimes we are aggressive, they're cautious. So it's that, right? What are your numbers? You show me your numbers. I'll show you my numbers. You know, that's how it goes. So that's why I'm fine with it but clearly we are to work closely with the government and we are.

Peter:

COVID dance. Yeah. So let's turn to looking bit further ahead, Rono, you've still got a very large number of orders on your books. I'm looking at ,I mean I don't know exactly, but something like a new delivery a week. Is that still the plan to keep expanding like that?

Ronojoy Dutta:

Yes, but remember we also have a lot of returns. We had a hundred old classic cell called them 80 20 classics, which we've been returning and we are about halfway through that process. So while the deliveries are coming, the returns are also there. So the total fleet count is not going up by huge numbers yet. I think we start seeing significant growth in the fleet at the end of 23, beginning of 24, until then we sort of treading water. We are going up slowly, but not in large numbers.

Peter:

I was going to ask you what, how you see the move from almost purely domestic to a substantially international operation. I presume with that answer, it does mean that international is going to grow rather more slowly than you previously projected. Is that right?

Ronojoy Dutta:

Not previously projected. I mean, I think we in line with our projections, The thing is that we took a sharp step down and now we have to try and recover to that level before we start going again, that's the issue. I'm very bullish on international and the reason I'm bullish is we have a fantastic geography and I think I've mentioned this before our four corner strategy. We can fly seven hours from Delhi, seven hours from Mumbai, seven hours from [inaudible 00:07:07], seven hours from [inaudible 00:07:08] and that gives us a circle, which goes to something like Moscow, Barcelona, Nairobi, Manila, Beijing, Shanghai. I mean, that's a very wide circle and it's a high growth circle as well. And most of the traffic right now is carried one stop. So, one thing that this COVID has taught us is the amount of demand we got off from places we hadn't considered on our radar to the CIS countries to Milan to Manila.

Ronojoy Dutta:

And I'm like, oh my God, that much traffic there, they've been doing charters and it's yes. And how did those people get there before? And answer, of course is all one-stop stop over in Bangkok, stop over in Doha and you get to Africa, et cetera, et cetera. Well, we are going to go nonstop to all these places now. So the yields will be good and our cost will be low. So I'm very, very bullish on my international opportunities. And I'm just waiting for COVID to go away finally forever at you, and then just watch a roar out of the box.

Peter:

Yeah, that's an interesting point. I've had that discussion with the golf carriers. For example, we put in a new segment, a new route and suddenly it's full and we have no idea where it comes from. I mean, you really just to some extent shooting in the dark, aren't you, but it's a very healthy dark.

Ronojoy Dutta:

That's what's amazing. I mean, people are travelling I guess like we just got a request for six charters to Bishkek and I'm like, oh really, six charters to Bishkek. So this traffic is unbelievable. It's all sitting there and obviously people haven't started flying now. They've always been going. Now, they're desperate so they bring a charter. So yeah, there's lots of opportunity all around this. And again our best sort of asset is that we'll be the only nonstop carrier in all these markets. No one else is flying so that's a great position to be in, I think.

Peter:

Well, I mean the wisdom is that full service carriers are going to have to pull back on their longer haul services business traffic isn't going to be there in such large numbers because they're going to be constrained. They've got high levels of debt and so forth. So that does potentially open up a lot of avenues for you. Doesn't it in the next year or two?

Ronojoy Dutta:

Absolutely. I think we are in a great position, frankly, going forward. And the other thing to remember is the customer's preference has changed. I've struggled with this US to India nonstop with two different airlines. Well, three different airlines. With United, we did a couple of non stops. With Air Sahara, we tried to nonstop. With Air Canada, we were doing non stops and always it is, but people have no preference for nonstop over one stop. If anything, they almost prefer one stop. I'll go to Frankfurt, stretch my legs, have a cup of coffee and do this second leg. Now, flying non stops are expensive because you're carrying a lot more fuel, burning a lot more fuel. So you need some [inaudible 00:10:24] differentiation to really make it work. And that was hard to come by in the old days, but now people are frightened to stop somewhere in between.

Ronojoy Dutta:

What if I get COVID positive tested? Will I, in the lounge, will I be mixing with the people from the wrong countries? You know, they love the reason not to do one stops. And now you look at the nonstop from US to India, and you're like, oh my God. So, United is doing nonstop from Newark, from Chicago, San Francisco. America is doing nonstop from Seattle and JFK. So, everyone suddenly into the nonstop markets, which weren't there before. Now, as those people do more of the non stops, obviously the one stop through Frankfurt and Dubai and Doha will shrink, but equally for us too, we are fighting in the local market. So it's good for us to then just have a shot at all these hubs, which don't then carry that many beyond because there's non stops taking them beyond way. So it all works in our favour I believe.

Peter:

Sounds like it. What about partnerships, Rono? What are you looking at in that respect internationally?

Ronojoy Dutta:

Well, partnerships, we are doing co-chairs, very high on co-chairs. We think it's a good thing. So as you know, we have a co-chair with Qatar, we have a co-chair with Turkish, we just announced a co-chair with the American. So yeah, co-chairs are something we are exploring more and more.

Peter:

It's good by touching into the market without having to spend money. Really, isn't it?

Ronojoy Dutta:

It's new traffic, right. Someone sitting in the US is booking a flight and suddenly, automatically book a IndiGo segment. So, that's good.

Peter:

So, you are going to have, I mean, the way you're talking, you're going to have an increasingly well younger fleet in probably increasingly younger fleet, which does fit with obviously with costs as well, because these are more efficient aircraft, but it also fits with the whole need to reduce emissions, the decarbonization of, of the industry. Two questions there. One, what's India's position going to be at COP26 later this month, particularly with aviation? And also, what sort of steps are you taking? You're obviously, as I say, obviously got a young fleet.

Ronojoy Dutta:

So, we were just at a meeting, as you know, in Boston. And the whole focus of the meeting was on a emissions and carbon footprint, et cetera. So the airlines are very united in saying, look, we are committed to this. By 2050, we will be carbon neutral and each airline is taking steps. So, clearly there are three avenues to that carbon neutral. One is reduce emissions. Second is go to sustainable aviation fuel. And the third is offsets. Now, the emission and the offset is something we can do immediately. Sustainable aviation fuel clearly is lot of technological breakthroughs need to happen from fuel manufacturers and so forth. On the emission side in the last five years, emissions have gone down for IndiGo by 16% and this is all because we are getting more fuel efficient engines. Along with that, we are doing more straight line flying, working with the government again.

Ronojoy Dutta:

This whole air space management, which in Europe, it seems to be like a disaster they've got 22 different control centres and so forth. In India, the government is far more receptive. So. Actually we've met good headway in reducing the flying times, ground emissions. You know, whether it's aircraft single engine taxi, we are looking for electrical towing away from the gates. We are trying to convert all our buses to electric. Now we've only started, we've done a few and there's a big CapEx involved, of course, but we're again, committed to going to all electric. So, on the emission side, we have a good story to tell. On the offset side, we have a very robust programme with the government in terms of forestation in terms of building mobile gas facilities. So that's also working well. I think the challenge really is in this sustainable aviation fuel. And, as you can imagine, the cost of whatever is available out there about three to four times higher than fossil fuel. And the fuel manufacturers will tell you, well, once you get the volumes, this will come down, which I'm sure is true, but how do you make that all work together? So in the meantime, you're working with the Petroleum Institute of India and they're working with us in terms of doing some test pilot projects and so forth. So that's the most promising part, sustainable aviation field, but it's also the most difficult part, frankly.

Peter:

Well, certainly the way your oil prices are going at the moment, Rono, it might not be that much more expensive in future.

Ronojoy Dutta:

I think you're absolutely right. One is what we heard at this conference is how everyone is like "no more coal, no fossil fuels" and if all that is true, then yeah, those prices will keep going up, they will be shooting up. But I hope we get to a crossover and a point quickly because if fuel prices go up and if we sustainable aviation, hasn't come down, we really in a bad place.

Peter:

What's the popular feeling in India and the government's feeling? Is there a lot of pressure on you as an airline specifically to reduce emissions? Are you conspicuous? Like airlines are in the UK, for example?

Ronojoy Dutta:

I wouldn't say the pressure is the same as in the UK. And I mean, I also be destroyed about Sweden and all that. No [inaudible 00:16:14] airlines don't fly. We are not there thankfully, but people are very aware. I mean this whole climate change and how many people are going to get displaced and crops are going to die. I mean, there is anxiety around all that and now factories. To be defensive for a moment aviation accounts for less than 3% of it. However, 3% is 3%. We need to get our act together and bring it down.

Peter:

Let's come back to the Indian market, Rono. Lot of activity there. Air India potentially going to be bought. You've got a new friend in [inaudible 00:16:54] yes. You start up there with [inaudible 00:16:58] . Tell us about that first. I mean, how's [inaudible 00:16:59] going to do with a [inaudible 00:17:01] after spending more time with you?

Ronojoy Dutta:

[inaudible 00:17:05] on the Air India issue is going to be announced today, I'm told. So yeah, so it's probably happening as we speak. Now, there'll clearly be a lot more competition. So, Air India, I think, is a very welcome move. It should have happened a long time ago. It's good for the country. Air India is sitting on a lot of bilateral rights. I mean, we'll be struggling as we go internationally. Like give me more client, give me more rights. We have some unused, but we'll have to be asking for more. Air India, of course, is sitting on a bag full of these, rights and not using them. So that's one issue. Secondly, I think they become more economically responsible. Having a large competitor who is funded by taxpayers is not healthy competition for us. The things they can do or don't do that we wouldn't dream of doing.

Ronojoy Dutta:

And it's like, wait, what's going on here? Well, they're funded by the taxpayer. You know that, so that competition is tough. So I'm very, very happy and pleased that this is finally happening. I think there will be a big force. We don't take [inaudible 00:18:15] lightly at all and nor should we. As I said, internationally, we are a strong competitor. Domestically, now they have three carriers: [inaudible 00:18:23] , Air Asia, Air India, all put together. So there'll be tough competition. So, I see them as a formidable force, no question, but I welcome. I think it's good for the industry, good for the nation. Again, it's a sensible thing to do, right? Living in India, the government entity is not a sensible thing to do. So I welcome Air [inaudible 00:18:47] is I think is far less of a comparative force for now or next two, three years. They'll have to grow, grow slowly, get the slots, get the planes. You know, they're not going to be coming out of the box, rearing to go. There'll be a slow build.

Ronojoy Dutta:

And against that, I think we have good defences. We are the lowest cost carrier. It'll be tough for anyone to get the cost lower than us. We have among the best service in the world at this point. Our on time performance is the third, most functional airline in the world. Our customer complaints are one tenth that are of the industry average. And so, whatever numbers you look at, we are running a darn good airline with very low cost. And then we have a great network. I mean, we are in every city in India with a strong position, expanding. We are in the middle of COVID. We opened nine new domestic stations. So, first, a new entrance is a bit tougher to compete with us, but for Air India, I think that's the real challenge for us.

Peter:

Right. And I mean, is it a given that it's going to be tighter with Air India?

Ronojoy Dutta:

Oh yeah. I think so. I mean, we'll know today. I don't have any inside the track on this. I'm just reading what the papers say and yeah, absolutely. Looks like it's not [inaudible 00:20:14]

Peter:

There's $10 billion of accumulated losses in there. What happens with that? Is the government going to step in to underwrite that changeover?

Ronojoy Dutta:

I'm also eager and curious to see at what price it finally goes at and what the terms are. We'll know more tomorrow but yeah, I think the government is taking a big haircut on the debt and so forth, but the details are not clear yet.

Peter:

Will it, I mean, obviously you are optimistic commercially that it will now become a responsible commercial player in the market, which it hasn't been in the past. Obviously it's obviously going to be very hard for the government to cut the umbilical cord though. I mean, I know how close Air India has been held with the central government.

Ronojoy Dutta:

No. Well, things will get better. Let's say, I mean, I don't know if the cord gets totally cut or gets withered away or dies on the vine, so to speak, but they'll move in the right direction for sure. Because right now, even whether we're talking with bilateral or baggage rules or [inaudible 00:21:28] everything is, well, what is Air India's position first? And they're the favourite child. Hopefully, that [inaudible 00:21:35]

Peter:

Well, it's very important, isn't it? With your aspirations to go international that residual position of Air India with all those roots internationally, they're not even servicing. Do you anticipate being able to capitalise on some access to those route?

Ronojoy Dutta:

Yeah, we do. And again, I think this is going to be a bit of a wide body, long haul Air India versus narrow body, short haul IndiGo competition. So, to an extent we will not be going head to head. For example, I know they're very big on India to US and India to London and for us, that's like, Hey, please keep it. It's okay. We need the Bangladesh, the Kathmandu, the Thailand kind of routes. So to that extent, I don't think we are going head to head immediately.

Peter:

Do you see any change to the government's five hour open skies radius?

Ronojoy Dutta:

I don't know yet. Let's see what happens after Air India. My sense is the government is not that hot on open skies. They'll still be a regulated environment and work through bilaterals at least near term. Long term, do they migrate to open style? We have to wait and see.

Peter:

One of the issues always, and it's not just India, but it's particularly important in India is in terms of market competition is access to airport slots. You've obviously capitalised on that by your rapid growth and you had some advantages because airlines went out of the market and so on when you were growing, but is the airport situation going to be relaxed a little bit? Are there going to be slots available for other airlines?

Ronojoy Dutta:

I think things are getting and I'll tell you why. Mumbai is in next year is going to have a second airport called Navi Mumbai. Delhi is going to have a second airport called Jewar and those are not all on paper and planning and all that. Construction is going on. It all seems is going to happen in the next two to three years. Simultaneously, the government is opening up close to a hundred smaller stations, which are really air force spaces and saying, let's just convert them to commercial. So we have [inaudible 00:24:02] lots of small towns that we didn't have access to before. So, I think the issue has always been well, who's going to provide for these investments? You need new airports and new terminals [inaudible 00:24:14] doesn't have the money. So this privatisation drive, as you know, they've been privatising more and more airport, I think another eight on the [inaudible 00:24:21]. So, that takes care of the invest capital issue. People compare India to China a lot and Chinese plan ahead and they do a great job in their five year plan and India scrambled and said, oh my God, we need to do something for next month. And yeah, let's open up something, some slots here. So yeah, we scrambled but finally we get there.

Peter:

I mean, you and I were both young when we start first started talking about Navi Mumbai. How far away is it, do you think, realistically?

Ronojoy Dutta:

At this point, I think it's two, three years away. So, they started work, stopped work, started work, stopped work. Now it just seems we are in regular meetings with them and sharing plans and so forth. And now I'm pretty sure in three years it'll be up and running.

Peter:

And what will you do? Will you move all your operations there when you can, or would you have operate both airports?

Ronojoy Dutta:

In my unscientific, not very reflective opinion, no we'll operate out of both airports. I mean, they have their own catchment areas. Mumbai, as you know, is closer to Pune so they have the separate catchment areas. They're no reason to shut one down.

Peter:

Okay but it does mean some duplication of operations, doesn't it? Particularly when you start talking international.

Ronojoy Dutta:

Yeah, sure but you know, we have LaGuardia and JFK and Newark and they all work. Right? [inaudible 00:25:55]

Peter:

Much bigger markets though.

Ronojoy Dutta:

Sorry?

Peter:

Much bigger market though.

Ronojoy Dutta:

Yeah but much bigger market and much more capacity too. And here we have low capacity, low market, but the markets are growing. I mean, look at Delhi airport volumes compared to worldwide volumes seven years ago to be unthinkable. And now, Delhi is up there among the world leaders in terms of volumes.

Peter:

Yeah, it's quite remarkable. Are you expecting, anticipating a lot more international competition to come back in because you've really been relieved of a lot of that just in obviously the last 18 months or so.

Ronojoy Dutta:

Yeah, but I mean, it will come back. I mean, we have plans to grow and other people have plans to grow. It'll come back. But as we said, the nature of the competition nonstop versus one stop, big hubs, the nature of the competition will be different, but the capacity will be there one way or the other.

Peter:

So where are you going to be in say five years time? Let's look at well, 2025, what's your mix, international/domestic.

Ronojoy Dutta:

So. pre-COVID, we were 25% international, 75% [inaudible 00:27:05]. and that was with rapid growth two years before COVID. So we used to be like 15%, 20%, 25%, and then 15 to 25 all happened in two years. And now I would expect us to settle at about 40% international, if you say four years from now. So again, we are not growing a lot in the next 18 months or so. After that we start growing and when we grow, we will grow more domestic because we have a lot of domestic opportunities as well. And so it's not like we are going to stop growing domestically. We'll grow domestic, but at the faster at international.

Peter:

You've got the potential for that. I think that at last count you had something like 570 aircraft still on order. 570 aircraft and even if some of them are replacements, it's still a lot of new aircraft.

Ronojoy Dutta:

Believe me, we have schedules to support that. I'm eager to implement our plans. I'm just waiting for the environment to allow us to implement [inaudible 00:28:07] plans/

Peter:

That's good. So you don't think Air India, a revitalised Air India, perhaps with big friends like [00:28:14] will cramp your style.

Ronojoy Dutta:

No, again, I only see this is a positive and look, their focus is different than ours. They are a full service carrier; we are a low cost carrier. They have a business plus, we don't. They have wide body, they'll go long haul. So the markets are going to be somewhat different. I almost see us as the common man's airline, right. The traders, the small manufacturing units. That's our call. For them, it's these big corporations who need a lounge and lie flat beds. So yeah, we are different.

Peter:

Do you make any compromises on the longer services in terms of, I mean, are you planning to do in terms of [inaudible 00:29:06].

Ronojoy Dutta:

Not radical, but I'd say tweaking. So, for example, our longest flight is Istanbul and we said, Hmm, we need more comfortable seats. So we are changing the seats. We are not changing the pitch, but we are getting more comfortable seats. [crosstalk 00:29:26] and so it's on the service. It was like oh my God, how many currencies can you accept? And before it was like, no, no, no, we don't only accept dollars. That's all we do. And it's like, wait a minute. You're going to Turkey [inaudible 00:29:42] the currency. So those sort of tweaking things, but we are not going into lounges and lie flat beds. No, we're not.

Peter:

Right. Okay. Leave that to your partners, your coach, your partners.

Ronojoy Dutta:

Yes, yes, yes, yes.

Peter:

Rono, time's gone again. We'll have to come back and find out what it's like in three months. Hopefully the bell curves are flattening out a bit.

Ronojoy Dutta:

Yes, yes, yes, yes, yes. Always a pleasure talking to you, Peter. Thank you.

Peter:

Wonderful to see you, Rono. Thanks for being [crosstalk 00:30:14] [inaudible 00:30:14]

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