Getting Fresh With Dinesh

July 23rd, 2008

Selling airplanes isn’t the world’s most easiest task. Glamorous it certainly is, but the territory is arduous, the competition is stiff and challenges remain whatever the economic environment may be. To this end, one constant in an ever-changing marketplace has been Boeing Commercial Airplanes Vice President, Sales, South & Southeast Asia, Dr. Dinesh A. Keskar.

A veteran Boeing employee for 28 years, Keskar has worked tirelessly in his native homeland, India, and was instrumental in securing a huge 68 airplane deal with the flag carrier, Air India in early 2006. The airline recently showed off its tenth and newest Boeing 777-300ER at the sixtieth Farnborough Air Show.

It was aboard this splendid Air India 777-300ER that Dr. Keskar and I sat and discussed a multitude of wide ranging topics and issues, drawing reference to the past, present and future while enjoying the ambience of the Executive Class seating.

Long, Proud History

“Our relationship with Air India goes back over sixty years and started with the (Boeing) 707, and in fact the first all-jet airline in the world was Air India with 707’s and 747’s,” Keskar outlines.

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On winning the multi-billion dollar order, Air India and Boeing forged a close relationship in determining what and how the carrier should do to move forward into the 21st century.

“The theme (at Air India) was that they really wanted to rejuvenate Air India,” says Keskar.

“They wanted to go back to the Maharajah service days and they wanted to again become one of the top five airlines in Asia, so they selected the best equipment like 787’s which they’ll be getting from the fourth quarter of 2009,“.

Current State Of The Market

Dr. Keskar went on to elaborate the company view of the current market environment and the inherent pressures now faced by a variety of Indian operators.

“We do feel that this [slowdown] is something that was expected because the amount of ordering at these air shows was something people wondered how India could absorb all these airplanes.“

“Lets look at the facts. For the first fifty years of aviation in India, the domestic fleet was less than 125 airplanes. Over 300 airplanes were ordered for delivery in six to seven years, that’s three times the growth rate than the first fifty years to be happening in just seven years. Anybody would have figured it out that we’re gonna have overcapacity issues, but lo and behold, three years later - losses have started mounting, the fiscal year that ended in March 2007 the country had a loss as an industry of $500m. That increased to about $800m and now they are talking about upwards of $1.5bn for the year that ends in ‘09.

Pretty simply, a few things happened; number one is overcapacity. When you have overcapacity, you have one passenger and four seats available. To get that passenger you have to have the lowest price, right?

It’s what I consider “crazy fares”. Fares like one rupees, three rupees - like 10 cents, 50 cents kinda fares which are “come on” fares. But that’s how India grew.

India grew at a rate of 48% say just two years ago - I always said that part of that growth rate was real growth rate based on GDP and economic activity but another part in there, almost I would say half of it was due to the artificial stimulation by very, very low fares that competed with trains.

Let me tell you two things about trains in India. More people travel in trains, even today, in one day than they travel in airplanes in a whole year. If you took only a small percentage of that population, even 0.1% and move to airplanes, you get a phenomenal 30% growth rate. But that can only happen if the fares are a little bit higher but not significantly higher.

Airlines were able to do it when oil was $30 a barrel, now it’s over $130, $145 and nobody knows which way its going to head, right?

I’m not going to sit here and tell you what its going to be….airlines have increased fuel surcharges and when you do that, sure, you’ll get a little bit more revenue but you also see numbers of passengers going down as there are a few people at the end of the pyramid now who say “yeah, I can travel but I better go on the train again.“

The second thing that’s happening in the world which is rather unusual for the first time in my aviation career is that whenever there is economic slowdown, there is always a reduction of prices, of oil and other things because demand goes down. This is the first time when demand is going down, however, prices continue to go up.

So now you have a double problem for airline executives - they can get the fare they want and yet their costs continue to go up. And that’s the difficult thing, so how do you solve this problem,” Keskar asks.

Cutting Costs

“There are ways to do it, one of the things you do is you try to control overcapacity and bring supply and demand to match. The way you do that is you ground some flights and fortunately Indian carriers have announced as a collective group the grounding of over 130 flights a week. That certainly takes the capacity out, so you don’t waste money flying these airplanes half empty or two-thirds empty and also you are now able to match capacity closer to demand.

There is a natural growth rate with GDP, [let's not forget] India is growing at 8%, typically the growth rate in aviation is two times GDP, so there is gonna be a 15 to 16% increase in traffic. When you cut capacity and the two lines [of supply and demand] are gonna match, and I think that’ll happen in the next 6-12 months, you will see a return to breakeven and even close to some profitability.

One of the things I find in airlines in India is for a 45 minute flight, say Mumbai to Goa, they serve you a three course hot meal. I don’t think its needed…and you can cut down that cost!

Nothing should be left untouched - you gotta look at every possible way to see how to make things profitable and reduce waste in any possible way you can. We have also suggested the sharing of infrastructure. What we mean is there are airports where Jet Airways flies twice a day, somebody else flies there twice a day and each of them have their tow trucks, bars etcetera sitting in a row - you don’t need that, you can have an agreement that says “I’ll operate them at this airport, you can operate them at another airport” and thereby you can take out a lot of capital cost.“

Resilient

Keskar then explains the confidence and faith that he has in the Indian aviation scene, having lived and breathed the arena for over twenty years.

“One good thing in India is that it’s a very resilient economy - it’ll always come back, just like world aviation has been through SARS, we’ve been through 9-11, we’ve been through so many other calamities and shocks but we always come back and we get to this long twenty year forecast [Randy Tinseth] announced.

India tries to keep up with the infrastructure as the growth occurs…of course, we have perils of congestion, flights circling 30 or 40 minutes but slowly it’s coming down. India has its challenges and this [Indian] Government has done a magnificent job of growing from a mere 125 planes domestically to over 300 today and there are a lot more on order too.“

On closing our lengthy yet interesting conversation, Keskar chuckled when asked if Kingfisher would eventually become a Boeing customer.

Read into that what you want.

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