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Capt Gopinath has the urge to return to low-cost aviation

Capt Gopinath is known as the pioneer in low cost airline business in India but he did not make the low cost airline business model successful in India. It is low cost airlines such as Indigo and SpiceJet which have made the model successful. According to Gopinath, there were a number of reasons why Air Deccan failed. He first blames it on an airline cartel which is keeping the prices of air tickets at an artificially high level. Even if this was true, isn’t selling an airline ticket for Rs. 1 just absurd. Another reason he gives for Air Deccan’s failure is that Jet Airways started predatory pricing. First, I am not sure that Jet priced its ticket for Rs. 1. Second, did Gopinath expect that the competition would just sit back and let him do what he wanted. Actually, it was Air Deccan which used predatory pricing by pricing its tickets at Rs. 1. I think apart from its pricing, Air Deccan had another major problem which even he admits when he says, “The market was expanding rapidly. I was adding aircraft every month, as I wanted size, scale and reach . . .” So, what’s new? We have heard this story before. Subhiksha tried to do the same thing and landed itself in a mess. It is always the quest for size, scale and reach that has landed entreprenuers into trouble. Why? Just greed. They want to make a fast buck because the faster they increase size, scale and reach, the faster the valuation of their company goes up. They shift their focus from building a profitable business to increasing size, scale and reach. I just hope Gopinath does not do the same for his cargo business.

In my management magazine, Management Talk, I have discussed about our obsession with market leadership, and building scale at a fast rate. I have even blogged about it. We argued that scale should be built based on prudent management practices and decisions at a reasonable pace and not pushed through by force just to increase the valuation of the company. Jack Tout in his book titled In Search of the Obvious states that “The desire for growth is at the root cause of all eveil doing.”

When businesses fail, there is one stakeholder that nobody thinks of and that is the customer. There are a large number of customers who lost money because either they didn’t get what they were promised of because of the poor financial position of Air Deccan, they did not receive the refunds. Gopinath still made money by selling his stake to Kingfisher but what about the harassed and dissatisfied customers who lost money. I believe that Gopinath should have made his dissatisfied customers whole before he sold his stake to Kingfisher. How can you make a killing while your customers have suffered? If the entrepreneur also loses money, one can understand if the dissatisfied customers suffer. But not when they make money like Capt Gopinath did.

On top of this, he wants to return or at least has the urge to return to the airline business. I would say to him that you first satisfy your dissatisfied airline customers before returning. What else? He should get rid of Rs. 1 pricing model. We do want any ponzi schemes. We, as customers, do want competitive pricing but not absurd pricing in which case we ultimately end up being the losers.

Avinash Narula

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