As the air gets turbulent

These may be the three most dynamic sectors in the Indian economy as they seem to flood the news every day- retail and ecommerce websites, mobile telephony and airlines. Each day there is either the rise or fall of a new marketing tactic and sales promotions to drive revenues. I already tried to establish a symbiotic relation all the three are having where mobiles and telephone networks are driving people to the internet, online retail is building the aspiration for products and airlines are making overnight deliveries and satisfaction a possibility. In the last few weeks, the skies have turned murky and the airline industry is likely to face turbulent air. 

Spice Jet was showing signs of running on low cash reserves for a long time. In fact when they launched some astonishing discounts for flight bookings beyond six months from the day of flying; I sensed they were trying to stay afloat by selling a future beyond their reach. And so it happened one day that almost 1800 flights of December were grounded and fuel was now on cash and carry. As for the passengers, well you invested too far ahead on promises to fly on a carrier whose daily operating loss even while flying was in excess of 3 Cr.

This won’t be the first time this is happening with Spice Jet which saw a similar fate in its earlier avatar of ModiLuft, which ironically had also ran out of funds. So from a full service carrier that started off in 1993, Spice Jet turned into a Low Cost Carrier in 2004. Ina typical LCC style, Spice Jet always had its parking slots away from the terminal gates with flights at wee houses in the morning or late night and the buy off the cart catering service. A positive which I definitely noted was the aircrafts were always clean, young by age and more often than not; on time as well.

So how does the 2^nd largest LCC and one of the longest serving airline enter the whirl of failures? In my opinion, almost every airline in India has been suffering similar losses in a mad rush to woo customers by bare minimum fares and discounts which in most cases barely seem to cover fuel and airport charges. Spice Jet in its initial years was fighting Air Deccan on a price war of Rs 99 tickets (which after the taxes and surcharges used to come up to Rs 2300), but as far as buyer psychology was concerned, it scored heavy. All flights going full was a record that Spice Jet had in its initial years. The leadership was maintained until Indigo burst out on the scene and its offering of low cost and timely arrivals and departure made a big dent on the markets.

I had a sniff at the possible financial position last year when tickets at a cheap rate and more than 6 months beyond the flight date were being sold; a clear indication that cash flows were fast eroding and survival games have begun. The last reports have now indicated a possible government intervention to boost the airline off its blocks again. But lack of financial profitability has been the truth even with Jet Airways; which after the collapse of Kingfisher is rebuilding itself as a full service carrier and earn back its customers from the LCC’s. Adding to the mix is Air Asia’s entry into the LCC market, but its limited destinations at present makes its market position tough to decide. It now remains to see how the much awaited Vistara which is scheduled to fly from the next month will perform and affect the market.

A matter of debate may be, but one thing is happening for sure; the Indian skies are seeing turbulence and it might be only the financially fittest and consumer selected one’s which will survive the wind fall which is likely over the next few months. 

We are Customers- we need Caring

Customer is King- one of the most basic things we all are taught in a B-School. The justification for this super gyan is often that they are not an interruption to our regular work but the reason we have work and businesses exist. We will often find theories where people will talk of customer retention or how delighted customers stay loyal, but an essential key to all this is something most people tend to ignore: what is that your customer really wants.

Last week my father, a loyal customer and even a promoter of Reliance Communications for the last 12 years decided to opt for number portability and shift to Vodafone. Leading up to his decision was a rush of missed service opportunities to retain his loyalty. Reliance CDMA did not have the apt smart phone options which resulted in a shift to GSM. The GSM network was not having the desired penetration. Adding to this were service woes with the closure of their customer centres and online requests were going unheard. Not to mention that while billings were being cleared by ECS, neither a physical copy nor an online one was being shared. It would not take an expert to question why the shift was obvious; but the Reliance call centre while confirming the request to shift did seem appalled.

Retaining customers seems to have now deemed to be a low priority activity against building new customers acquired through sales. This is actually a very surprising aspect when we are still taught that 80% revenues come from 20% customers or the fact that building a new customer takes 7 -8 times more effort (both time and money) than retaining an existing one. Take for instance the fact that in a service oriented sector like aviation, only Jet Airways and Air India currently have a loyalty programme as an added benefit for frequent flyers. The rest I believe are making their run for customers purely by virtue of pricing wars.

My first job was a field service engineer of GE Medical Systems and as famously said by one of my manager’s then, “the service team should be the first and hopefully the last person the machinery owners should see for any of their needs. You are the man of the hour and along with your training, you have the final authority to take a call of what needs to be done”. Service at that time was looked as a key differentiator after technical specifications and in many cases, service assurance compensated for the lows on specs or high on price comparisons against competitors. Needless to say, we had 5 sales persons and 15 service engineers. We took pride in the fact that we attended most all within the assured 24 hours after the service call was reported. Faith was so high that we actually had to route our customers to the Toll-free number for the call centre to lodge calls since our variable was linked to response times. Things have definitely changed a lot since.

Today, the first step for most mid-sized companies to claim they are customer oriented is to register a 1800 – toll free number and run a backend call centre with 3-6 seats. The organic reflex as the load increases is an IVR system with a menu for language and service options where there is a facility to hold a customer in a waiting queue. When this gets loaded, certain routine actions are automated through key-in responses over the phone. Though if the customer base is increasing exponentially, the number of call centre seats usually do not go up in the same ratio and then we start to experience what I call the ‘King to Suffering’ phase. This is the phase when you are on hold for minutes on the IVR and yet unable to get the required information or job done to satisfaction.

Just take a small example- suppose you have a payment reflecting in your online bank statement and need some additional information towards accounting. A typical bank IVR works in this fashion: 1- language option, 2- bank account or credit card transactions, 3- enter the desired account number (this is read out and verified), 4- customer id and password, 5-account balance, ledger balance, uncleared funds, 6- repeat information or more information or any other account, 7- options to call for a cheque book, stop payments or talk to a phone banker, 8-wait in the queue and hope for a response in a few minutes. It can take about 4-5 minutes before you hear a human voice which can possibly understand your problem and offer a solution or escalate the matter to the right person.

So why did it take me 8 steps to hear a human voice from a bank where I am a customer against the 3-4 unsolicited calls I get every day (not counting the 10 e-mailers) for me to become their customer? No to mention, the power residing with a phone banker is so limited that they are actually incapable of immediate action beyond giving me a complaint number. It is thereby not a surprising that a common response can also be, we will get back as the delegation of power in such cases in questionable.

Considering India is a hub for BPO’s, I was checking on some global best practices IVRs and Customer Care and almost everyone mentioned that the choice to talk to a customer service agent should ideally fall around the 3^rd step. To get some additional data point on are customers satisfied with services, I picked up a global report on banking customers (yes, money matters most) surveyed by Capgemini. (http://www.capgemini.com/resource-file-access/resource/pdf/wrbr_2013_0.pdf).

What is astonishing though is that globally, just about 51.3% people trust their banks and only 37% feel their bank actually knows them and their needs. And these are the stats when we talk of terms like ‘Customer Centric Approach’ in the corporate PPTs.

I guess it is high time the gyan moves from the board rooms and presentations into actual action. IN an era when there is no dearth of options, consumers will shift and the right trade-off between long term gains and short term doses of Viagra on the sales graphs. A customer may change by their needs; but the inherent feeling of being cared for, managed well and appreciated will never die. 

No more Chicken 'n Egg: the rise of mass consumerism in India

It is not s scenario uncommon in India. We don't buy  fancy cars coz the roads are not the ones meant for them. Brands don't want shops in malls with no footfalls and we can't buy brands in our small towns. Some parts of the country have no flights or very few one's with expensive tickets, so we don't prefer to travel. We all might have had these thoughts and the solution we bring in is: Let's do it after someone else improves things for us. But I guess this cycle of 'someone else' has been broken by some sectors. 

There are possibly three things currently in India that rank high in terms of share of voice in news media- e-commerce, mobile handset devices and airlines. While their individual contributions towards boosting the Indian economy might be an interesting point of study; what they are doing in a big way is improving of accessibility of products and services to the far corners of India.

Some definite trends which are emerging though is a rise in mass consumerism across, larger spread in terms of variety and market penetration for businesses which ally with either of these three. What make it further interesting is the fact that e-commerce, mobile devices and airlines are somewhat related symbiotically in each other’s growth.

The airline industry is actually not at its peak; but there definitely frantic activity in the sector over the last 3 months. The first was the fact that Air Asia started operations in the Indian domestic sector from June. The LCC has certainly caused some waves in the segment where Spice Jet and IndiGo started offering heavy discounts. Some more knee jerk action: Tata-Singapore Airline launch a full service brand Vistara and Jet Airways is looking to dump its low cost Jet Konnect and concentrate on being full service again.

Recent news suggested that Air Asia within its first month incurred a loss of Rs. 26 Cr. within its first 18 days. Though the airline is hopeful it will break even by the year end with more operations on the charts; the plan here is to build more connections. So as of now the score is 1-0 in favour is the Indian competition; but how did this happen? Pretty simple, as against 10 years back, most of the tickets today are booked online through ticketing and travel portals instead of travel agents or directly through airlines. The TG that can fly has made booking portals their choice of purchase point and possibly been the earliest and most popular form of e-commerce so far. In turn, it has increased competition and better connectivity across the country for men and materials to move.

The reason is simple; portals offer a wider choice, have a larger database than any single airline has and it has a larger reach and quicker reaction towards announcing discounted fares. Sure I would have loved to see some numbers here; but take this as an example- large size travel agents like Akbar travels offer online ticketing facility. Want more; I always associated Balmer Laurie as the lubricant and grease company who also were CNF agents at ports- they have started an online ticketing portal. So I guess a safe assumption can be made here- airline ticketing has shifted online as more people are having access to internet.

But what has transformed internet in India has been the faster penetration of mobile phone networks across the country. While the network quality is still debatable, it has eliminated the formidable Indian Postal services to a very high extent. And what has definitely changed the internet access mode to mobile devices is the easy access, availability and affordable mobile handsets. The launch of the Firefox based i-Ball handset at Rs 1999 is pretty remarkable as it will further improve on the smart phone device perpetration in the country. It is not uncommon to see that for a lot of people around, the first phone is a smart phone with an internet enabled connection. 

The penetration of these internet enabled mobile devices is boosting internet led transaction as compared to computers largely due to their affordability. The vast array of apps and services on mobiles is surely the driving force. This aspect is being taken seriously by e-commerce sites with launching apps for online shopping, trading and classifieds. What’s more is the number of special offers and discounts offered by Makemytrip, Flipkart, SnapDeal, Amazon exclusive for customers who use their mobile app. Even on standard product offers, there are additional benefits like next day delivery, zero freight charges and additional discounts over and above the standard pricing. The move is definitely aimed at a greater shift to mobile apps which the sites are seeking.

But another angle of the mobile- e-commerce relation is how the e-retail portals are making full use of the internet capabilities to mutually boost their business. With no requirement for a physical presence, mobile companies are now forming exclusive alliances with e-retail companies and creating a shop-in-shop environment in the virtual space.

The first move was when Flipkart and Motorola launched the Moto-G series exclusively through the portal and with no shop retails. Next, Flipkart associated with Xiaomi in the same way and the lot on sale was pre-booked in 5 minutes. Flipkart now has an exclusive push for budget smart phones; a move I believe is to convert the remaining part of the smart phone transition. Today SnapDeal is going in for a similar arrangement with i-Ball for its phones. In fact, they taking things a step further through an exclusive partnership with Tata Value Homes in selling real estate.

In togetherness, this is how the cycle has broken- Thanks to mobile enabled internet physical presence and distance is no longer a hindrance to access the best products and services from any part of India. Goods can now travel rapidly and to your door step due to better connectivity. And the very phones to enable the access are available through the internet at an affordable price. The biggest beneficiary- the end consumer; the result- mass consumerism across India. 

Kingfisher- the flightless airline

It has been an interesting few days considering the week before saw some 3 commercial airliners and a military chopper fall out of the sky for various reasons. Today the newspapers had two headlines featuring two Indian airline companies for two different reasons- Spice Jet asked to reimburse passengers on a flight delayed for over 5 hours due to technical issues and the other being a bank statement on the loan defaults of Kingfisher Airlines.

Considering the number of discount fares for far off future being offered each month, I have my suspicions on the available operating cash reserves with Spice Jet. Sadly, Kingfisher Airlines is a living case study of what can eventually happen to an airline in a high debt ridden civil aviation sector in India. Each time I fly, I see Kingfisher planes, baggage trollies, ladders, etc. parked away in remote corners of almost all major airports. The check-in counters which once boasted of a staff worthy of being ramp models are empty and as we all know; they either migrated to the hospitality industry or are rendered jobless.

An airline which was once the Captain Pompous in the Indian skies has definitely left a bad taste for employees, investors, vendors and suppliers and the travellers alike. It has indirectly affected the overall business environment as the name or the brand of any company no longer has the capacity to command over vendors. Human resource policies where employees were not paid for months together but also not allowed to change over to other jobs without forfeiting their part claims have set a very bad example. As for the airline industry, it has set a benchmark of what can happen if profitability through operations get ignored.

Kingfisher Airlines and its acquisition Air Deccan both had been ground breaking concepts in Indian aviation. Jet Airways had established a leadership position against Indian Airlines and Sahara- the three emerging as the survivors of the first batch of open skies after ModiLuft, East West Airlines, Damania shut shop. Air Deccan was the first low cost airline in India and it can be said that the skies have been never the same again. While Deccan enabled the common man to fly, Kingfisher changed the flying experience with a young and vibrant appeal and also introduced the economy passenger to services like in-flight entertainment (IFE); a service rendered only to first class passengers so far.

Deccan and Kingfisher were riding on what Southwest and Virgin Atlantic had successfully shown the world. Both these airlines had an impact on the aviation industry to a fair extent. It was evident from the fact that Jet and Indian Airlines also offered IFE and on board catering got revamped. Kingfisher also prompted some rather rash moves like Paramount Air which had a 100% first class concept. Deccan on the other hand set off a string of low cost airlines like Indigo, Spice Jet and Go Air.

This triggered a price war in an industry which was already grappling with high airport tariffs and fuel bills. In 2007, while Jet and Indian were surviving with profitability on international routes, Sahara was plagued with low occupancy and went up for sale. Deccan was also grappling with a high debt crisis and sustainability became difficult. This was possibly the place where Kingfisher pushed things a little beyond its grasp. While Jet was all set to take over Sahara, Kingfisher attempted to challenge its rival by staking claim for Deccan. The move was motivated for the international flying license granted only after 5 years in service; which Kingfisher would get 3 years in advance by virtue of the merger. Sadly, what it brought along was a lot of debt as well.

I guess it was ambition driven rash decisions which led to the downfall of Kingfisher. IFE on planes is heavy on its set up cost and has an even higher running cost. Suppose a flight has 3 channels and every seat pays Rs 150 as royalty to the content owners, a plane with 180 seats will be paying about Rs. 27000 per flight for just IFE. And let me tell you, this is a very conservative estimate. Not to forget, with IFE came the IFE equipment which adds in weight, plus cost for head phones and maintenance. What all can you push back to the customer when the market is bleeding in a price war?

Kingfisher believed that going international was the way to get into profits. The biggest reason to believe was Jet Airways could garner profits in a cut-throat scenario. Sadly, it was operational efficiency that works in the aviation sector. Both Deccan and Kingfisher were failing to achieve it. Kingfisher was notorious for attracting pilots with lucrative salaries and high incentives, lavishness across the board and thanks to the owner- sponsorship on Formula 1 cars. Sadly, all this was adding to the debt and not so much to the revenues. Then it was the ego and arrogance of Mallya- where he pledged his personal assets and his flagship UB Spirits to keep the airline afloat. His political weight also ensured that the airline; though bankrupt, was not grounded.

The license for Kingfisher was finally revoked in 2012, but the airline still is a willful defaulter on the list of its lending banks. The highly paid staff is yet to be paid their dues and has been practically rendered jobless. Those who had invested in assets against a high income at one point are fighting for survival. And as for Kingfisher, apart from loss of credibility, the group also came on the brink of losing its majority stake in its flagship companies. 

Every industry has their skeletons and ghosts which haunt their working for months and years after they happened. Kingfisher is going to be one such ghost for the aviation sector; and when I come across a discount ticket sale for tickets as much as 6 months in future, it triggers a thought on the cash-flow situation for the airlines. It is also going to be a standing example for every vendor and also employees as a brand where by virtue of its clout defaulted on payments and set arm twisting business terms.