Aussie runs Cebu Pacific

Kingshott at the helm

March 10, 2009

Manila- Low Cost Carrier Cebu Pacific is now ran by a foreign expat from the land down under. The Australian CEO, previously managed and turned around a troubled airline Jet lite, the low cost carrier of Jet Airways, of India before he was hired by Lance Gokongwei as Chief Executive Adviser and Senior Consultant of the Airline in May last year. Lance will continue to be its CEO on paper as Philippine Laws barred foreigners from directly managing a domestic Airline.

Gary Kingshott is the man behind the wide body migration plan following the footsteps of its Australian and Malaysian LCC cousins, as it oversee its overseas expansion to Australia, Japan and the Middle East.

He was interviewed in March 2008 by Tarun Shukla in New Delhi before he transferred to the Philippines in May last year.

The following were the excerpt of the interview.

Q - What made you quit even though you haven’t yet fully turned around JetLite? By when do you think JetLite will be able to break even and also, when will it become profitable?

There is absolutely no doubt that the work here is not finished and it won’t be for two-three more years. I think what we have done now in the last 10 months is that we have taken an airline that would very easily have collapsed, to an airline that is now operating in a very stable environment. The business is now stable. The staff has settled down, we are in the middle of just finishing off (sorting out the issue of pilots’ remuneration). That was a key issue. There are two more aircraft that have to come up. I think I would still be here to see those two aircraft fly.

So, the task in a way changes. It’s now about taking the airline on a growth path and continuing to make incremental changes. Now, I would have happily continued to do that. However, I got an offer I simply could not refuse. And it was a very attractive proposition. And I chose to accept it. I have consistently said we will be able to break even once all planes are flying. We are in the process of preparing our 2008-09 budget and would hope to show a small profit. I have consistently said we will be able to break even once all planes are flying. We are in the process of preparing our 2008-09 budget and would hope to show a small profit.

Q - You weren’t asked to stay back by Naresh Goyal who brought you here?

I think he knew (that there would not be a change of mind)… It wasn’t just about the money. It was a whole series of things. Working environment, stock options (in the new airline). In this sort of business you get almost one call a week, most of which you are not interested in and it takes only 30 seconds to say no, but this is the one where everything felt right about it.

The airline is called Cebu Pacific. In fact what we are doing here (JetLite) has actually already been done there. This is a 10-12 years old airline, but two years ago it completely re-fleeted, changed its model from full-service carrier flying DC-9s and Boeing 757s to brand new fleet of A320s and switched business model to a low-cost carrier and they have gone from carrying two million to five million passengers last year and are targeting seven million for this year. The oldest aircraft they have is 21 months old. So... they are profitable, have a 43% market share—and are at a point in time where they need a CEO.

Q - There is a feeling that expats do not have enough freedom in running the airlines in India such as Jet and Kingfisher, and are not even empowered to sanction a ticket upgrade if they want to. Is that correct and what’s been the experience with you?

I think it’s inaccurate. There are only a handful of people to sign an upgrade and Wolfgang (Austrian veteran and CEO of Jet Airways) was one of them as I was. But as a policy, we wouldn’t do it anyways. I certainly know that here at JetLite there are very few issues that I would feel constrained not to take a decision on. There are certainly issues that I go back to the board—go to Bombay— simply because I don’t want to take those decisions. Not because I am not empowered. Its simply because…it is a big decision, it will have some group implications so I want some inputs from Jet. I have not had sense of being unempowered and I don’t know if Woflgang feels that way or not but I see what he does... Obviously when you got a promoter who holds 80% of the stock, that guy is going to have some interests in the way business is run. One of things you will see where the expat sits (in India)…they tend to sit in CEO and COO roles, but they do not generally sit in commercial roles. Most of the market facing positions are actually (held by) locals because they understand the local market. But the best practice operations of an airline will come from the US and Europe and Australia.

In Jet’s case, who in India would have known how to launch a service to New York or Brussels or London? No one here, except if he would have been an ex-Air India, would actually know what’s involved in flying a 777 from Mumbai to New York...

While Jet is considered one of the most professionally run airline, JetLite is not considered so.

Q - Both of them have not been merged; all the JetLite aircraft have not been painted in the new livery giving room to speculation that perhaps they are being prepared to be sold off at some point of time. What’s the strategy?

I would disagree... If you start at the market level, low- cost carriers (LCCs) are already 40% of the market in terms of passengers; they will be at least 60% of the market within three years. Full-services carriers will continue to grow... but would just have less of market share. Full-service will grow at GDP+50%, LCCs at GDP+100% or more simply because it’s the entry point.

Strategically, it is important to establish a position for the group in LCC segment. Now was Sahara the best vehicle? Probably not. However, the deal is done... So let’s make it work. So the plan is: fix the airline; stabilize the airline; now start the repair and maintenance and the growth of the airline. Fortunately, Sahara had ordered 10 new Boeings which will be delivered 2009 onwards, so we start refleeting. If we can keep this business ticking along and making incremental improvements then we’ve got a serious contender in the LCC space. Would it have been easier to start a brand new airline? Probably. Except that Sahara came with hangars, parking bays, slots, engineering facilities, which you just cannot get today. What does IndiGo do when they have a major mechanical problem? Where does SpiceJet go? They got nothing.

We have a hangar in Kolkata which we have made into a paint shop, all CRJs have been painted, three or four Boeings (of the total fleet of 24 aircraft) are done. They are going one after the other. We have to remove “Sahara” from the aircraft by 19 April, we had one year to do it (under the acquisition agreement). Sahara will be gone by 19 April, we will do it before that.