Wednesday, June 27, 2007

What is the future of low-cost airlines in India?

I know I took a sabbatical from blogging, but I am back nevertheless.

The extremely competitive but fast-growing Indian commercial aviation industry is the subject matter for this post. The so-called consolidation that is happening in the industry, through high-profile mergers, has been consistently hitting the headlines for the past few days. First, it was the now-off-now-on merger between the market-leader, Naresh Goyal's Jet Airways and Sahara Group's Air Sahara that finally came through, with Jet announcing that Air Sahara will be converted into the merged entity's low-cost, no-frills arm, known as Jet Lite, positioning it in direct competition with the pioneer in low-cost airlines in India, Air Deccan. But the bigger news was when Kingfisher Airlines, India's first luxury airline, owned by the uber-rich liquor baron Vijay Mallya, picked up a 26% stake in Air Deccan. Capt. Gopinath, an ex-armyman, the founder-chairman of Air Deccan, publicly snubbed Mr. Mallya's offer in the beginning, only to embrace it whole-heartedly within a fortnight.

Are you wondering why I am featuring this air-borne drama in a "Development through Enterprise" blog? The reason is that I have always been a fan of Air Deccan's philosophy of bringing air travel within the reach of the masses in India. The airline, which began operations in 2003, positioned itself as a common man's airline, even using R K Laxman's popular "common man" cartoon character in its marketing campaign. Air Deccan offered flight tickets at unbelievably low-prices, something that was unprecedented in the history of Indian aviation. The airline offered no service on board and expanded its customer base by connecting tier-2 and tier-3 cities. The strategy was to woo the customer base, which travels mostly by road or rail, into air. This was an extremely positive step towards achieving inclusive economic development in India since air connectivity naturally boosts economic activities in tier-2 and tier-3 cities and towns. More than anything else, Air Deccan provided the necessary spark to the ailing domestic aviation space in India, inspiring a series of low-cost start-ups such as Spicejet, Go Air and Indigo Airlines.

Unfortunately, Air Deccan failed to break even after 4 years in the market, with losses going up to Rs. 213 crore in the quarter ending in March 2007. It is perhaps this desperation that drove Capt. Gopinath to accept Mr. Mallya's offer. The ultra-rich Mr. Mallya, who is known for his luxurious lifestyle, had started Kingfisher Airlines in order to cater to the elite air traveller but was keen to use Air Deccan's reach and network. It is perhaps good for both the airlines since they can share India's scarce airport infrastructure and man power. But the deal has raised questions about Air Deccan's continued capability to offer ultra-low priced air tickets and also the future of low-cost airlines in India. Mr. Mallya, who takes over as the Vice Chairman of Air Deccan, with Capt Gopinath as its Executive Chairman, has already announced that the airline will have to increase the ticket prices to stay in business. Questions also remain about whether Air Deccan will continue growing its network by adding newer destinations.

As a follow-up to their successful acquisitons, Mr. Mallya and Jet's Mr. Naresh Goyal have launched a campaign to acquire stake in Spicejet, the other successful low-cost airline. All these recent developments have sparked a debate about the future of low-cost airlines in India.

Air Deccan was and still is a revolutionary experiment in India and I think the Indian Government should have done something to bail out the airline. Considering the economic impact that the airline has had in the country in such a short duration, the Government should have offered some help, which would have allowed the airline not to compromise on its philosophy. In any case, it would be interesting to see the future strategy of Air Deccan. I hope it won't change much!

Thursday, June 14, 2007

"Takes Three to Tango" By Arun Maira

I know this is my second post about Mr. Arun Maira, but I simply can't stop admiring his knowledge of and concern for inclusive economic development in India. His article in today's (14th June 2007) Times of India, which is called "Takes Three to Tango" is excellent and provides a ready recipe for inclusive economic development in India. According to Mr Maira, inclusive development can be brought about only when the three stakeholders: the Government, the private sector and NGOs work together. Here is the link to the article:

http://timesofindia.indiatimes.com/Opinion/LEADER_ARTICLE_Takes_Three_To_Tango/articleshow/2121190.cms

I am also including a link to a brief profile of Mr. Maira here:

http://www.bcg.com/our_expertise/expertise_meet_background.jsp?id=147

Tuesday, June 12, 2007

Microinsurance initiatives in India

Microinsurance, which is based on the same principles as Microfinance and Development through enterprise, has become quite popular in India recently, with some of the big players in the Indian insurance space making a foray into this field.

The most inspiring one among these is the "Yeshasvini" initiative, which was pioneered by Dr. Devi Shetty, a heart surgeon, who is also the founder of "Narayana Hrudayalaya", an internationally acclaimed heart care hospital in Bangalore, India. "Yeshasvini", which was launched in 2003, insured 1.6 million in its first year, when the premium was as low as Rs. 60 per annum (about $1.5). The number insured rose to 2.2 million in its second year, but dropped to 1.45 million in the third year owing to an increased premium of Rs. 120 per annum (about $3). Nevertheless, Yehsasvini is a pioneering initiative in India and Dr. Devi Shetty's concern for the health of the rural poor is simply amazing. Dr. Shetty, who studied medicine in India and in the UK, was also Mother Teresa's personal doctor.

Yeshasvini's success is all the more special since it was not driven by any insurance company but was successful in mobilizing co-operative societies, with help from the Karnataka State Government's Department of Co-operation. The scheme has since been launched in other Indian states too. Here is the link to a case study of this scheme by ILO:

http://www.ilo.org/public/english/employment/finance/download/cstudy20.pdf

A personal profile of Dr. Shetty can be found here:

http://www.virtualbangalore.com/Ppl/PplDrDevi.php

The Microinsurance industry in India received a shot in the arm recently, when the state-owned Life Insurance Corporation of India (LIC) decided to enter this segment. LIC of India is one of the world's largest insurance companies, with more than 190 million customers. Almost everyone I know in India has a life insurance with LIC and I have literally seen people making a lucrative career out of being LIC agents. This foray into the Microinsurance sector will be benefitial not only to the poor by giving them access to quality health care but also to thousands of others by providing them employment as agents. Here is the link to a recent article about this initiative by LIC:

http://news.moneycontrol.com/mccode/news/article/news_article.php?autono=274827

Tata, one of the largest business houses in India, announced its foray into the Microinsurance sector last year, through its insurance joint venture, Tata AIG, which became the first insurance company in India to come up with a focused Microinsurance scheme. Tata has always been known for its concern for the community in which it operates and the economic development around its flagship Tata Steel factory in Jamshedpur in Eastern India is a living example. Tata Motors' efforts to come out with a Rs. 1 lakh ($2000) car is well known too. This initative by Tata AIG just re-iterates Tata's commitment to sustainable development in India. Details can be found here:

http://www.tata-aig-life.com/News/Pdfs/Rural_draft%20Press%20Release.pdf

German insurance company, Allianz AG, through its joint venture in India, Bajaj Allianz, also announced its Microinsurance foray last year, in collaboration with CARE International. The first products are expected to roll out this year. For further info, the following link can help:

http://www.allianz.com/en/allianz_group/press_center/news_dossiers/microfinance/news6.html

Monday, June 11, 2007

ABN Amro Bank's foray into Microfinance in India

ABN Amro bank made a foray into the Microfinance business in India as early as in 2003. The Netherlands-based bank was among the first mainstream multinational banks to enter Microfinance business in India. Other banks such as HSBC and Citibank followed suite. Private Indian banks such as ICICI, HDFC and more recently, the state-owned State Bank of India, have also been actively pursuing Microfinance.

ABN Amro delivers credit to rural women through Microfinance Institutions (MFIs). The bank hosted a workshop on "Electronic banking in microfinance" in April this year and plans to offer electronic banking (e-banking) services to rural customers in remote areas of India, soon. The bank has also been presenting "Microfinance Process Excellence Awards" since 2004, together with PlaNet Finance India. Details can be found at:

http://www.abnamro.co.in/ProductsnServices/MicroFinance/mf.html

It is heartening to see such intiatives from a foreign bank for sustainable development in India. Go ABN Amro!

Tuesday, June 5, 2007

Base of the Pyramid Learning Lab Network

Base of the pyramid Learning Laboratory Network is a global network of research laboratories which have some of the world's leading universities, NGOs, corporates and consulting firms as their members/partners.

All members/partners share a common goal which is to use business to address the needs of the poor. BoP Learning Laboratory Network is an initiative of the Centre for Sustainable Global Enterprise at the Johnson School, Cornell University, Ithaca, NY. It was founded and is currently headed by Prof. Stuart Hart, who co-authored the path-breaking 2002 article "Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits" (Prof. C K Prahalad of the Ross School of Business, University of Michigan was the other author).

BoP Learning Laboratory Network includes labs in the US (hosted by CSGE, The Johnson School ,Cornell University), Spain (hosted by the IESE Business School, Barcelona), The Netherlands/Benelux countries (hosted by Triple Value Strategy Consulting), Brazil (hosted by FGV-EAESP in Sao Paulo), Argentina, Mexico and South Africa. Currently, another lab is being setup in India, with help from the Indian School of Business, Hyderabad.

Further details can be found at: http://www.bopnetwork.org/front_page

Sunday, June 3, 2007

Vikram Akula on NDTV "Walk the Talk"

I happened to see SKS Microfinance CEO, Vikram Akula's interview on NDTV's "Walk the Talk" today. It is always great to listen to people who are pioneers in their own field. Vikram might not have come up with the concept of Microfinance but he sure is among the first to implement it on a mass scale in India and make a career out it. He seems to have a deep insight into the microfinance business and his determination to make a difference in the rural hinterlands of India, is inspiring. Vikram was named among Time Magazine's 100 most influential people in the world recently and his SKS Microfinance has recently attracted a 2.5 million dollar investment from Vinod Khosla's Venture Capital fund.

SKS Microfinance has already disbursed more than $180 million as loans to the rural entrepreneurs and has more than 632,000 clients currently. It achieved 161% growth last year(whoa!) and has a 98% on-time loan repayment, which proves that the low-income market is not as risky as it was made out to be! SKS aims to have 5,000,000 clients by 2010. I just can't think of any other sector in India which is recording such high growth rates and which can dare to have such high targets for the coming years! Expect greater things from Vikram and SKS in the near future, people!

http://www.sksindia.com/background.htm

Friday, June 1, 2007

Arun Maira's article in The Economic Times

Mr. Arun Maira, Chairman, Boston Consulting Group India, has always written thought-provoking articles about economic development in India's national newspapers. His articles, be it the recent one about inclusive economic development in The Economic Times or the one about the different levels of Corporate Social Responsibility in The Economic Times in February, have been inspiring, to say the least. Here is the link to the recent one:

http://economictimes.indiatimes.com/Opinion/Editorial/Inclusion_the_way_to_market_growth/articleshow/2024405.cms