The secret behind Paramount Airways' success

At 27, M Thiagarajan started Paramount Airways in Madurai with an all-business seat configuration. The idea was to tap corporations that need people to travel frequently between southern cities like Chennai, Cochin, Coimbatore, Madurai, Trivandrum and so on.

While others decided to start big, he took small steps. Paramount started with just five aircraft. The move seems to have paid off. Last month, Paramount had the highest load factor of 87 per cent among Indian carriers.

It was also one of the two airlines in the country that posted a profit in the last quarter. Thiagarajan is now ready to go national as well as international. He discusses his plans and strategy with Byravee Iyer.

Do you think aviation is a viable business?

Definitely. As long as you're able to differentiate yourself substantially, create a USP (unique selling proposition) and be in a position to effectively communicate your business, it will be successful.

At a time when many airlines are grounding their aircraft, you are in expansion mode.

In 2005, different people got into the airline industry. At that time, the flavour of the season was low-cost carriers. Then Paramount went against the grain and launched a premium airline with an all-business class proposition. The premise was simple yet powerful: Offer cost-effective service excellence. We all know that service excellence can be provided if cost is not a criterion.

The challenge here was to deliver it in a cost-effective manner, making the consumer realise true value for money. Thus we brought in a new type of aircraft called Embraer which was unheard of in India.

When everyone was talking about no-frill, we went for a premium approach. Also, at that time everyone went national, but we strategically decided that we will focus on one region and put our entire energy and resources there, and eventually dominate it before we move on.

Today, Paramount is the market leader in the South with a 27 per cent share. In the last four years, Paramount has been recognised as one of the top 200 brands in the country. Moreover, we have consistently recorded the highest on-time performance as well as the highest load factor.
 
How did you cope during the downturn?

According to me, the time for expansion is when you are reeling under a slowdown. If you plan for expansion when there is a boom, you'll get aircraft in time for a slowdown.

Therefore, a slowdown is the best time to shop, bargain and get the best deals in the market. Align deliveries so that they come in time for recovery, which is what we follow at Paramount. I always believe that the top-line is vanity, bottom-line adds sanity, while the cash flow is reality, and that's how I drive my business.

In fact, the downward trend actually helped us to some extent. People who were used to flying Jet and Kingfisher got memos asking them to downgrade. But once you're used to sitting in the front, it's tough to go back to economy. It was then that all these people decided to shift to Paramount.

We give a business class-like experience without charging as much. Aware of that, people went to their managements and requested to fly Paramount. We actually saw our load factors go up substantially.

Around the same time, the competition removed business class completely and full-service carriers turned themselves into low-cost carriers. Not all businessmen and professionals liked that. That worked in our favour as people saw Paramount as a viable alternative. It helped us sail through comfortably.
 
How do you ensure your service is cost-effective?

A lot of things go into making it cost-effective. First and foremost, the aircraft is a major factor. What is the size of the aircraft you're going in for? Is it a 140-, 180- or 70-seater? In our case, we looked at aircraft with a small capacity of 70 seats where we will be able to fill the seats completely.

When you close the door, every unoccupied seat inside the plane has a value of zero. Seats are the most perishable commodity. Apart from that, aircraft of less than 40 tonnes in India have an advantage as they are charged only 4 per cent sales tax on fuel, while larger aircraft pay sales tax of up to 33 per cent.

Fuel is the major operating cost of any airline. And having an advantage of up to 26 per cent makes a lot of sense. What is more, aircraft that have less than 80 seats do not pay landing and parking fees. All these are opportunities that airlines can exploit.

In addition, Paramount has a very lean management structure. We don't have excess flab anywhere. We have the lowest cost of distribution available. We are more internet-based than others, where the distribution is more direct and low-cost. In addition, the turnaround time that we do is commendable.

We turn around the aircraft in less than 20 minutes. This helps us utilise the aircraft for a much higher period of time, which in turn brings down the cost per hour of the flight. On the other hand, we're not compelled to sell a low-cost ticket. People come to us with the mindset that they will cherish the journey. Paramount is an aspirational brand.
 
Then how do low-cost carriers claim to be cost-effective?

There is no such thing as a low-cost carrier. In India, there are only low-fare airlines. If you look at airline operations, there is no such thing as a low-cost pilot or engineer. The landing and parking charges in the airport are the same for everyone.

There are no secondary airports like in Singapore and London where low-cost carriers typically tend to use the airport that charges the lowest. Also in terms of food, the cost of serving is not high in India. In Europe, the price of the ticket might be £30, while the cost of food will be about £15, thus there is a significant advantage when you remove food on board. That's not the case here.
 
You're all set to go national and international.

Till last year we were confined to the South. Now that we have saturated that region, it's natural and logical for us to look at other avenues. We got into other destinations like the North and North East when we started flights into Kolkata, Guwahati and Agartala, and we're increasing the frequency in that region.

We chose this region because it is underutilised and the yields are very high. We've also made forays into Western India where we fly to Goa, Ahemedabad and Pune. Now we've started a flight to Delhi. By the middle of 2010, we'll have a strong presence outside the South. By March 2010, we will add six more aircraft to our current fleet of five. And by the end of next year, we'll have 20 aircraft in our fleet.

In early 2011, we are going to start flying international with the Airbus aircraft. We'll probably start with Singapore, Kuala Lumpur and West Asia as well as some countries in Africa like Mauritius and Seychelles. We've ordered 10 aircraft for the purpose.
 
Many of these destinations are more leisure than business.

There is a lot of business going to these regions from the South. Even otherwise, there is a strong cultural link between South India and Singapore and Kuala Lumpur. Many people don't know this but there are also significant business opportunities in these regions. We obviously want business people traveling with us to look at us when they travel for leisure.
 
What are your expectations from aviation in 2010?

Today, fuel is half the price it was last year. There is a definite resurgence in people flying, just like 2007. Traffic has picked up and flights are choc-a-bloc. Within the next two or three quarters, the Indian aviation industry will be in a very comfortable position. The Commonwealth Games will also boost business. Overall, I'm very optimistic.