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Operating airlines to be tough if structural changes not made: Madhavan Menon, chairman, Thomas Cook India


Thomas Cook (India) chairman Madhavan Menon said the Jet Airways crisis is a warning sign and that the frequent disruption in the civil aviation industry can be sorted out only when the government fixes “structural requirements” such as the high taxes imposed on aviation turbine fuel. In an interview with Nehal Chaliawala and Satish John, he said he was confident that his company could compete with banks for forex business and that “assisted travel” would continue to be relevant in the travel market despite the advent of online travel portals. Edited excerpts:

How does the current scenario of high airfares impact your business?

There are two parts to it – the domestic market and the inbound market. From an inbound point of view, it’s a temporary glitch. Most who are travelling right now booked their tickets in December and January. There’s at least three to six months’ forward planning in the inbound business. But any change or cancellation now is causing inconvenience and is not helping. Plus, there is a lot of nervousness about Jet Airways because a lot of people take it from overseas into India. And it was considered a premium product to travel. So yes, it’s a bumpy ride for the next few weeks.

How does the Jet Airways crisis impact Thomas Cook?

We are all focused on booking people on alternate flights. As far as the domestic holiday business is concerned, a lot of these bookings and the inventory were put in place before the crisis started. So, I don’t think it has affected us immediately.

We cannot speculate about what happens at Jet. What is important to understand is that this is a warning sign to us that if we don’t change the structural requirements, the ATF, then airlines are going to become increasingly difficult to operate. Today it is Jet, tomorrow it will be somebody else. And we have seen a history of this. We have seen multiple airlines, small and big, fold only because of this entire tax problem. In some states, the tax goes as high as 60-70%. What is happening at Jet is short-term. Fares will go up, but they will straighten out. This has happened before; it’s not new. The focus should be on how to deal with the structural issue.

Ebix has made a bid to acquire Yatra. Since digital and online are the future, what steps you have taken for this?

I don’t want to comment on what Ebix does – I think they know best. We are very clear that we are in multiple segments of the travel industry. For example, we believe on the leisure side, and we will be a seller of package holidays. We cannot compete with OTS (online travel solutions), who have all sorts of techniques like cashbacks. We are not in the component business. We sell a package with the belief that when somebody travels overseas or comes to India and wants to spend seven to 14 days at that destination, it cannot be sold as a component.

For example, if someone is coming here on a seven-day holiday, which takes them from Delhi to Agra to Jaipur to Udaipur and back, there are multiple hurdles. One, there are no flights between these cities. Two, they have to arrange for a car. Three, they need to get guides. All of these can’t be done online. If you want to do it at a cheap rate, you’ve got to do it as a package and we already have covered that space.

I’m not saying that there aren’t people who buy components; there are. But we believe this is the space we want to be in.

How do you look at business such as Oyo or Airbnb?

They sell a component or part of a service. We are not in that. We use Oyo when we need to. We use MakeMyTrip when we need. That’s fine. We all recognise that we play certain segments of the market, and we will continue to play those. We are the largest suppliers of business to Oyo in Goa. We are not going to cannibalise.


Do you see Thomas Cook’s forex business being taken away by banks?


I have been in this business for 19 years. This (notion) is what I heard when I came to Thomas Cook, this is what I hear today also. It has gone nowhere, and we have grown at a CAGR of 8-9%. And will continue to grow. We have differentiated ourselves through our products. When I came to this company we used to sell just cash. Today, we sell cash, we give prepaid cards, and we even make remittances.

We are on a par with banks as far as it comes to foreign currency. We have a dealing room that covers itself. So, we are 100% hedged at all times. We don’t have to wait for a bank to give us a rate. We know what the interbank rate is.

Many people believed Thomas Cook would be Prem Watsa’s holding firm in India. Why has that changed?

It has changed for 3 years now with a clear understanding that our balance sheet was not big enough to take on the Bengaluru airport or a 40% investment in SANMAR (Chemicals). So, I think it was a structural reason, it’s not that Thomas Cook has been set aside.

Thomas Cook has limitations, and let’s be realistic about it. But we continue to acquire. DEI is our latest acquisition. We have made multiple acquisitions every year since 2012. So that has not changed.

Prem Watsa’s annual letters to Fairfax shareholders exude optimism about India. Does that confidence stem from Thomas Cook and the way its businesses are being run?

Mr Watsa’s opinion on India, you have to ask him. If I look at the Thomas Group, and that’s what I can talk about, we have given him a great return. When we got acquired our stock was at Rs 37. Today, it is about Rs 220 a share. We have gone from being a borrower to having negative working capital. If you look at the monies that they invested in us, and what we as Thomas Cook have invested subsequently, we have not only effectively given that amount back, but we have paid more. Fairfax’s philosophy is very simple.

They look at the long term, they see if they like the management, and if they believe that the business is sustainable, they will go ahead and invest. We are not doing anything different.





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