There's nothing low cost about Vijay Mallya. From his funky half blue and half red glasses to his fleet of cars, the gold chain around his neck, and now, his fleet of aircraft, Mallya appears surrounded in a haze of opulence. It was, therefore, somewhat naïve to expect his latest passion - Kingfisher Airlines - to be 'low cost', which was perhaps the initial idea. By the time it was launched, Kingfisher called itself a 'value carrier' with its own class - the Kingfisher class. And now, Mallya has decided to go the whole hog and introduce a first class in his airline at business class fares. He wants to take Jet Airways head on and displace it as the country's largest private carrier by 2010. He's convinced that the future of Indian aviation does not lie in the low-cost model. He expects to break even in the next financial year, go public in 2006 and fly international as soon as he can convince the government to change its rules. Mallya spoke to BW's Anjuli Bhargava aboard his new A319 on the way back after collecting an award at the Centre for Asia Pacific Aviation conference in Kuala Lumpur. Excerpts.

When you launched Kingfisher Airlines, the impression was that it would be some kind of a low-cost operation. You seem to have changed your mind...
I don't believe that there is a space for low-cost carriers in India. Where is the low-cost opportunity? You are forced to fly under dispersal guidelines on unprofitable routes, you pay the highest air turbine fuel (ATF) prices in the world, including humongous sales tax levied by the states, pay a lot of landing and parking fees, and there are no secondary airports where you can save money. On the contrary, air traffic control (ATC) delays are so huge that all financial calculations on point-to-point destinations go haywire. Pilots are costing a lot of money and there's a rat race for engineers. So where is the differentiator?

What about more intensive use of aircraft and shorter turnaround times?
I turn around my aircraft in 40 minutes. So does Jet. That doesn't make us low cost. I use my aircraft 10.5 to 11 hours a day. Jet uses it around the same. That doesn't make them low cost. Using the aircraft more doesn't make them low cost. Also, you have to fill up all of those low-cost seats. If you're filling them for Rs 99 or Rs 500, you won't make very much money.

Are you happy with where you have reached in six months?
Superb. Things couldn't be better. If at all I have a regret, it's that I should have gone in for a business class from Day One. Mine is a full service carrier that offers you true value. Look around you. Jet doesn't provide all that I am providing. Neither does SpiceJet or Air Deccan. But the net cost of what I am providing is perhaps Rs 500-600 a seat. That's it. There is no humongous difference. Otherwise, we're all in the same bus, same lease rentals for planes, same finance cost, maintenance, ATF, parking, etc. So, where is the scope to claim: 'I will sell a seat for Rs 99 or Rs 500' or 'now everyone can fly', or 'I will transport millions from the train to the plane'. I don't believe it. Like all FMCG companies, my target too is the growing middle class of India - the net savvy, upwardly mobile youngsters with the greater propensity to spend. That's 300 million people. That's the size of Europe.

But the low-cost players argue that the Indian market is not mature enough for what you're offering. A JetBlue may work in the US, but in India it's a different story...
Take the malls and multiplexes that have come up. Look at how much an average middle class family spends on a film on a Sunday today compared to 10 years ago. What are people looking for? Low cost or quality? Why is every big brand (clothes to bags and watches) with the best stores in India? Because they are all doomed to be bankrupt? Indians now want quality and are willing to pay. Corporates want quality and are willing to pay for it.

Those who travel by first and second class AC can afford to fly. But they travel first AC because of lack of airport connectivity at a particular place. It's wrong to assume that everybody travelling by first and second class AC is doing so with the price equation in mind. Plus, that is still just 1-2 per cent of total train traffic.

Are you happy with 60 per cent loads?
I add one aircraft every month. Look at the loads on the sectors and flights I launched in May and June. I have 75 per cent load factors. Where I have recently launched, I can't expect 75 per cent-plus load factors. It takes at least three months for a route to stabilise. I'm not worried about load factors at all.

So, what are you worried about?
Nothing, frankly. I put aside a certain sum of money that I knew I would require to support the operation. I mean, I could have done what Deccan job and launched one flight a day between Delhi and Mumbai. I launched five a day in each direction - 10 flights on India's most competitive route. I believe in the frequency model to attract the corporate client. It takes time for these things to sink in and stabilise. My challenge is to get the routes right. I have to work around the huge bottlenecks that exist in India, but I will solve them like I solved my pilots' issue. We're OK for pilots.

What will you do with A380s given the present rules?

“For 10 years, Jet had it easy. Now, the face of Indian aviation is changing considerably. They will face severe competition”

My A380s are due to be delivered when I am eligible to fly abroad under the current guidelines. But if the aircraft arrive and I am unable to fly out of India, I need to do something about it as I don't want my aircraft parked like Jet airways is doing with it's A340-500 (they don't have permission to go to the US). They have three A340-500s that are only operating between Mumbai-London and Delhi-London. They have one airplane costing $1.25 million a month in lease costs sitting on the tarmac. I can't afford that. So if I am unsuccessful in my efforts to convince the government to have a more rational policy, I will just form an airline in the US and fly them in the opposite direction.

You are preparing to take Jet head on. Should Naresh Goyal (founder chairman, Jet Airways) be running scared?
Anybody who has ever thought that they will be allowed to be in business minus competition is only killing himself. Competition is inevitable. For 10 years, Jet had it easy. Now, the face of Indian aviation is changing considerably. They will face severe competition.

By design or default, Jet has been protected by subsequent governments against competition. What makes you think this will change?
I'm not exactly an orphan, am I? I have run UB for 25 years, a business that's significantly larger than Jet Airways, contributing Rs 15,000 crore a year in taxes. The liquor industry in India is heavily regulated and majorly politically intertwined. I have always come out on top. I have built relationships over the years. I know how to thrive in an overly-regulated environment. To that extent, they have big time competition.

At the end of the day, I know how to play the game Jet plays and I think I know how to play it better. If you're suggesting that Naresh Goyal's relationships or friendships can hurt me, let me be perfectly emphatic in saying that I also have friends and great relationships and nobody is going to help Goyal or Jet Airways at my expense.

Is it worth taking on the headache of acquiring Sahara at this stage?
The UB group has made many accquisitions, bought and sold many companies. I know that Sahara's culture is very different from us. It will be a challenge and I won't deny that. But believe me, Shaw Wallace was threatening to be an even bigger challenge because the two were fierce rivals. But it's turned out very well. We are used to multi-tasking.

Where do you see yourself by 31 March 2006 ?
14 aircraft, and hopefully, 14 per cent marketshare. I am targeting 1 per cent marketshare per aircraft.