Air Deccan to compete in low-cost space

New Delhi: Post the Air Deccan merger with Vijay Mallya’s UB Group, with the latter buying 26 per cent stake in Deccan Aviation for Rs 550 crore, a hike in the fares of the country’s low-cost airlines was being counted as inevitable. It was said earlier that the its air fares could go up by Rs 500 keeping view to post profits.

However, GR Gopinath, Managing Director, Deccan Aviation has told CNBC TV 18 that the airline will not dilute the low-cost model and will continue to compete in that space. Kingfisher, meanwhile, will compete in the premium space.

As a result of the government-owned Indian's strike, their average load factor, which is 85%, has gone up, he said. In another attempt to control costs and make itself profitable, Air Deccan has been planning to go for fuel hedging. Air Deccan is also actively looking at starting operations to the Gulf, for which, it is awaiting the Civil Aviation Ministry’s approval.

Deccan Aviation Managing Director GR Gopinath spoke to CNBC-TV 18 in an exclusive interview:

What exactly is the plan now with Kingfisher as a large shareholder. We believe that there is been some talk that rates will have to go up for Deccan Aviation to enhance profitability. Is anything on the anvil soon?

A: Firstly, it’s not Kingfisher who has invested, it’s UB Holdings which has taken a 26% stake. We are not merging the company but going to remain an independent entity. Also, the model will not be diluted; on the contrary it will only be honed further.

The process has already been started at the backend. We are going to share all our resources - engineering, ground handling, security, airport equipment, etc, all these will be shared.

Kingfisher will compete with Jet Airways and they will have a lower cost base. Air Deccan, meanwhile, will compete with the other airlines and also with the trains. It will enhance the big pie of the market.

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That way, we will have a lower cost base, but on the front-end, customers will have a greater seamless travel because today Air Deccan is not only the second largest airline, we also have the largest route network; we have largest number of flights - 350 flights and 65 airports.

Combined with Kingfisher, there will be about 570 flights a day going to 70 odd destinations. So customers will have greater reach and in case of flight disruptions, delays on flights, etc., customers will be have seamless connectivity. This, in turn, will enhance the product on the front-end and bring down the cost further and push us to profitability.

Q: Are you going to revise prices or not?

A: The question of revising prices is not like - you just decide and do it because, if that were so easy, all airlines can just increase price by Rs 1,000 and be in profit.

All airlines are not in profit, whether it is Jet or Kingfisher. They all need another Rs 500-2,000 more, depending on whether they are a low-fare airline or full-service airline. So we have been endeavouring to get that additional money either by reducing cost, or increasing the revenue by increasing the fares.

The only thing is, now I think we are in a better position to do so because of this joint venture in the area of cost cutting and better product in the front-end. So we will be able to get a better price for our product because we need additional revenue to be in profit.

I think the country will be devastated if Air Deccan folds up. So I think that it is in everybody’s interests that Air Deccan is profitable and we are going to do that.

Q: In last two days or so, has there been any raise in your load factor because of the strike by Indian?

A: We already have a load factor of about 85%. Now it’s gone up further because of the Indian Airlines strike. We have currently been averaging 85% load factor.

Q: Are you hearing anything from the government on airlines starting the international operations without that five year wait? If that indeed happens, from the combine of Deccan and Kingfisher as a group, would you be ready to fly next year or late this year?

A: I have always told the government that it must make its policies more transparent and more equitable. I just cannot see the reason why this five-year rule was introduced in the first place. If they can allow an airline, which is a start-up airline like JetStart to start from Singapore or Etihad from the Middle East, I just don’t see the logic why they do not allow Indian airlines to compete. It looks like a very selective policy to support some airlines.

The government must also allow us to compete with Air India. Air India wants to start a domestic airline; so why can’t we compete with Air India in the Middle East. I think government must now make things more transparent and allow everybody to fly so that whatever revolution we brought in the domestic sector, will happen in the international sector as well.

Air Deccan is definitely going to start its flights in August next year and that is 100%, because we will be completing five years.

Also, I think this will increase the capacity utilisation; whatever excess capacity that maybe causing losses to airlines. Why should we have a foreign airline making profit when India is losing money? We should fly to the Middle East; we should fly to Singapore.