New Delhi: Deccan Aviation Ltd, the operator of India’s biggest low-cost airline, Air Deccan, saw its finances slip back into the red due to high fuel costs and expenses related to migrating to a new reservation system that slowed bookings and customer service centres to a crawl for nearly a week in January.
Net losses for the fiscal third quarter ended 31 March totalled Rs213 crore, according to results released after the stock market closed on Thursday.
Revenues were up almost 70% from the year-ago quarter, growing from Rs275 crore to Rs457.45 crore. The losses were higher than expected, said Peter Negline, a Hong Kong-based analyst for JP Morgan Chase.
“Excluding any one-off gains, we were expecting losses of Rs1 billion (Rs100 crore) on revenues of Rs6 billion,” he said. “But the revenues have come in well below that and the losses well above that.”
Air Deccan managing director G.R. Gopinath has revised the airline’s expected entry into profitable operations to the December 2007 quarter from earlier this fiscal year, while the fundamentals—high infrastructure and fuel costs buffeted by brutal price wars —of the Indian aviation industry remain unchanged.
Deccan, for instance, has already given away 500,000 tickets for free this year. Those cheap tickets and promotions have propelled the airline into the top 3 Indian airlines by market share; and for one month this year, allowed it to claim second place, flying one out of every five Indian passengers. Its planes flew about 83% full in this quarter, carrying 17 lakh passengers to about 65 destinations on 350 daily flights.
Its total revenue per passenger went up by about Rs100 to Rs2,660 this quarter, but airline officials have said earlier that it costs them about Rs3,500 per passenger on a plane, which is 75% full, to break even. It appears that the higher load factors (from 71%- 83%) are a result of the discounts, yielding thin revenues. The airline has attempted to raise ticket prices on a few flights, but has met strong customer resistance with flights often flying underbooked. Instead of attempting to increase ticket prices, which for now seems unachievable, the airline is hoping to raise up to $100 million (Rs410 crore) from private equity investors such as the US buyout firm, TPG Inc. Those negotiations, handled by Mumbai-based Edelweiss Capital, are expected to close soon, say airline officials.
Last year, the airline raised $100 million from two European lenders, Investec Bank (UK) Ltd and Germany’s HSH Nord Bank AG, by selling its right to delivery of Airbus A320 planes through 2009. The first instalment of $30 million (Rs132 crore at that time) helped Deccan show a profit on its books of Rs9 crore for the quarter to December, in spite of substantial operating losses. The next instalment, which will be for about Rs90 crore, won’t be paid until later this year.
Also later this year, Deccan will be able to show yet-undisclosed profits from two aircraft sale-and-lease-back deals with Ireland’s Genesis Lease Ltd. But Negline, the JP Morgan analyst, said he doubted that revenues would get much better, given that the next few months are traditionally lean for the travel industry.
Deccan spokespersons said none of the company’s officials would comment on the quarter earnings, but Gopinath said in a statement: “A combination of high operational costs and oversupply is creating a weak domestic yield environment in the industry. Fuel prices are once again close to historically high levels, coupled with the fact that February and March are inherently weaker months for the travel industry.”
Ahead of the results, Deccan’s shares closed at Rs114.75, down Rs2.75, or 2.35%.