Costs of an ongoing merger, a lean passenger season, and softening ticket yields have seen India’s biggest low-cost airline, Air Deccan, posting its largest ever quarterly net loss of Rs253.18 crore in July-September, its first quarter this year, nearly six times the loss in the year-ago period.
The performance signals continued financial challenges for a carrier attempting to reinvent itself after a buyout and a new chief executive took over at the helm of the airline.
Not so simple: Air Deccan chief executive officer Ramki Sundaram.
The losses in the comparable period last year were just under Rs43 crore for the quarter ended September 2006, but the airline then had seen a one-time income from outside sources made on asset sales. In just this one quarter, the airline’s losses equal 55% of the company’s annual losses for the last financial year, which it ended on 30 June with about Rs419 crore in the red.
Deccan Aviation Ltd, the airline’s parent company, has been in transition after United Breweries (Holdings) Ltd bought out a 26% stake in the airline on 1 June. Since then, both Deccan and Kingfisher Airlines Ltd, which is also owned by United Breweries, have worked together to improve Deccan’s performance and customer perception, which had suffered because of late flights, cancellations and the physical condition of the company’s planes.
“A number of things that are slowly starting to get in place, but you can’t get things sorted out in a jiffy,” said Ramki Sundaram, who took over as chief executive after G.R. Gopinath, one of the airline’s original promoters, stepped aside earlier this year. “You have to do a lot of hard work to get all the aspect of the business to work well.”
Sundaram declined further comment, referring this reporter to a statement issued earlier, where he attributed losses to a lean season and costs of an ongoing transition.
Since June, the airline has added leather seats to many of its planes, worked to improve its on-time performance, and made contract employees for ground operations into full-time Deccan employees, saying it can hold them to higher standards by employing them directly.
It launched a new website, and has rebranded itself as “Simplifly Deccan”, and matched its theme colours and logos with Kingfisher Airlines, hoping that some Kingfisher’s recognition for high service standards would rub off, allowing the airline to charge higher prices for its tickets.
Deccan did not release its yields or the price each passenger paid for the average ticket. But going by its rapidly growing customers—Deccan flew 14 million passengers in this quarter, up 112% in the year-ago quarter—its yields are likely to have fallen as revenues expanded just 26.25%.
The airline flies about 350 flights a day, a 30% increase from September 2006. Load factors, too, have rapidly declined: the airline’s planes are now flying only about 65% full, compared with 87% full at the beginning of the year.
“There are several ways to look at the airlines financial performance,” said Praven Vetrivel, an analyst with the London-based International Bureau of Aviation.
“It is clear that Deccan is looking to reposition itself in the financial markets and has taken a short term hit with a view to being profitable in the long term,” Vetrivel added.
Deccan saw a cash infusion of Rs550 crore when the UB group bought its stake (which it raised to 46% through an open offer that closed last month), and will also receive another $40 million (Rs158 crore) in two separate instalments in November and February 2008 from a deal with two European lenders, Investec Bank (UK) Ltd and HSH Nord Bank AG, in which it sold them the right of delivery to about 60 of its undelivered A320s, according to vice-president of finance, Anand Ramachandran.