Gopinath to rework Deccan Cargo business model3 min read . Updated: 26 Dec 2011, 10:22 PM IST
Gopinath to rework Deccan Cargo business model
Gopinath to rework Deccan Cargo business model
Mumbai: With India’s most valuable company Reliance Industries Ltd (RIL) not keen on increasing its investment in Deccan Cargo and Express Logistics Pvt. Ltd—the air cargo and logistics venture promoted by G.R. Gopinath—the low-fare airline pioneer is reworking the business model.
In April 2010, RIL picked up a stake that was above 26%, but less than 50% in Deccan Cargo, which runs the brand Deccan 360. Both Gopinath and RIL executives declined to comment on the value of the investment made.
“I started Deccan 360 with operations to international and domestic destinations, but later discovered that the loads are not matching the capacity deployed. Hence, I am reworking the business model," said Deccan Cargo chairman Gopinath, who is now scouting for an investor to expand and revitalize the business.
“I have reduced my stake in my passenger airline venture in the past, too," he said, referring to Air Deccan, which he sold to Vijay Mallya’s Kingfisher Airlines Ltd in 2006. Gopinath will appoint a merchant banker when he is ready to raise funds for Deccan Cargo.
Mint’s P.R. Sanjai says that with Reliance Industries backing out of further investments in Deccan Cargo, the firm is revamping its business model.
“Now I am focused on rebuilding the cargo airline brick by brick, and increasing the cash flow in the next two-three months. After six months, I will be expanding the fleet of Deccan Cargo," Gopinath said.
He said Deccan Cargo has returned three Airbus family aircraft—big planes used to ply international routes. “Last month, Deccan Cargo restarted its operations using ATR planes connecting Kolkata and other north-eastern destinations that are not connected by transportation companies," Gopinath said. ATRs are smaller planes used to ply shorter routes such as Mumbai-Nagpur or Bangalore-Hubli. Deccan Cargo now runs only two ATR planes compared with three Airbus and five ATR planes earlier.
Gopinath also said his company has tied up with various logistics companies that are seeking space on planes. “Now running an airline is my responsibility. Cargo is their responsibility," he said, without divulging details of the transport companies that have partnered with Deccan Cargo.
Gopinath had plans to open kiosks in at least 350 outlets of Reliance Retail Ltd, the retailing arm of RIL. Reliance Retail has a presence in at least 85 cities across 14 states in India, with at least 1,000 stores. Deccan Cargo was supposed to build a central warehouse in Nagpur and develop the technology infrastructure that is crucial for supply chain and logistics companies with the help of RIL. Gopinath declined to comment on RIL.
A senior RIL executive said the company will stay invested in the company. “We have not taken any call to increase the investments in Deccan Cargo. The decision to invest further in Deccan Cargo will be purely based on the business plan of the company," he said, requesting anonymity.
RIL doesn’t want to pump in more money with the economy slowing down, said a person close to the development on condition of anonymity.
“Deccan Cargo needed cash for restructuring its business, but Reliance Industries wanted to stay as financial investor without infusing fresh funds. However, Reliance Industries is not averse to Deccan Cargo bringing in a new investor," he said.
Deccan Cargo was dependent on the franchisee model. These were to be serviced by a warehouse in Nagpur that would function as a multimodal logistics hub that would aggregate, distribute and redistribute cargo to and from international and domestic locations.
“The basic business model of Gopinath was faulty. Last-mile connectivity is a more critical thing in a parcel delivery business rather than an airline connection. Gopinath did not invest in last-mile connectivity, but chose to outsource it to franchisees," said Tushar Jani, chairman of freight forwarding and logistics firm SCA Group and a former promoter of Blue Dart Express Ltd.
He pointed out that for a customer, there is no brand loyalty and reputation if a cargo is controlled by franchisees that vary from city to city. “Plus, the idea of setting up a multimodal logistics hub in Nagpur did not work for Deccan Cargo," Jani added.
Gopinath is trying to revive his cargo airline when other freighter companies are finding the going tough.
Aryan Cargo Express (Pvt.) Ltd, promoted by a Delhi-based entrepreneur, Mukul Pathak, suspended its operations in June 2010 due to a working capital crunch. Quikjet Cargo Airlines Pvt. Ltd hasn’t been able to start operations. Quikjet was promoted by investors including Infrastructure Leasing and Financial Services Ltd, Infrastructure Development Finance Co. Ltd, Tata Capital Ltd and AFL Pvt. Ltd.