Mohan Kumar informs that the company has signed a term sheet of $100 million to take care of its contingencies. He expects the company to breakeven by FY08. He also adds that the company intends to target a market share of 25-28 per cent by FY08.
Excerpts from CNBC - TV18's exclusive interview with MG Mohan Kumar:
Can you give a break-up of the losses in FY06, how was the April to June period?
We incurred a net loss of Rs 110 crore from April to June. One has to realise here that we have introduced 3 A320s and 2 ATR72s into service, which is an induction of 5 planes. So obviously, it pulls down the load factor and also the yield and the expenses will be up for these five aircraft operations.
Given that situation, it should be good result of Rs 110 crore net loss and of course, there is probation for non-cash charges like amortisations and depreciations. So the cash loss is about Rs 100 crore (Rs 1 billion) in the first three months.
If one looks at the past twelve months, where we had introduced 7 airbuses and approximately about 8 ATRs, so that we were able to recoup the loss within that one year.
When do you hope to breakeven on cash?
I have always been saying that at this high growth rate, it is difficult to obtain the profitability in a competitive scenario. When growth stabilises around 30-35 per cent, it is definitely possible to look at the profitability.
What would you like an investor to look at? What kind of numbers, from your point of view, should we be looking at to judge performance?
We are raising another $100 million in this financial year, which will give us a cash flow for about 15 months. We are building up a sizeable network for the country on a low cost basis so that the public can depend upon the large network as well as the low fares. Hence, the investors are investing in this business with that point of view.
In terms of key matrix, what is it that you can set out as a management now. Do you have an internal target of when indeed you can break into profit? How much do you see yields going upto and how much do you see the load factor for you as a company bumping upto?
Our internal target is to see that we reach a breakeven level within the next 15-18 months. Depending on the market situation, it is possible to achieve it even earlier. The only important factor is that we need to ensure that the cash flow is maintained to continue this growth phase.
Do you see the load factor increasing? Are you getting more elbow room now to increase your prices, what will bump up the yield?
As the flights start achieving maturity, it will automatically push the load factor up and consequently, the yield will also go up. So it always depends on how the mix is skewed, whether it is skewed towards the newly introduced routes or the mature routes, which determines the average load factor and the average yield.
The marketing department is continuously on the job to create awareness about various flights operated by Air Deccan, so that alone should push the yield up to the breakeven levels. Apart from that, there are other factors like revenue management and also the perception about the airline about its 'on-time' performance.
Over the next 15 months, how many flights will you be taking delivery of and how much will that cost you?
In the next 15 months, we should be taking delivery of about 7 airbuses and about 8 ATRs. So this is a massive expansion in the next 15 months. All these aircrafts have been paid for and have we already tied-up the funding for this and the aircraft should be coming in place and already the research about the routes, where we will fly is already available with us. We are doing a lot of things pro-actively to ensure that the cash burn is minimised, when we introduce this aircraft.
How much money do you plan to raise in the next quarter?
We have assigned a time sheet to raise $100 million from a consortium of European banks and the document is in process. So this should give us a cash flow of about $100 million over the next 15 months. This should take care of the worst-case scenario of the cash burn.
The concern really is that there are four new airlines, which are due to come out in the next one year. The problem is that all of them have cash to burn. Is there going to be a continuous pressure on your bottomline because there seems to be new entrants coming in every six months? How long do you see this scenario lasting?
If one looks at the last year, Kingfisher, SpiceJet, Go Airlines and Paramount Airlines were introduced. In spite of that, we have shown our ability to grow and ability to fund the cash burn and we have plans in place to tackle these issues.
By the end of FY08, how much market share do you see your company holding? Where do you see margins stabilising or going up to, for Deccan?
Given the expanded market situation, by FY08, we should be around 25-28 per cent market share. We should control the cash burn by FY08 and at least we should breakeven by FY08.
Fuel costs account for about 38 per cent of your cost, oil prices are down, are you feeling the positive impact of that or will it be felt in the coming months. What will be the impact?
The crude prices have softened already. Normally, the oil companies in India correct the prices immediately on the first day of next month depending on the average price of the past month.
We expect the crude price to come down by 7-8 per cent at least from October 1. There are various theories like the crude price may settle down to $40 by February-March and that is good for airlines.
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