Aviation has staged a come back after being down in the dumps for the last many months, it is a clear resurgence of interest among investors in the sector, spiked by fare hikes and ATF going down.
Captain G R Gopinath, MD of Deccan Aviation comments on the same. Capt. Gopinath says that the average load factor stands at 75 per cent. According to him, margins will be better going forward. However, he says that margins will remain subdued for 6-9 months.
He further adds that it will take 9-12 months to become profitable and sees Air Deccan's market share at 25-26 per cent by FY07-end.
Excerpts from CNBC - TV18's exclusive interview with G R Gopinath:
Is some sense finally dawning on aviation plays that they can't go on battling the price front and run each other out of the market?
That was always there, not just as though people have suddenly realised that they had to be in profit, and profit is fundamental to any business, whether it is a low cost airline or a full service airline or aviation sector as a sector, but it is the nature of the business.
Too many players suddenly came in, there is little excess capacity, which is always a case in any emerging market, when too many players come in.
But if you look at the overall demographics, trends and the bigger picture with the GDP that is growing, the various industries going at double digit growth, less than 2 per cent Indians traveling by air, this sector has to explode like any other sector and the question is how soon will airlines make money.
Everybody was very pessimistic because airlines were losing money. But it is in the nature of things, I don't understand why aviation should be outside market forces.
Thanks to the open sky policy, it should even come in the international sector. The question of protecting existing airlines from new players was a trend earlier to protect the existing players like Indian Airlines and Air India from competition. Now we have seen exactly what is happening in the domestic sector.
Right now, they are trying to protect the two players in the international market, which is again shortsighted. So, there is no question of cartelisation - cartelisation can never take place.
The kind of number of players that are there and with everybody doing dynamic pricing today, it is very difficult for you to really pin down any point in time and say that somebody has increased the price.
Air Deccan started this e-ticketing, call centre booking and we also started dynamic pricing which is basically trying to sell at a higher price during the high seasons that is tourist season, then sell at a cheaper rate - for instance, the hotel industry.
So everyday your prices change depending on the kind of competition, depending on the kind of load factor, the sector is very dynamic and obviously everybody has to sell above their cost, whether it is Udupi Hotel or an Oberoi Hotel or Air Deccan or Jet Airways. The sector is very promising in the long term and also in the short term but maybe there is a temporary aberration right now.
What does all this mean for the margins of your company both the price hikes and fall in ATF prices?
It should look good. Air Deccan is going to a lot of sectors where nobody is going, places like Dehra Dun, Belgaum, Hubli and Kolhapur, we are very focused on the other India. We always felt that the only way to grow this market is not to just cannibalised the existing routes, you must tap the potential in this vast country of 450 cities, which have airports, but no connections.
But what has happened is that in some of the existing route like Mumbai-Delhi, we are just probably accounting for till Air Deccan came, it was almost accounting for 60 per cent of the nation's revenue, which is a shame. You can build a Mumbai-Delhi economy, 60 per cent of the nation's revenues is just coming from two cities.
So we need to tap the other segments and other states. They have all grown in wealth in the wake of reforms. I think, right now, the kind of problems that you are finding is because of this little bit of excess capacities trunk route. But this will stabilise and it will be good for this sector as a whole. It will be good for Air Deccan, margins will be better and we have to go through for six to nine months.
What sorts of yield then load factors do you have both for the metros that you just pointed out and the other segments that you have gotten into?
We are averaging about 75 per cent because every month we are adding new sectors so when you had a new sector it takes 6-9 months to breakeven. So it brings down the average load factor but we have got lots of sectors where we are doing 100 per cent occupancy - sectors like Dehra Dun, Kandla, some of new sectors where there is lot of pent up demand and there was straining for connectivity.
So whenever you open a new sector like Ahmedabad-Coimbatore, which we have opened now, or Hyderabad-Coimbatore, it takes some time to build up so when we add excess capacity, it brings on the average load factor.
Right now, we are averaging about 75 per cent across our 300 flights a day. We are going to 60 airports, we are averaging 75-78 per cent. But in the peak season, we are generally averaging about 90-95 per cent.
You have to invest in your business but investors like to see some visible profits. When do you think they can start seeing profits from your business?
I think it's not correct on my part to make any kind of projections. Being an entrepreneur, it is my job to focus on the business and concentrate on making profits and deliver value for all the stakeholders. Probably, it should take another 9 to 12 months.
Are you sure that's the timeframe- 9-12 months - that you will be declaring or announcing profitability?
I don't think you can ever be sure with these things. But I am sure it will be in our big shot and I am hopeful it should happen.
How much market share do you aim for Air Deccan to achieve in next financial year?
By the end of this financial year, we will have about 25-26 per cent market share. We are already at about 21.8 per cent market share. This month, we deployed 5 aircrafts, 1 ATR and 4 Airbus. We have added 25 per cent more seats.
We were selling about 25,000 seats, now we are selling close to 25,000 seats everyday, which is a huge capacity that we have added and the gap between us and Indian airlines will only widen as far as market share is concerned. We should be garnering little above the 25 per cent mark by the end of this financial year.
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