Air Deccan may break even soon

For Air Deccan, the fog seems to be lifting. Despite the scepticism surrounding the viability of the low-cost airline model in the country, Air Deccan is on the verge of doing something it has never achieved in its three-year-old history: it is close to breaking even. When the Air Deccan board meets on January 25 to consider the quarterly results, the chances are that the airline could substantially pare down its losses and perhaps even turn in a modest profit during the October-December quarter, a vast improvement over the Rs 43-crore loss in the previous quarter, claim company officials. In fact, had it not been for the dreaded fog, which forced the airline to refund nearly Rs 35 crore, it would have posted a far stronger financial performance. Says GR Gopinath, managing director, Air Deccan, "This proves that airlines selling tickets at Rs 9 can also make money."

Air Deccan had revolutionised air travel in India by drawing in large swathes of passengers who had never travelled by air. It had also connected several small cities across the country. But till date, most industry experts were convinced there was little to stop low-cost airlines from going belly-up. Air Deccan officials are at pains to show this uptick in performance is no sleight of hand. In December, buoyed by a surge in passenger traffic and better margins, the airline showed an improvement on all the key performance indicators. For one, average yield per passenger was Rs 3,200 during the month, up from Rs 2,780 in the July-September 2006 quarter, Air Deccan finance director Mohan Kumar said. Mr Kumar claims that the airline starts to break even at Rs 3,100 per seat. According to Mr Kumar, much of the turnaround was mainly on account of being able to control its costs.

"Our cost per seat kilometre is now Rs 2.70 for the Airbus fleet, which is among the lowest in the industry with operations our size," he said. At the same time, with as many as 6.25 lakh passengers choosing to fly the airline in December, the airline’s revenues were up to Rs 171 crore in the month, compared to Rs 75 crore in December 2005. This had pushed up the average load factor to 85%. Some of the new routes that Air Deccan had opened up have also matured. For instance, Kandla, Kulu and Dehra Dun are few of the sectors which have now turned profitable. Better route planning has also ensured that the fleet is better utilised. Sceptics have pilloried the Air Deccan model, which aims for higher marketshare and rapid expansion with a fleet of two types of aircraft.

"It remains to be seen whether the airline can continue to show the same results over lean months," airline sources who did not wish to be named said. Traditionally, most airlines go through a lean period from February to April. The performance in December quarter is likely to be boosted by a tranche of $30m received from Investec bank from a sale-and-lease back deal signed earlier in the year. Air Deccan had signed a $100-million deal with the UK-based bank to improve liquidity in the near term. The airline has eight bases across the country and operates the largest network covering 60 airports with about 300 flights daily. The Air Deccan stock went up 3.8% to close at Rs 140.4 on the BSE. The airline operates a fleet of 16 Airbus A320 aircraft, with an average age of 1.5 years and 24 ATR Turboprop aircraft.

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