INDIA BUSINESS WORLD - JULY 2006
THE MONTH THAT WAS...

LOW COST, HIGH BENEFIT: DECCAN FLIES PAST INDIAN

NO FRILLS has Capt GR Gopinath smiling to his gills. His low-cost Air Deccan has made history by overtaking Indian to become country's second-largest domestic airline. In a space of just three years, the up-and-comer has displaced one of the ruling pashas of Indian skies. June data state that Air Deccan's share has crept up to 21.2% from 19.4% in May while Indian's declined to 20.8% from 21.3%, relegating it to the third slot in domestic aviation hierarchy.

Jet Airways, India 's largest private airline, remains market leader with 32.3%, down a tad from 33.2% in May.

Air Deccan started operations in August 2003 and its rapid rise in market share is primarily because of the aggressive expansion path it chose. It is currently inducting two aircraft, an Airbus A320 and an ATR, every other month. Its business model also includes rapid expansion to newer cities. Indian and Air Deccan's market shares are still neck and neck and the situation could conceivably change next month. Yet, even till recently, few could have predicted Air Deccan overtaking the government-owned carrier.

It currently has operations at 55 airports, the largest served by a domestic carrier. Analysts say the jury is still out on whether LCCs are a viable proposition in the Indian environment, without secondary airports and separate terminals to operate from. But it's clear that the public is flocking to them. Telecom companies have been able to make profits, in spite of declining tariffs, on the back of higher volumes, and similar dynamics may be taking hold in the aviation sector, they suggested.

Airline's CEO GR Gopinath said low-cost model has brought flying within the reach of millions of passengers who had never seen an aircraft before. However, he said the airline's margins were still under pressure from increased competition and high oil prices.

 “Air fares today are at 50% the levels they were two years ago, though operating costs like fuel and salaries have almost doubled,” he said.

The airline made a loss of Rs 123 crore in the first eight months of 2005-06. Its stock price closed at Rs 66 on Monday, down 3% from Friday's closing price.