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May 14, 2007

Air Deccan CEO interview to The Mint

The Mint has an interview with Air Deccan's Founder & CEO, Captain G.R. Gopinath, on his company's plans to raise a large amount of Private Equity funding at a time when the pioneering low-cost airline is mounting losses.
We said very clearly we would be in profit in 2008. We foresaw that, because of a temporary, sudden burst of so many aircraft from so many airlines, there would be some amount of bleeding, especially on the trunk routes. Now we have redeployed our aircraft in a different manner, where 80% of our aircraft are on the non-metro routes, and we think we could be in profit earlier.

...It’s not a question of passengers not wanting to pay. Today, the yield of SpiceJet, which has much smaller operations than ours, is about the same as ours, and our costs are about half of Jet Airways. Four years ago, when Air Deccan was started, there was a cartel between Jet Airways, Indian Airlines and Air Sahara; it cost Rs12,200 to fly between Bangalore and Delhi. Today, if I get Rs4,900, I am in profit. If I am making a profit at under Rs5,000, compared to four years ago when salaries were half, fuel prices were a third, what does it show? It shows that it is a different business model, a more robust business model. We need to get another Rs500-600 more in some sectors, Rs300-400 more in other sectors. The problem is that we are not getting (that) for various reasons.

...When a customer goes to a website and sees that Indian Airlines is dropping its fare below mine, obviously, even though he may have an emotional attachment to Air Deccan, he will go and buy the Indian Airlines ticket. There is definitely excess capacity in the market. So you need to have two things: have the same price at a higher load factor (the number of seats occupied in a plane in percentage terms), or get higher prices. That is a factor of a societal shift happening in the Indian demographic... of the customer shifting to air travel.

It will take six-seven years: it’s a J-curve (at some point passenger traffic will soar straight up). But, when that happens, you have to be able to exploit it.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.