Deccan may beat Kingfisher to profit

In what can only be termed a twist of fate, financially beleaguered Air Deccan, which was forced to sell 26 per cent to Kingfisher Airlines chairman Vijay Mallya's UB Holdings to keep its head above water a few months ago, is likely to break even before Kingfisher.

Confirming this, A Raghunathan, Kingfisher's chief financial officer (CFO), said with better revenue management and improvement in yields at which seats were being filled up, Deccan, one of India's first low-cost carriers, should break even by the last quarter of this financial year (January-March).

Kingfisher's losses, which were around Rs 400 crore in 2006-07, are likely to be halved in 2007-08. On domestic operations alone the breakeven is likely to be achieved in 2008-09. But with the start of international operations (which it hopes to begin in April 2008), the full breakeven could be pushed back a bit.

In the case of Deccan, Raghunathan said the "scope for improvement is larger". The gap in cost and revenue per passenger was Rs 400-500.

Close to Rs 300 of this has already been bridged through both the congestion and fuel surcharges.

"Earlier, Deccan would not fully introduce the fuel surcharge or introduce it only on certain routes but now it has done so on the entire network," said Raghunathan.

He said Deccan often sold seats at very low fares at the beginning of the month in a sort of panic to fill up seats early. Now, the present CEO, Ramki Sundaram, is trying to inculcate a new philosophy that says that while seat factors are important, revenue per seat is even more so. Kingfisher's revenue management team is working closely with Deccan's and the "results will soon be there for all to see".

The rest of the gap in cost and revenue will be made up by charging a bit more for a vastly improved service. Said Rajesh Verma, executive vice- president, Kingfisher Airlines: "The idea is to improve the image and perception of the airline and then charge a bit more."

To this end, the airline plans to undergo a brand revamp, but without changing the name of the airline "� a market study found that the brand Air Deccan has a wide appeal, and is known in remote corners of the country. "This exercise will hopefully yield incremental revenue that will exceed the incremental cost," Verma added.

One option being explored is whether the airline can do self-handling at terminals "� currently this is outsourced to contractors. Contractor costs of terminal handling work out to Rs 1,700 to Rs 2,000 per flight.

This will increase to Rs 2,000 to Rs 2,100 per flight if it's done directly by Deccan. But since the ground-handling and cabin crew will be trained by Kingfisher, Verma said the airline expected "a dramatic improvement in the experience, allowing Deccan to charge a little more per passenger". Coupled with the surcharges, this should allow Deccan to break even well before its full- service partner.