X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Deccan Aviation: Best of the lot? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 10, 2007

    Deccan Aviation: Best of the lot?

    Despite the robust growth witnessed in the Indian aviation market, domestic airlines have been incurring huge losses. Besides overcapacity and the resultant price-war, there are other problems plaguing the industry like higher sales taxes on ATF (aviation turbine fuel), inadequate airport infrastructure and manpower shortage. With this in mind, we try to analyse the business model of Deccan Aviation Ltd. (DAL), the pioneer of low cost aviation in the country and see where the company is heading into the future.

    About the company

    DAL commenced its operations as a chartered service provider (helicopters and fixed-wing aircrafts) in 1997. In 2003, it entered the scheduled airline business through the launch of Air Deccan - India's first low-cost-no-frill airlines. Starting with a single ATR aircraft, Air Deccan presently has a fleet of 43 aircrafts (18 Airbus A320 aircrafts and 25 ATR Turboprop aircrafts). In November 2006, Air Deccan garnered a market share of 20% (in terms of number of passengers carried), thereby becoming the second largest domestic scheduled airlines after Jet Airways (35% share). DAL has the largest network in India covering 64 destinations through 308 flights (as of March 2007). In the chartered business, it is the largest private sector operator with a fleet size of 11 (9 helicopters and 2 fixed-wing aircraft). This business provides services for company charters, tourism, medical evacuation and off-shore logistics. In FY06, the contribution from the scheduled airline business stood at 95%, with the chartered business contributing the rest.

    Two-fleet strategy: Although DAL's business model is based on other successful low cost carriers (LCCs) worldwide; there is a considerable difference when it comes to fleet strategy. Unlike other LCCs, DAL operates two types of aircrafts, ATR Turboprops (connecting secondary airports) and Airbus A-320 jets (on trunk routes). Although a single fleet strategy reduces cost of operations, in case of DAL, the two-fleet strategy seems to have paid off. This strategy not only allows it to benefit from regulatory provisions (lower sales tax of 4% on ATF for Turboprops with less than 80 seats as opposed to an average 25% to 30% for bigger aircrafts, no landing fees and reduced navigation fees), but also expands the potential market for the company since most of the airports in smaller cities lack runways to handle bigger planes.

    Ancillary revenues: Non-ticket revenues, which are called as ancillary revenues have become an important source of revenues for LCCs in Europe and throughout the world. Some of the examples of ancillary revenues are onboard sales (food and beverage), excess baggage, pre-assigned seats and in-flight magazine advertising. Currently, ancillary revenues accounts for 9% of the total revenues for DAL. The company plans to take it up to 25% to 30% in the next three years. Towards this, the company has already tied up with coffee chain Cafe Coffee Day and travel website Travelguru.

    Pruning non-fuel cost: DAL has taken a number of initiatives to prune down its non-fuel operating costs. Some of these initiatives include increasing the proportion of tickets sold online (savings in terms of commission paid to travel agents) and setting up of a pilot training centre in Bangalore (reduced the training cost). The company recently tied up with an airhostess training institute (Frankfinn) as an exclusive cabin crew partner to tide over the problem of manpower shortage. As per the contract, only Frankfinn students will be recruited as cabin crew by the airlines with up to 400 placements guaranteed each year during the contract. This will help DAL in saving the recruitment costs and also help it earn revenue for the in-flight training that they will provide. DAL is also looking to tie-up with foreign firms to set up MRO (maintenance, repair and overhaul) facilities in India.

    Particulars Deccan Aviation Jet Airways Spicejet
    ASKMs (m) 3,632 10,683 1,827
    RPKMs (m) 2,668 7,873 1,542
    Load factor (%) 73.5% 73.7% 84.4%
    Revenue per ASKM 1.91 4.69 2.19
    Cost per ASKM (ex-lease rentals) 2.78 3.31 2.21
    Price to Sales 0.6 0.8 1.1

    Notes: 1. ASKMs - Available seat per kilometre, RPKMs - Revenue passenger kilometres
    2. Data for Deccan Aviation, Jet Airways (domestic operations) and Spicejet is for the fiscal year ending June 2006, March 2006 and May 2006 respectively.
    3. Price to sales have been calculated on trailing twelve month (TTM) sales except for Deccan Aviation, for which the 9MFY07 sales has been annualised.

    What to expect?

    We believe that the mayhem created in the Indian skies due to entry of new players (competition) and rising ATF seems to be settling down. We believe that DAL has one of the most robust business models, which makes it less vulnerable to most of the problems faced by the industry. In terms of infrastructure constraints, the company is least dependent on metro airports. DAL operates smaller airplanes on the non-metro routes, thereby benefiting from lower cost structures (savings in terms of lower sales tax of 4% on ATF and reduced landing and airport charges). Also we believe that akin to the telecom growth story, it will be non-metro routes that will drive the future growth, which augurs well for the company.

     

     

    Equitymaster requests your view! Post a comment on "Deccan Aviation: Best of the lot?". Click here!

      
     

    More Views on News

    Securities & Intelligence Services Ltd. (IPO)

    Jul 31, 2017

    Should you subscribe to the IPO of Securities & Intelligence Services Ltd?

    Why Super Investors are Underperforming in This Market (The 5 Minute Wrapup)

    Jul 8, 2017

    If Super Investors can wait for the right pitch, so can you.

    Tejas Networks Ltd. (IPO)

    Jun 14, 2017

    Should you subscribe to the IPO of Tejas Networks Ltd?

    Discover the Secrets of Hidden Smallcaps From These AGMs (The 5 Minute Wrapup)

    May 26, 2017

    Don't be surprised to come across some Super Investors there!

    A Trader's Nightmare. A Business Owner's Delight. (The 5 Minute Wrapup)

    May 19, 2017

    Not all small-cap investors see themselves as traders. Some see themselves as business owners.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    KINGFISHER AIRLINES SHARE PRICE


    Jun 22, 2015 (Close)

    TRACK KINGFISHER AIRLINES

    • Track your investment in KINGFISHER AIRLINES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    MORE ON KINGFISHER AIRLINES

    KINGFISHER AIRLINES - SPICEJET LTD COMPARISON

    Compare Company With Charts

    COMPARE KINGFISHER AIRLINES WITH

    MARKET STATS