Deccan’s new avatar in Gujarat- Can it work?

Deccan's new avatar in Gujarat- Can it work?

 

 

There have been many serial airline entrepreneurs in the world. It is as much an addiction as any. Branson and Neeleman are the two names that come to mind. Closer home is Capt. Gopinath, who is attempting is fourth Airline venture in Gujarat. With fuel at USD 125 per barrel, this requires considerable nerve. The house is however divided and the jury still out, on whether this will qualify as courage or audacity. Time will tell.

 

I just wanted to examine the possible directions this venture may take and how it could be grown through various stages, (a sort of a business plan, written more from the point of view raising finances):

 

STAGE 1: Getting off the ground-(Intra-State traffic)

Year 1

All the assurances from the Gujarat government mean nothing on the ground.

For a planner to actually implement flights and come up with a financially viable and coherent schedule is a nightmare. When planning them for the whole of India, there are at least a lot of airports available to play with. We are talking of only a dozen Airports here- most of which do not operate at night; many do not have fuel depots (it really matters in summers, when temperatures are high and payload is restricted). Most of all, ATC timings have remained unchanged for years. Just like the Indian courts, they function for a fraction of hours a day and then are in recess. Hopefully, corporatization of ATC will perhaps improve this situation. This isn't the full list of woes. The Airport Authority of India, a central government controlled body, feels no compulsion to lend an ear to what the state government may have to say. We have not even started talking about BCAS and CISF who are perpetually short of staff and only personal initiative from some of the more proactive commandants ensures that the day is saved. The Airport equipment- X-ray machines, Radars, passenger amenities, ground handling equipment….You get the idea of what it takes to get off the ground. Even with this list, the flight completion rate of the operator remains woefully low, because operations are so totally dependent on the elements without proper infrastructure. Passengers aren't likely to patronize a service that anything short of reliable.

 

When however, the above is achieved, the commercial target would be to get break-even traffic on the aircraft. This would mainly come from the point to point Gujarat intra-city, traffic, some from existing services, if any, and other from surface transport. For example, Surat to Bhavnagar is a lucrative route, as traveling by road can take easily upto 8 hours. Train takes longer. If, the promised additional new airports come on line sooner than anticipated, it will help improve Deccan's prospects.  

 

STAGE 2: Growth beyond the state  

Year2- 3

I believe that Deccan is not targeting getting into bigger planes beyond ATR's, if its stated objective is to provide intra-state traffic. I cannot, however, imagine that Deccan can survive independently just on the intra-Gujarat traffic, even if it makes a major break-through in terms of shifting traffic from surface transport modes. The fixed costs are far too high in India (Even if recent developments in third party maintenance provider availability and other related costs are taken into account) and it needs enough scale to cover all of them, which means growing the number of flights. This can happen in 2 ways:

 

1.      Replicate the model in neighboring states: Deccan, can fairly easily replicate the model in Maharashtra, Goa and Rajasthan. They all fall within the range of an ATR and can easily be linked. This takes the scale up to about 30-40 airports. There are enough business linkages to provide sustainable air services, provided they come at the right price. AND, most importantly, the major carriers are too occupied with the trunk routes that it is unlikely that Deccan will find competition. Its real competition would be the railways and what has come to be known in India as 'Volvo' bus services (law of marketing: first entrant defines the category).

 

2.      Become a feeder: I bounced this suggestion off a few people but they weren't convinced. It is true that Airlines that have an established network into Gujarat out of Mumbai have little incentive to change anything. But an Airline like Indigo, with one plane type, could use a feeder at AMD, can it not? Look at the US market- they are full of feeder carriers. Some are part equity owned by the major airlines and share the infrastructure keeping their overheads and costs low. While we are a long way off from achieving the traffic scale available to these feeder carriers, I have at least one very strong reason to believe that the time has come for a feeder carrier in India.   

 

Currently most of the traffic to Gujarat's cities (other than AMD) is flowing over Mumbai. So, if you were coming from Calcutta and wanted to go to Jamnagar, you would have to connect via Mumbai. However, as is very well known, Mumbai is full up to the brim and will have no choice but to push out the smaller planes completely. That plan is dependent on the upgrade of Juhu Airport. Airlines will have no choice but either upgrade their Gujarat flights into larger code C aircrafts or move to Juhu. Looking at the number of hurdles, I suspect neither will materialize. However, the unintended consequence of this could be that traffic to Gujarat from the rest of India, that is today flowing over Mumbai could move to flowing over Ahmadabad, if (Big if), a feeder network is built at AMD. Let me explain: For all the traffic that is NOT local, ie, between Mumbai and Gujarat, there is no need to connect at Mumbai if an alternative was available to connect to any/all Gujarat cities via AMD. Deccan can provide this alternative. It is a great opportunity for AMD Airport if they can see it. They must therefore work with Deccan to make this happen.  

 

On Deccan's part, instead of simply adding more flights to maximize utilization of the aircraft, they must align their departure and arrival schedules to the schedule banks of other major airlines serving AMD, such that their flights can get feed/Defeed flights arriving into/departing from AMD. Even without a formal interline agreement, Indian public is smart enough to figure out connection opportunities. That is not to say, that it isn't important to gear your systems to offer formal interline/code share services, particularly in light of the next stage (STAGE 3).

 

STAGE 3: Become an International Feeder

Year 3-5

We are now really dreaming, getting unrealistic, are we? But assume, 3 years down the line, Deccan Gujarat has been a resounding success, what will it need to continue to grow? Assuming that major airports in Gujarat have been activated for night operations, Deccan could introduce an early morning bank of flights that de feed traffic off the international arriving flights. In addition, the early morning bank can only increase utilization. If the government allows, it is possible that a foreign carrier may want to formalize this interline relationship into a larger role through equity. Deccan must ensure that its mission critical IT systems are geared to offer these services that can add a much required revenue stream and have a very positive impact on the yields. Sure the cost goes up too, but today, these services can be offered at much less overhead than ever before. Airlines like Jetblue in the US and GOL in Brazil are doing it.      

 

STAGE 4: Launch International flights

Year 5 and beyond

You are laughing hysterically by now. But, look, all business plans can be unrealistic. Have you ever come across a business plan that shows negative growth in a given year? No right? Yet there are recession years where companies de-grow. Likewise, there is no harm in being a bit wishful when envisioning the future course.

So, the ATR is ETOPS rated for 120 minutes. A 2 hour (250-300 NMs) flight is more than within the profitable range of an ATR. You could probably offer flights to Karachi and some other destinations in Pakistan but that's about it. For other destinations like Muscat and Salalah in Oman, lesser known destinations in UAE like RAK and Fujairah and Bandar Abbas in Iran, Deccan would need to get into longer range aircraft. All of these are pretty poorly connected and can at max, support 1-operator. This cannot perhaps happen today, but 5 years down the line, anything is possible.  

   

If you however ask the Deccan watchers, they will say, ah…why get into these complicated models, so much thinking is simply not required! The real plan is to get the company off the ground and then sell it off to a willing party! There are plenty of fools out there, who want to get into the Airline business. J