Pricing power may smoothen Deccan flight

Air Deccan wasn’t just losing money; it was on the brink of going down, before Mallya stepped in.
The infusion of Rs 550 crore may help tide over the crisis, but only just. That’s because even if Deccan sells all its 1.7 lakh seats a week on its 2,300 flights, it will still lose money.
So what can Capt Gopinath hope for? For one, the competitive intensity will come down, with two major players joining hands. Fewer players will mean greater pricing power.
Air Deccan also gets to cut costs by sharing infrastructure and reducing headcount. Besides the rampant poaching of pilots, engineers and other skilled personnel will also come down. Deccan and Kingfisher operate the same aircraft — Airbus A320 and ATRs. This can lead to savings in repairs and maintenance infrastructure as well as ground handling. Together, these two costs make up almost 20% of Deccan’s total operating costs.
The total value of the synergies has been pegged at Rs 300 crore a year. Assuming that Deccan and Kingfisher share the gains based on current market share, Deccan should see operational losses fall by a third to Rs 200 crore a year. But that still is not enough. Even if the synergies are exploited fully, Deccan will run out of cash in another four quarters. So, will Mallya be able to rustle up more money? That’s not clear at this moment.
02/06/07 Amit Bhandari/Economic Times

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Categories: Air Deccan Jun 2007, Kingfisher Jun 2007