The Hindu Business Line : ‘Bet on low-cost carrier model to beat the current crisis’

Bangalore, June 19 Deccan Aviation has said that even though a low cost carrier (LCC) like theirs may incur a loss of between Rs 500 and Rs 1,000 a seat on metro routes because of the steep increase in jet fuel prices, their model was best suited to tide over the current crisis.

“It is not as if it is a doomsday situation,” Capt G.R. Gopinath, the Vice-Chairman of Deccan Aviation that runs Simplify Deccan, told Business Line. He said on a Bangalore-Delhi route, the airline needs to make Rs 6,740 a seat at 80 per cent passenger load factor for it to break-even, whereas a full service carrier requires nearly double that fare.

He pointed out that it costs about Rs 2 a km for a low cost carrier, while for a full service carrier it was as high as Rs 4.90. “Hence it is all the more relevant to have an LCC model,” he said.

The UB Group, which owns both full service carrier Kingfisher Airlines as well as Deccan Aviation, had earlier said that the group will retain both the models though it may re-name Simplify Deccan so that it is identified closely with that of Kingfisher Airlines.

Capt Gopinath said that the increase in oil prices had affected almost all the sectors and it was not just confined to the airline sector. “It is everybody’s problem. Hence we need to be innovative in dealing with the situation,” he said.

He said as Deccan followed a low cost model, it was geared up to deal with such crisis.

He pointed out that his airline had a single class configuration unlike full service carriers that have two or more classes.

“This shows that we are always looking for ways to keep the costs down,” he said.

Capt Gopinath said that fluctuations in the price of aviation turbine fuel were common and hence there was no need to panic in such situations. “We should be resilient. LCC is an inclusive model,” he said.

But a new Frost & Sullivan study says that because of huge losses caused by excessive taxation of aviation turbine fuel (ATF), LCC may be forced to close down several routes and streamline frequencies while full service carriers too may have to rationalise their operations. The study said that the ATF prices for domestic carriers were over 50 per cent higher than those paid by international carriers in India.

The Association of European Airlines members indicate that their fuel bill constitutes 13.3 per cent of their total operating expenses whereas for Indian carriers the fuel bill constitutes 45-50 per cent of the operating expenses.

Even for international operations, the price applicable to Indian carriers’ uplifts is higher than those applicable to foreign carriers by 25 per cent, the study pointed out.

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