Air Deccan: Revolutionizing the Indian Skies

On September 24, 2003, Air Deccan, the first low cost airline (LCA) in India, was ready to take off on its inaugural flight from Hyderabad to Vijayawada. The flight had 33 passengers, who included the Bharatiya Janata Party president, Venkaiah Naidu (Naidu), the then civil aviation minister Rajiv Pratap Rudy (Rudy) and some journalists. A few seconds before takeoff one of the aircraft engines caught fire and panic gripped everyone. The fire was extinguished and the passengers had a miraculous escape. The flight had to be aborted. Analysts felt that the accident would earn a bad name for Air Deccan, which had started business, just a month back. An analyst commented that the accident was "Enough to hurt consumer sentiment. Fragile consumer sentiment! Enough to cause a consumer to associate the otherwise USP of cost advantage (low fares) to low quality and therefore high risk to life." Despite the initial setback, in December 2003, Air Deccan announced that it was expanding its fleet and introducing flights on several new routes. The airline, which had started operations mainly in South India, said it would foray into Western India before entering the Northern and Eastern routes. Air Deccan now operates 75 flights a day to around 32 destinations in India and has and has increased its fleet to three Airbus 320s and seven ATR 42s. The flock of aircraft is constantly growing. As of march 2004, Air Deccan has recorded annual revenues of US$120 million (Rs. 5520 Million). In December 2004, Captain Gopinath cut a deal with airbus for the purchase of 30 A320 aircrafts valued at over US$ 1.4 billion. The delivery of these aircrafts would commence in 2007. The company had also signed a deal with ATR for supply of 30 aircrafts over the next few years, of which half were on lease and the rest were purchased.

A distinctive strength of Air Deccan compared to the other three big airlines in India is its ability to penetrate the small towns of India. This provides the company almost an exclusive access to 75% of the population of the country that lives in small towns and rural areas. Air Deccan has been instrumental in getting the government to open up many of these small town airports. Gorur Ramaswamy Iyengar Gopinath was born into a farming family in the rural Gogur of the state of Karnataka in South India. At the age of 13, Gopinath left his home to join the Sainik School in Bijapur and then went to graduate from the National Defense Academy in Pune and later from the Indian Military Academy in Dehra Dun. It was there that he first met and developed a lifelong friendship with Captain K J Samuel who later became his close confidante and business partner. Gopinath left the army life because it seemed to him that the army life somehow tied him down. At first, Captain Gopinath wasnt sure about what he actually wanted to do. So he headed back home where he found out that he had lost his land to government for a dam construction. The Government had compensated his family by allocating 40 acre plot in a remote village, 100 miles away from Gorur. He lived in a tent taking care of the land with a young boy who served as an assistant, a dog and his motorcycle. He went on to rear silk worms and developed indigenous technique of eco-friendly farming and later won him the Rolex International Award for Enterprise. Later in the early 90s Captain Gopinath with his wife and two daughters moved to Bangalore to set up his own business. On a trip to Vietnam, Captain Gopinath was very impressed and motivated by the large helichopper industry existing there and wondered about its feasibility in India. Gopinath closely studied the heli-transport market in different parts of the world. India had no heli-transport

industry. India had only 45 helicopters and had over 2 million foreign tourists annually. These facts convinced him to open a helicopter industry in India. On securing the license from the government for his charter business after 2 years, Gopi started Deccan Aviation. The company started with only 2 helicopters and capital of 35 lacs. Gopi wanted to create a safe image of the company and so required experienced and well trained pilots. Accordingly, the best army pilots were hired. Heli-transport is not a popular concept in India, one of the reasons being affordability and the other being apprehensions people have about travelling in helicopters. Hence, designing a marketing strategy proved to be a real challenge. Gopi decided to harness Indias vast potential as an attractive tourist destination because of its rich cultural heritage, wildlife and pilgrimage spots. The companys marketing strategy combined these three elements to attract tourist. The first step the company took was to send letters to various wildlife parks, wildlife resorts, hotels, temples, etc., within the country, enquiring about the availability of large open spaces or strips of land where helicopters can land close to the tourist destinations. The deal was that the company would design a comprehensive tour package and sell it directly to the customer. Over the period of time, Deccan Aviation has become a very powerful brand nationally and today, the company has helicopter bases in Hyderabad, Chennai, Ranchi, Surat, New Delhi and Jammu. Deccan Aviation has no major competition in the helicopter charter business. However, it is not very scalable as it is not economically feasible to acquire and operate numerous helicopters in a country like India. Therefore, this is considered a relatively slow growth industry.

A chance visit to USA at that time, cemented his desire to get into mainstream airline business. This visit gave him clear pointers about the potential the country had in domestic airlines, only if flying could be made cheaper. India is a country with a huge population of over a billion people. Despite this, a very small percentage of people actually used air transport as a means of conveyance. According to Air Authorities of India, about 13 million people travel by air annually. In stark contrast, approximately the same number travelled by train every day. Gopinath saw the potential of running a low cost airline that would reduce the cost of airfare for passengers. In August 2003, Air Deccan acquired on lease 2 small aircrafts with a capacity of 42 seats each from ATR and EADS. At this time, there were mainly three established players in the Indian domestic aviation scenario, namely Jet Airways, Air Sahara, and the nationalized carrier Indian Airlines. Air Deccan chose to launch its operations through sectors that the big three airlines did not operate on, such as Bangalore-Hubli. The low cost airlines usually operate on a 3-pronged policy of low operational costs, appropriate positioning and no-frills services, to harness only those customers who value cheap fares. Most of the tickets are sold through internet or directly to save cost. Air Deccans current target is the middle class and the lower middle class of the Indian population. When asked whom he considered as his customers, Captain Gopinath has this to say : It is not the elite that I consider as my customers. It is the humble cleaning women of my office, the auto-rickshaw drivers and other such people that we would like to carter to. We want them to dream that they too can fly, and we want to make that dream happen. Air Deccan, like all low cost airlines, follows a no-frills approach on all its flights. There are no in-flight services like other commercial airlines but one can buy food or a drink onboard. All seats are economy class and there is no prior allocation of seats. It has no

executive class and uses space frugally, leading to a straight 20% advantage over its competitors in terms of enhanced seating capacity. It has also reduced the turnaround time of its aircraft which leads to more time in air. The aircrafts are used as an advertising medium to generate revenue of 200 mn per year at current levels. It also offers special offers to customers who book their tickets early. It is a great value proposition for the passengers, notwithstanding the Apex fair offers on the other airlines like Jet Airways, Indian Airlines and Sahara. Air Deccan today operates 75 flights a day to 22 destinations, with a current fleet of three Airbus 320 aircrafts and seven ATR 42s. this number is growing faster. It has been successful in providing low fair to the middle class and the lower middle class people. The financial management of the company is sound it may stabilize from the current revenue of Rs.5000 mn per year to a level of Rs. 20000 mn in two years. At that level, it will be comparable in terms of passenger flown, to Jet, which is today Indias leading airline; with sales of Rs. 40000 mn. Given that India has a population of 1.2 billion and a per capita aircraft density that is a tiny fraction of a percent of what it is in the developed world or even of countries such as China, there should be no stopping us from the demand perception.