There was a news article last week. Its prominence did not justify the significance it would have in the history of Indian civil aviation market.
The article said that tickets for flights operated by Air Deccan, or DN as it is indicated in Civil Aviation sector, would be soon available for sale through GDSs, i.e. through all traditional air ticket agents. This is an additional cost and is against the philosophy of LCC, especially when the same function can be done by a web-based system, rather web-based systems are more potent in many aspects. Perhaps it was the last nail in the coffin of the most noticeable entrepreneurial enterprise in recent Indian business history. This piece could be taken as the obituary to the DN we have known so far.
The success story, at least in terms of the non-financial objectives set by its founder, Capt. Gopinath, of DN would remain itched in the mind of our generation, i.e. the present generation and in the heart of our parents’ generation. After all, most of us flied for the first time on DN only. The entire civil aviation scenario of India changed in last 4-5 years and DN cannot be denied its contribution in the same. Rather, it led the change. Financial performance are of utmost importance but the strategy dictates it. I often remind myself of the idiom "A person who knows how would also work for the person who knows why".
Being from the civil aviation industry, I am often asked what has gone wrong with DN. And, it’s debatable. Legacy operators, be it old horses like Indian Airlines or Jet Airways or the newer one, Kingfisher, which is the owner of DN now, always maintained that Low Cost model is not viable in India. Various obvious reasons were recounted, i.e. lack of primary infrastructure such as secondary airports, sizes of main airports etc, lack of secondary infrastructure such as penetration of Internet, rudimentary and govt. controlled supplementary systems, govt. policies such as differential pricing structure for usage of the same airport infrastructure, ATF pricing, employment policies etc.
I agree to most of them but do not buy any of these arguments as reasons of failure of DN. I would agree that with all the above reasons, DN could not have matched the fare levels to that offered by LCCs in other part of the world, say Ryan Air or Air Asia. However, on the hindsight, it seems DN tried to do the same. Everything was not lost there but the way DN tried might have contributed to its demise.
In my view, DN died primarily because of its failure to manage its growth. Growth was anyway essential but ineffectively managing the growth seems to have let it down. There is no data to support this but empirical evidences, such as frequent cancellations and delays, not-so-encouraging coverage in media about its services, airport handling, treatment to passengers etc. are there.
However, in my view DN died because of equally important other reasons. Firstly, it joined other airlines in charging fuel surcharge separately from the actual advertised fares. This is the practice followed by all legacy carriers to save on commission to agents, who are paid commission as a percentage (normal commission of 5% to 7% of basic fare only. The same base is used for any other deal), i.e. agents do not get commission or rewards on taxes and surcharges. In my view, accepting this practice led to creation of doubts in the mind of common man. Consider this example, advertisements say fly anywhere at Re 1/-. But the passenger ends up paying more than Rs 2000/- to travel. With this kind of fare one can not expect to attract train passengers. This is a case of miscommunication. DN would have managed to carry passengers at much lower fares, especially on smaller sectors, but adhering to the dictate set by legacy carriers, hampered DN’s competitiveness. Last observed, DN and other legacy carriers were selling almost same fares on smaller sectors, such as Bangalore-Hyderabad. Probably, a communication saying, pay a total amount of Rs. 1000 or so and fly to any sector. And, with effective revenue management DN would have recovered the actual amount without any miscommunication. And, it would have attracted quiet a few train passengers too. Secondly, DN mismanaged its pricing. On a sector, where only legacy carriers were operating, DN had no need to offer a rock-bottom fare. If Indian airlines, Air Sahara and Jet Airways, the existing airlines when DN started operations, were offering a fare of say Rs 5000 plus taxes, say a total sum of Rs. 5500, DN did not require to sell its tickets on Rs. 2000 plus taxes, i.e. at a total price of Rs. 2500. Passengers would have travelled with it even if it had offered a total fare of Rs. 4000 or so. It is understandable that one needs to stir the market by offering such low fares but selling entire flight at such low fares effectively meant that at no point of time DN was making enough money to build reserves for future dog-fight like business scene. All legacy carriers, except Sahara, had built up such reserve. This is the practice followed in any business any market. For DN, it was always the question of everyday survival. Perhaps DN failed to anticipate future. It should have. The kind of buzz it had created was an invitation to big brand-equity conscious businessmen/business houses to enter the market. And, precisely this happened. With a small span, Kingfisher - led by flamboyant Mr. Mallaya, Go - led by Mr. Jeh Wadia of Bombay Dyeing, SpiceJet – led by another erstwhile Damania Airway’s management entered the fray. Another reason, in my view, was DN's decision to use larger Boeing aircraft (180 seater). These aircraft have extremely high cost of operations as compared to small propeller aircraft, which DN used to operate for long and it used to get additional benefits for operating smaller aircraft on various airports. Additionally, larger aircraft put additional pressure on revenue management team to carry passengers at whatever possible price market can give. Additionally, with larger aircraft DN was forced to operate on dense routes, where competition was anyway quiet high, facilities were compared with legacy carriers, and performances were under extreme surveillance by media, (which has lately grown into a bunch of uninformed and low IQ people. Sometimes their coverage is of such a quality that pathetic seems to be a compliment. Shall write more about them in some post later). This further pushed DN to copy services offered by legacy carriers. Soon the segmentation travellers was missing in the market.
Anyway, DN we had known all these years, is almost dead. All its symbols are being changed, right from its brand identity – colour scheme & tag line included, to basic operating system, i.e. reservation and check-in system.
In retrospective, demise of DN is regrettable but it has paved the way for other Low Cost Carriers in the Indian domestic market. With DN not there, other LCCs operating in the segment could improve their profitability. And, analyzing DN’s demise, they should reconsider their basic strategies.
The article said that tickets for flights operated by Air Deccan, or DN as it is indicated in Civil Aviation sector, would be soon available for sale through GDSs, i.e. through all traditional air ticket agents. This is an additional cost and is against the philosophy of LCC, especially when the same function can be done by a web-based system, rather web-based systems are more potent in many aspects. Perhaps it was the last nail in the coffin of the most noticeable entrepreneurial enterprise in recent Indian business history. This piece could be taken as the obituary to the DN we have known so far.
The success story, at least in terms of the non-financial objectives set by its founder, Capt. Gopinath, of DN would remain itched in the mind of our generation, i.e. the present generation and in the heart of our parents’ generation. After all, most of us flied for the first time on DN only. The entire civil aviation scenario of India changed in last 4-5 years and DN cannot be denied its contribution in the same. Rather, it led the change. Financial performance are of utmost importance but the strategy dictates it. I often remind myself of the idiom "A person who knows how would also work for the person who knows why".
Being from the civil aviation industry, I am often asked what has gone wrong with DN. And, it’s debatable. Legacy operators, be it old horses like Indian Airlines or Jet Airways or the newer one, Kingfisher, which is the owner of DN now, always maintained that Low Cost model is not viable in India. Various obvious reasons were recounted, i.e. lack of primary infrastructure such as secondary airports, sizes of main airports etc, lack of secondary infrastructure such as penetration of Internet, rudimentary and govt. controlled supplementary systems, govt. policies such as differential pricing structure for usage of the same airport infrastructure, ATF pricing, employment policies etc.
I agree to most of them but do not buy any of these arguments as reasons of failure of DN. I would agree that with all the above reasons, DN could not have matched the fare levels to that offered by LCCs in other part of the world, say Ryan Air or Air Asia. However, on the hindsight, it seems DN tried to do the same. Everything was not lost there but the way DN tried might have contributed to its demise.
In my view, DN died primarily because of its failure to manage its growth. Growth was anyway essential but ineffectively managing the growth seems to have let it down. There is no data to support this but empirical evidences, such as frequent cancellations and delays, not-so-encouraging coverage in media about its services, airport handling, treatment to passengers etc. are there.
However, in my view DN died because of equally important other reasons. Firstly, it joined other airlines in charging fuel surcharge separately from the actual advertised fares. This is the practice followed by all legacy carriers to save on commission to agents, who are paid commission as a percentage (normal commission of 5% to 7% of basic fare only. The same base is used for any other deal), i.e. agents do not get commission or rewards on taxes and surcharges. In my view, accepting this practice led to creation of doubts in the mind of common man. Consider this example, advertisements say fly anywhere at Re 1/-. But the passenger ends up paying more than Rs 2000/- to travel. With this kind of fare one can not expect to attract train passengers. This is a case of miscommunication. DN would have managed to carry passengers at much lower fares, especially on smaller sectors, but adhering to the dictate set by legacy carriers, hampered DN’s competitiveness. Last observed, DN and other legacy carriers were selling almost same fares on smaller sectors, such as Bangalore-Hyderabad. Probably, a communication saying, pay a total amount of Rs. 1000 or so and fly to any sector. And, with effective revenue management DN would have recovered the actual amount without any miscommunication. And, it would have attracted quiet a few train passengers too. Secondly, DN mismanaged its pricing. On a sector, where only legacy carriers were operating, DN had no need to offer a rock-bottom fare. If Indian airlines, Air Sahara and Jet Airways, the existing airlines when DN started operations, were offering a fare of say Rs 5000 plus taxes, say a total sum of Rs. 5500, DN did not require to sell its tickets on Rs. 2000 plus taxes, i.e. at a total price of Rs. 2500. Passengers would have travelled with it even if it had offered a total fare of Rs. 4000 or so. It is understandable that one needs to stir the market by offering such low fares but selling entire flight at such low fares effectively meant that at no point of time DN was making enough money to build reserves for future dog-fight like business scene. All legacy carriers, except Sahara, had built up such reserve. This is the practice followed in any business any market. For DN, it was always the question of everyday survival. Perhaps DN failed to anticipate future. It should have. The kind of buzz it had created was an invitation to big brand-equity conscious businessmen/business houses to enter the market. And, precisely this happened. With a small span, Kingfisher - led by flamboyant Mr. Mallaya, Go - led by Mr. Jeh Wadia of Bombay Dyeing, SpiceJet – led by another erstwhile Damania Airway’s management entered the fray. Another reason, in my view, was DN's decision to use larger Boeing aircraft (180 seater). These aircraft have extremely high cost of operations as compared to small propeller aircraft, which DN used to operate for long and it used to get additional benefits for operating smaller aircraft on various airports. Additionally, larger aircraft put additional pressure on revenue management team to carry passengers at whatever possible price market can give. Additionally, with larger aircraft DN was forced to operate on dense routes, where competition was anyway quiet high, facilities were compared with legacy carriers, and performances were under extreme surveillance by media, (which has lately grown into a bunch of uninformed and low IQ people. Sometimes their coverage is of such a quality that pathetic seems to be a compliment. Shall write more about them in some post later). This further pushed DN to copy services offered by legacy carriers. Soon the segmentation travellers was missing in the market.
Anyway, DN we had known all these years, is almost dead. All its symbols are being changed, right from its brand identity – colour scheme & tag line included, to basic operating system, i.e. reservation and check-in system.
In retrospective, demise of DN is regrettable but it has paved the way for other Low Cost Carriers in the Indian domestic market. With DN not there, other LCCs operating in the segment could improve their profitability. And, analyzing DN’s demise, they should reconsider their basic strategies.
*PS: LCC stands for Low Cost Carriers
