The Telegraph
Since 1st March, 1999
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Air Deccan says bye to dirt-cheap fares

Mumbai, June 1: Air Deccan — the low-cost carrier — will be raising its fares marginally and the good old days when you could snap up absurdly low-priced tickets on the Net could well be over.

Vijay Mallya’s entry as an investor in Air Deccan will spell the end of kinky pricing in the skies.

A day after United Breweries Holdings picked up a 26 per cent stake in Deccan Aviation, Mallya told reporters that his group had no plans to “exploit the consumer” and that the objective would still be to provide value for money, but they would not sell tickets at prices that are lower than costs.

Back in April and early May, Air Deccan had offered customers 7 lakh free tickets for travel between July and October this year. The fate of those offers are not known but it is clear that there won’t be any more of them in future.

Gopinath, who was also present at the press conference, said the low cost model would remain but “I am not running an NGO.”

Officials of the two airlines refused to say how much ticket prices would go up by but the increase is being reckoned at Rs 500 per ticket.

The alliance between Mallya’s Kingfisher Airline and Gopinath’s Air Deccan will create the largest airline in the country. “When I launched Kingfisher Airline, I had said I would create the country’s largest carrier by 2010. Without sounding immodest, I can say that I did it in two,” Mallya said.

Air Deccan honcho G.R. Gopinath was less ebullient and more pragmatic: “You can only have a robust airline if you are in profit,” he said. With a Rs 340-crore loss in 2005-06 and staring down the barrel of a gun with losses of Rs 244 crore in the nine months ended March 31 this year, Gopinath said the alliance with Kingfisher was the best possible deal though he admitted that he and Mallya were “skating on thin ice” till the time they closed the deal.

Mallya and Gopinath said the alliance would improve the financial prospects of both airlines with the synergy benefit estimated at Rs 300 crore in the first full year of operations after the deal.

Senior officials of the UB Group later told The Telegraph that this would come on account of two factors: cost savings arising from the alliance and an increase in revenues (read a jump in ticket prices).

United Breweries Holdings, which is the UB group’s main investment company, will pick up a 26 per cent of Deccan Aviation by subscribing to preference shares issued by the latter. Its subsidiary has already invested Rs 150 crore in Deccan Aviation and further investments of Rs 396 crore will be made before the end of this month.

Mallya said the alliance would straddle all the price points in the aviation sector with Kingfisher continuing to serve the corporate and business travel segment while Air Deccan would focus on serving the low fare segment.

The UB group chief was confident that the combine would start flights to overseas destinations next year unless the cabinet modifies the the five-year eligibility rule sooner — a possibility that has hoved into sight because a proposal on the issue is now before it. At present, Jet Airways and Air Sahara are the only two private airlines that have the right to fly abroad.

If the cabinet demurs on the relaxation, Air Deccan will meet the eligibility criteria next year. Mallya, who entered the airline business just two years ago, hopes to take advantage of that. “There’s no way that my planes are going to be sitting on the ground,” he said.

Ravi Nedungadi, president and chief financial officer of the UB Group, who was one of the key architects of the deal, later said UB Holdings was not averse to the possibility of roping in other investors into Air Deccan. He, however, pointed out that this was only an option and that no decision had been taken.

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