Business Analysis of Air Deccan

1. Introduction

The Indian aviation industry has always been highly regulated by the government. In the early nineties, the government initiated measures to deregulate and privatize the aviation industry. In 1994, the Air Corporation Act of 1953 was repealed, which allowed the private carriers to provide scheduled services. In 2003, Air Deccan commenced operation as a low-cost domestic carrier. Air Deccan flew one million passengers in its first year of operation, and three million passengers in 2005. Air Deccan was on target to fly about eight million passengers in 2006.

The carrier’s strategies were aimed at generating additional revenues and reducing cost. The airline also followed a ‘lean-and-mean’ staffing model, aimed at maintaining a low aircraft-to-employee ratio thereby reducing costs. Air Deccan’s distribution initiatives were instrumental in saving costs as distribution costs are one of the key controllable expenditures in an airline’s cost structure. Air Deccan planned other processes such as aircraft selection, flight scheduling, ground handling and route selection to increase utilization rate and the company was successful in achieving the rate at 10.44 hours. However by September 2005 it was fallen to 9.19 hours due to addition of new aircraft.

IT initiative helped the airline to reduce its distribution costs by almost 20%. The CRS deployed by Air Deccan enabled the airline to connect different geographies, increase cash flow via pre-payments, reduce collection and administrative costs, optimize booking levels and sell tickets 24×7.

Air Deccan was able to capture a market share of 19% as of January 2006. In spite of such a growth, Air Deccan got greater challenges to face in future. The challenges were mainly due to highly regulated aviation industry by government. The route dispersal guidelines set by the government. These carriers have to operate a minimum number of flights to unprofitable rural and smaller urban destinations. Lack of...