The newest investor in Indiaâ€™s largest budget airline isnâ€™t willing to let the business keep losing money. Prices will go up eventually, he says.
The comment was made at a press conference in Mumbai on Friday by Vijay Mally, chairman of United Breweries Group, who has plenty of experience running major domestic carrier Kingfisher Airlines. UB acquired a 26 percent stake in the parent company of Indiaâ€™s Air Deccan on June 1.
We will no longer sell tickets at a loss. But that does not mean there will be any immediate fare hike, Mallya said in a joint appearance with Air Deccan chief Capitan G.R. Gopinath in Mumbai. It may not happen immediately...but we are in business to make profits.
We will be covering every price point from premium to low-cost fares with this alliance, Mallya said.
For the near future, Kingfisher will continue to serve the corporate and business travel segment, while Air Deccan will focus on serving the low fare segment but with improved financial prospects for both carriers, he said.
Consumers will continue to get a good deal but not at the loss to the service provider, he added.
Gopinath, Air Deccan's managing director has also hinted at costlier air travel, saying that â€œbecause of greater efficiency, we will be able to price our tickets higher.â€
In the past few years, cut-throat competition and unprecedented growth in budget air carriers have led to under pricing of tickets which in turn has led to losses across the board in Indian aviation.
But consolidation in the aviation sector will mean less competition and stable fares, Mallya has indicated.
Kingfisher Airlines and Air Deccan parent Deccan Aviation will save Rs. 300 crore (US $74.6 million) in the first full year of operation by working together, Mallya said.
Both the airline companies will compliment each other's synergy for the development of both the companies and both the companies will be able to compliment each other, he said, adding that the savings would come from a common sharing of engineering services, spares, employees, pilots, other crew, and ground-handling facilities.
The pair of airlines will have synergy in the areas of operations and maintenance, ground handling, vastly increased connectivity, feeder services, distribution penetration and more, he said.
We can reduce cost of both significantly, Mallya continued.
We will first exploit all the synergies and then we will jointly visualize the future, he said, adding he planned it to be the most profitable airline group in the country.
He said that United Breweries would offer to buy at least an additional 20 percent stake in Air Deccan, but ruled out the possibility of taking a 100 percent share.
UB Group has already initiated talks with financial institutions to fund the purchase.
Mallya said Ramki Sundaram would be the CEO of Air Deccan, while Gopinath would be Executive Chairman. Mallya himself would be the Vice-Chairman.
The Board will comprise 12 directors, with three directors nominated by the UB Group, three from original promoters and institutional shareholders and the remaining six will be independent.
To a question about frequent delays in Air Deccan flights, Mallya said:
No one has ever heard of Kingfisher flights being delayed and with this acquisition, the situation will only improve.
With the acquisition, in the event of cancellation of flights, passengers will be accommodated in the aircraft of either airline without any increase in fares, Mallya said.
Meanwhile, UB Group is all set to place an order for at least five wide-bodied Airbus aircraft at an estimated value of $1 billion for its international operations.
Kingfisher has already placed orders for five A380s, with an option for five more.
Besides five A380s, Kingfisher had placed orders for various other medium capacity planes, including five A350-800s, five A340-500s and five A330s. The wide-bodied planes can be used for both long-haul international flights and short domestic flights.
Post-Air Deccan acquisition, Kingfisher Airlines was planning to position itself as an international carrier. However the Ministry of Civil Aviation must still approve Kingfisherâ€™s bid to launch international services.
Currently, the international operations permit is restricted to airlines that have completed five years of operations. Air Deccan will complete five years in operation next year.