Ramki Sundaram's time in the chief executive chair may be coming to an end but he doesn't seem too worried about it.
Sundaram took over as chief executive of Indian low-cost carrier Deccan last May and will be stepping down when Deccan completes its planned merger with sister full-service carrier Kingfisher Airlines. The merger, expected to be completed over the next couple of months, will create one carrier with separate low-cost and full-service brands under a single air operators' certificate. It will also create one management team led by Vijay Mallya, the flamboyant chief executive and founder of Kingfisher Airlines who will be chairman and chief executive of the new entity. Sundaram says he hopes to stay on and be part of the new management team, pointing out that his promotion to chief executive one year ago "was driven by circumstances more than anything else".
Sundaram initially joined Bangalore-based Deccan in February 2007 as chief financial officer. He previously worked in London for South African banking group Investec and his knowledge of the airline industry was limited to his dealings in aircraft financing while at Investec. "I'm not from the industry as such so it was a steep learning curve," Sundaram says.
However, he had to learn the ins and outs of the industry quickly, in particular the peculiarities of the intensely competitive and dynamic Indian low-cost market. Less than four months after moving to Bangalore, a 26% stake in Deccan was sold to Kingfisher parent the UB Group. As part of the deal Deccan founder and chief executive G R Gopinath relinquished the chief executive role, although he remained chairman of Deccan's parent and will be vice-chairman of the new merged entity, and Sundaraman all of a sudden found himself in the chief executive seat.
Sundaram has since overseen an aggressive restructuring of Deccan's network and fare structure. A new focus on revenue management was introduced with some of the lowest fare buckets turned off completely. Unprofitable routes have been dropped or handed to Kingfisher. As the UB Group increases its stake in Deccan to nearly 50%, Deccan started focusing more on leisure routes, leaving Kingfisher to routes with more business traffic. "Consolidation provided an opportunity for more rational fares," Sundaram says.
He adds Deccan's yields over the last several months have improved dramatically but losses have continued to pile up at the same rate of roughly $15 million to $20 million per month. Deccan incurred $200 million in losses during calendar 2007 and for the first three months of 2008 incurred another $50 million loss. "Revenues are up but over the same period oil prices have shot up so it's a zero sum game," Sundaram says.
But Sundaram is confident in the future. He sees the two major roadblocks to profitability in the Indian low-cost sector - high state taxes on aviation fuel and capacity problems at major airports - being lifted over the next couple of years. He also sees a booming market with seemingly never ending demand.
"There is still huge scope for market demand," he says. "There is still room for growth. When you look at the long term the fundamentals are good. The Indian middle class is still 200 million odd and the economy is still growing at 10%."
Deccan, which became India's first low-cost carrier when it launched in 2003, now has a 15% share of India's domestic market with Kingfisher having another 15%. Sundaram is confident the new combined entity can maintain this 30% share, which puts its "neck and neck" with rival full service carrier Jet Airways and its low-cost unit Jetlite. Jet now has a 23% share of the domestic market with Jetlite, created early last year after Jet acquired Air Sahara, with another 7%.
But Sundaram says Deccan's previous strategy of "getting as much market share as possible" has been dropped and the carrier is now focused on only operating profitable routes. "Our focus is to get to profitability soonest," he says.
He adds Deccan and Kingfisher are now working on a new long-term fleet plan for the merged entity which will slow down expansion to a more rational level. Deccan now operates 23 A320s and 18 ATR turboprops. Kingfisher operates a similar number of A320s and ATRs and both carriers combined have well over 100 more aircraft on order. Sundaram will not reveal what the new fleet plan will entail, saying it is still being finalised, but the pace of deliveries will definitely be slowed. "We've looked at it closely and worked out the number that makes sense," he says.
He adds the two carriers are also now working at identifying new "synergy benefits". Deccan is also looking forward to the opening later this month of a new airport in Bangalore. The airport was originally scheduled to open in March and Sundaram says the delay forced the carrier to postpone a slate of new flights. "We're hoping to have more flights at Bangalore because we are so strong in the southern region," he says.
He describes the old Bangalore airport as "choc-a-bloc". A lack of slots at Bangalore and India's two largest metros, Delhi and Mumbai, has prevented all of India's low-cost carriers from expanding in the county's biggest markets. Sundaram says as a result it is challenging to find places to put new aircraft but eventually all the infrastructure bottlenecks will be lifted and India's carriers can increase capacity to meet the booming demand. "It will take time for airports, especially Mumbai and Delhi, to sort themselves," Sundaram says.