Equity research report on Damania Airways Limited and Thomas cook (I) Limited

Abstract

Damania Airways Limited was promoted by the Damanias who were in the poultry/livestock business in 1993. The company came out with a public issue in Sept. 1993 with the intention of operating air taxi services with three dry leased Boeing aircraft. The company achieved a passenger load factor (PLF}) of 78% against a projected PLF of 65% but turned in net profits of only Rs.2.11 Cr. 44% lower than the projected Rs. 3.77 Cr. This clearly indicates that the breakeven PLF was not determined properly as was the case most other airline companies. The airline industry is capital intensive in that it involves investments in maintenance, engineering, spares and training of personnel like pilots etc. Apart from this the companies have to invest heavily in the working capital as the operating costs are very high. The losses if the company operates below the breakeven PLF is very high as are the profits if the company operates above breakeven PLF. The current PLFs achieved by almost all the companies(private airlines) in the industry is around 80% which is high by @lobal standards. So there is not much scope for increase in PLFs (It can at most be increased by a few points). The fares on almost all the sectors are similar for all the airlines as every company follows the leader (IA). The longstanding demand of IA that fares should be hiked to compensate for the hike in input prices is likely to be accepted by the Govt. in the near future. The other source for increasing profits is cutting costs. Again the ATF prices are dependent on Govt. policies and at present Aviation Turbine Fuel CATE) constitute around 40 % of operating costs. The other major costs are the Administrative, selling and ticketing expenses. On this front, DAL’s strategic alliance with NEPC will help reduce costs as their ticketing and sales offices will be combined. Moreover DAL is presently paying US $ 170,000 per month per aircraft as lease rentals which according to industry reports are around 5% higher than for other companies. This will also come down when the lease contracts are renegotiated.