Chairman Vijay Mallya grounds low-cost carrier Kingfisher Red

Kingfisher Airlines today said it will stop operations of its low cost airlines Kingfisher Red. Announcing this decision, Chairman Vijay Mallya said, "We don’t believe in low cost operations anymore.”

Mr Mallya had started Kingfisher Red after buying out Deccan Airlines. Kingfisher has a market share of nearly 20 per cent.

Analysts said this was a strange move because 70 per cent of the company's business came from its low cost division. Kingfisher's stocks rose after the announcement but ended the day 1.2 per cent lower.

The cash strapped airline has never reported profits since its launch. In the last quarter, the airline had reported losses of Rs. 263.54 crore against losses of Rs. 187 crore in the corresponding quarter of last year.

Meanwhile, Mr Mallya also outlined plans to reduce debt and raise capital. The company has huge debt levels, which currently stand at Rs. 6,000 crore. He said the airline was working with a consortium of banks to further reduce interest costs and raise working capital.

Singling out high crude prices, especially aviation turbine fuel (ATF), Mr Mallya said, "The high cost of ATF coupled with a weakening rupee is the biggest challenge that the whole aviation industry in India is currently dealing with and we are no exception."

Earlier, the company's auditors had said that the airlines will need to infuse more funds if its wants to stay afloat. Noting that the net worth of the airlines has been "completely eroded", Kingfisher's auditor BK Ramadhyani & Co said it would need fresh funds to meet its obligations.

In August, Kingfisher Airlines had informed the Bombay Stock Exchange that its board has approved raising of Rs. 2,000 crore through a rights issue.

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