Life seems to have come a full circle for Kingfisher Airlines. In 2006 it had decided to launch Kingfisher First, the business-class segment of Kingfisher Airlines brand. At that time its chairman, Mr Vijay Mallya, had told Business Line: “Our economy is growing.
The propensity and willingness to spend is there. When we launched the airline, we were clear that we were not targeting the Rs 400-Rs 500 category of passengers. There is a discerning class that is willing to pay for service.” But in the same year he acquired Air Deccan and renamed it Kingfisher Red to provide low-priced air travel. Now he has announced that he is getting out of the low-end business.
The move comes when the company is recasting its debt. Loans in excess of Rs 1,300 crore and funds from promoters of approximately Rs 745 crore have been converted into share capital.
The interest rate on the recast loans has been lowered to 11 per cent and the repayment period extended to nine years.
Better performance
During the most recent quarter ended June 2011, Kingfisher delivered a better financial performance than other listed Indian carriers.
On domestic operations, it reported an EBITDAR (Earnings before Interest, Depreciation, Amortisation, and Rentals) margin of 15.4 per cent which compares very favourably with 6.4 per cent and 7.2 per cent reported by others .
Moreover, analysts say the Indian market is big enough to support both low-cost and full-service carriers. Only 2 per cent of Indians fly. So there is a market that is expanding and is waiting to be tapped (see Table).
Unlike Jet Airways, which gives a break-up of how many passengers it flies on the full-service Jet Airways and how many on its low-cost arm JetLite, Kingfisher only gives consolidated figures for Kingfisher Airlines and Kingfisher Red together. This makes it difficult to figure out which of the two segments is doing badly.
Hard decisions
Analysts estimate that, currently, about 70 per cent of Kingfisher's domestic operations are on Kingfisher Red. So, if this is being shut down, one can only guess the losses that it must be incurring.
Analysts say the airline is trying to send out the message that it is willing to take hard decisions and focus on its niche of being a full-service airline.
“The low-cost segment is a growing segment but does everyone have the focus and capability to run and sustain a low-cost operation?” asks Executive Director, Pricewaterhouse Coopers Pvt. Ltd., Mr Dheeraj Mathur.
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