NEW DELHI: Kingfisher Airlines today justified its plans to close down its low-cost carrier in four months saying the operating costs involved were the same as in a full-service carrier and the revenues lesser.
Maintaining that there was more competition in the no- frill segment than the full-service segment in India, Kingfisher CEO Sanjay Aggarwal said the decision would help the airline company generate additional revenue after its exit from the low-cost service, where competition was more intense and a price war could hit the margins.
Seeking to quell concerns emanating from the decision to shut down low-cost airline Kingfisher Red, he said the move would rather generate incremental revenue for the company.
Kingisher's shares were battered sharply soon after its chairman and key promoter Vijay Mallya last week announced the plan to exit from the low-cost segment.
It's shares fell by over 20 per cent in three days, but the company was seen trading higher by 1.5 per cent at Rs 20.40 today in afternoon trade at the BSE. It had fallen to a 52-week low of Rs 18.85 on September 30.
Aggarwal said the operating costs of the "so-called low cost carriers" were similar on fuel, airport charges and other costs and any additional expenses incurred by the full-service carriers were "more than recovered through higher yields".
He maintained that the decision was taken after a detailed study over the last six months during the high oil price regime which found that Kingfisher's full service product had generated higher yields and load factors.
The study found that of the incremental yield, only 25 per cent is spent on providing the extra services associated with a full service carrier and the remaining was the "net contribution to the bottom line."
Kingfisher had entered the low-cost segment through its acquisition of Air Deccan, the country's first no-frills airline, which it later rebranded as Kingfisher Red.
The Kingfisher CEO further said that the airline considers business-related travel to be increasing significantly with sustained economic growth and such travellers prefer to fly with "full service carriers because of ease of buying tickets, frequent flyer program and convenience offered".
"They are willing to pay extra and this segment is not as price sensitive as the classic low cost/low fare segment where there is a lot of discretionary travel involved," he added.
Elaborating on the closure of Kingfisher Red brand, Aggarwal said the single-cabin no-frill airline meant that "Kingfisher does not offer its premium Business Class or full service economy class product on all its routes. As a result Kingfisher is losing a certain amount of business class traffic on many routes."
He said the airline would achieve incremental business- class revenue as a result of wider and uniform availability and it will also generate incremental revenue through higher number of full-service economy seats.
The airline chief also made it clear that there would be no reduction in Kingfisher's fleet size or its network of connectivity to 60 domestic and eight international destinations.
"Kingfisher's integration into the 'oneworld Alliance' is on track. 'oneworld' is supportive of Kingfisher's move to focus its energy and resources on a full service and premium product which is in line with the philosophy of 'oneworld' and its member airlines," he said.
No comments:
Post a Comment