KINGFISHER: THE KING OF GOOD TIMES IN BAD TIMES1 The Indian Aviation sector has perhaps never seen

such a bad quarter, with Air India the national carrier in the red, Spicejet, Jet Airways and Kingfisher posting losses in the last two quarters. In the September quarter, SpiceJet, Kingfisher Airlines, Jet Airways and JetLite posted a combined loss of Rs. 1,522.52 crore. Jet Airways topped the list with a loss of Rs. 713.6 crore, followed by Kingfisher Airlines (Rs. 468.66 crore), SpiceJet (Rs. 240.06 crore) and JetLite (Rs. 100.2 crore). Figure 1 below is an indication of how the scenario stakes up in the toughest sector to survive. Chetan Bhagat in a recent Sunday Times Column refers to the sector as “sexy and glamorous” to enter for any entreprenuer. However, ones the glamour wears off there is more muck and less glamour.

Figure 1

Rising fuel taxes (perhaps the highest in the world), higher wage rates, airport charges all add upto the cost, which is not for the faint hearted. Table 1 below is an indication of the same. Table 1: Full Service Airlines Pays for… Fuel 45-50 % Employee wages 12-14 % Aircraft rentals 12-14 % Maintenance 9-10 %

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Written by Dr. Pinaki Dasgupta, IIFT

DGCA estimates have shown 18% rise in airtraffic as compared to last year (2010).5% more fuel than a more leaner Indigo aircraft. Formula 1. 50 flights cancellation per day. As operating cost goes up. However. airports like Delhi and Hyderabad refusing landing to the aircrafts unless cash is being paid as airport charges. The Bankers have been insisting on selling some of the stakes he has in IPL. They all add up to the high operating cost. On the back of the Air India problem. fliers have been coming. which anyway is reeling with high fuel cost and surcharge. The silver lining being the air traffic has gone up and inspite of airlines company going through the pangs. it is not a very rosy scenario for the man who redefined business and pleasure. Rahul Bajaj has gone to the point of even citing that private sector never shares its profit when in good days. looks like Mallya has his hands full. There have also been rumours of government providing a bail out. which will bound to come from the spirits and beer division. but for now India seems to be on a tenterhooks. But there are evidences of successful bailouts in the West with Ford and General Motors! Kingfisher has also been pitched at the higher end of the full service class airlines. At the airport it has plush lounges for business and first class travelers. looks like Mallya has his hands full.Selling/distribution Airport/navigation charges Source: TOI-Crest 7-8 % 8-9 % Amongst the hardest hit is Kingfisher Airlines with a combined debt burden of `8544 crores. Mallya’s liquor business which operates in a more mature business has more often been milked for cash and this time around the bankers are seeming not to budge and are asking for bank guarantees. the total debt of the company amounting to `17.000 crores. Mallya of all things does not have time on his side. to which the industry has sneered and has not gone well with his peer group. Gradually it has started affecting the topline sales too. . the bankers are running out of patience and with the increasing the duty structure of the Aviation Fuel. real estate and entertainment business. The acquisition of Air Deccan in 2007 did not really help the company except for additional cost. the Kingfisher problem has perhaps put the Indian Aviation sector in a quandary. which makes the cost of running the airlines high. The West has perhaps seen the business cycle with the Pan Am closure or Continental Airlines comeback. In a business where you lose crores everyday due to operational issues. The aircrafts have satellite fitted in the fuselage for live TV programmes (for in-flight entertainment) which makes the Kingfisher aircrafts heavier and it consumes about 1. the company does not find it profitable to run it aircrafts and this has been leading to frequent flight cancellations.

Implementation mechanism for the business and marketing plan 11. Issue of LCC in the form of Kingfisher Red 6.The success of Indigo and the LCC (Low cost carrier) tag has shown one of the few success stories in the sector and perhaps a lesson in running an airlines profitably. Debt Management Issues (both Long Term and Short Term) 7. The operating cost including other heads 5. India has the highest fuel cost) fuel cost plus duty structure will continue to linger and options of fuel hedging 3. A lot of foreign airlines in their domestic sector charge for everything additional beyond the seat cost. For blankets. extended menu. Constraints like high (perhaps. Marketing Plan for the possible turnaround proposed 10. Working Capital Management 8. particularly Kingfisher start introspecting on a leaner and meaner way to fly. pillows. Time lines for the implementation mechanism ***************** . online itinerary. extra space seats or even for online surfing of porn! Our travelers are perhaps still used to the freebies and its time airlines. Develop a complete Business Plan for Kingfisher Airlines turnaround including the following: 1. Alliances like Star Alliance 4. Turnaround strategy for Kingfisher Airlines including strategies for both topline and bottomline driven approaches 2. Management of bankers and financial institutions in the long and short run 9.

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