Your views: Topic of the week: The future of Kingfisher Airlines? Tatas should acquire?

Continuing our weekly interactive post where we seek your views, this week we discuss Kingfisher Airlines.

Whether due to his own poor planning and execution, or as some conspiracy theorists will have you believe, there is no doubt, in the case of Kingfisher Airlines, Dr. Vijay Mallya has been systematically pushed against the wall. Kingfisher Airlines is now a weight around the neck, draining money from his cash cow businesses of liquor and beer.

Many brand gurus feel that Kingfisher Airlines will thrive 5~10 years from now, once India's per capita income rises, which will provide the passenger base willing to pay the higher fares a premium brand like Kingfisher can command.

But, in a guest column in the Business Standard, Kishor Ostwal claims

In a systematic effort, he was pushed to the wall and compelled to cut his size, liquidate assets, and now promoted to sell stakes in some of his companies and ventures. F1 and IPL could be clearly hit and the only choice with him now is that of liquor or airlines. In fact in November 2011 Mr Mallya made out a detailed plan of restructuring and fund raising by asset stripping. But before he could implement his plans there were attacks from the all corners like Banks, Government departments, Income Tax departments and even ministry going on record against his industry.

and one can expect Dr. Mallya to sell Kingfisher Airlines very soon.

Mr. Ostwal goes on to claim that potential buyers include the Ambani led Reliance group, or the Tatas. Brushing away the pessimists he says

The big question in the market that remains is, why would one buy the ailing KFA? At Rs 6 nobody thought Mahindra would buy out Satyam and stock went on to cross Rs 100. Companies like Ispat found takers from groups like JSW. This clearly indicates that one has to take risk on sell.

What are your thoughts on the future of Kingfisher Airlines?

• Do you feel Dr. Mallya will keep the airline in small size and continue? Will the size of his debts allow this option?
• Do you feel Dr. Mallya will sell Kingfisher? If so, to whom? An airline? Reliance? Tatas?
• The Tatas are a favourite contender. They have good relations with Singapore Airlines, are one of the most respected brands not just in India but the world, but they also have a reputation of "clean" business. Will this work?
• Let us not forget the recent injection of funds in to the Force India F1 team by Sahara. With much bitterness between Jet Airways and Sahara over the former's forced acquisition of Air Sahara, are the folks at Sahara itching for another crack at Jet?

Share your thoughts via a comment.

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Kingfisher Airlines posts Rs. 469 cr loss in Q2 FY 2012. Pays 22% of revenue as interest and finance charges

Contrary to its claimed cash-starved position, Kingfisher Airlines has actually performed relatively better than its counter-part listed private airlines counter-parts in India.

In a perverse silver lining to the ongoing fiscal crisis at Kingfisher, the airline slid from a net loss of Rs. 263 Cr. in the first quarter of fiscal year 2011~12 (FY12) to a net loss of Rs. 469 Cr. in Q2 FY2012, an increase of 78%.

In comparison, Jet Airways, increased its losses by 354%, and low fare carrier SpiceJet increased its losses 233%.

Highlights of the Q2 results are:

• Quarterly net loss for Q2 FY12 of Rs. 469 Cr., up from a loss of Rs. 231 Cr Q2 FY 2011. The airline claims the savings on interest and other costs were offset by a steep hike in fuel prices and the weakening of the Indian rupee, which negatively impacted 70% of the cost base.
• Operating revenue increased 7% from Q2 FY2011 to Rs. 1,528 Cr,
• EBITDA loss of Rs. 271 Cr, vs. profit of Rs. 55 Cr, in Q2 FY11
• EBITDA margin declined from +3.6% to -16.7%
• EBITDAR loss of Rs. 23 Cr. vs. profit of Rs. 307 Cr, in Q2 FY11
• EBITDAR margin declined from +20.3% to -1.4%

• Number of flights increased to 32,926 up 9% from the same quarter last year
• Capacity measured in ASKs (Available Seat Kilometres) grew 17% to 4,414 million
• Performance measured in RPKs (Revenue Passenger Kilometres) grew 12% to 3,337 million
• Passenger load factors fell 3% to 76%

What is worrying is the massive increase in costs, especially fuel costs, without a comparative increase in revenues. Despite an increase in costs of 11%, average revenue per passenger grew only 2%

• Overall Revenue per ASK (RASK) declined 8% from Q2 FY11 to Rs. 3.69 and passenger RASK declined 7% to Rs. 3.09.
• Overal Cost per ASK (CASK) (calculated on EBITDA cost) increased 11% to Rs. 4.31 while fuel CASK increased by 45% to Rs. 1.85.
• The efforts of the airline to reduce costs, especially interest and finance seem to be bearing fruit with Ex-fuel EBITDA CASK decreasing 6% to Rs. 2.46 from Rs. 2.61 in Q2 FY11.

Interest charges have declined 8% from Rs. 363 Cr. to Rs. 333 Cr., but still remain at toxic levels. Kingfisher Airlines is paying out almost 22% of its operating revenue as interest and finance charges alone. Compare the Rs. 333 Cr. of interest charges to the Rs. 279 Cr. paid by the airline as aircraft lease rentals in Q2 FY12.

Domestic operations saw a 5% increase in revenues this quarter compared to a year ago, and delivered an EBITDA margin of -17% in Q2 FY11 when compared to +10% in Q2 FY11. Fuel costs jumped to 40.7% of operating expenses this quarter, up from 29.5% in the same quarter, a year ago. Non-fuel costs too increased to 68.5% of total revenue from 64% a year ago.

International operations continue to remain a drag on the airline. Poor network planning and an ultra-luxurious cabin product which delivers fewer seats per flight conspire to add to the woes of the Kingfisher. Despite an 11% increase in revenues in Q2 FY12 compared to Q2 FY11, the EBITDA margins increased to -20% in Q2 FY12 from -15% in Q2 FY11. RASK increased 8% compared to 12% increase in CASK.

Strategic investor

During press interviews the Chairman and Managing Director, Dr. Vijay Mallya disclosed that Kingfisher Airlines is in discussions with an Indian strategic investor. Speculation is rife whether the investor is one of India's largest and most trusted business houses the Tatas, or the Sahara group which sold Air Sahara to Jet Airways and recently invested $100 million in to Dr. Mallya's Force India Formula 1 team.

Airbus A380 deliveries deferred, again.
Kingfisher has a pending order on Airbus S.A.S. for five A380 superjumbos. In the same briefing, Dr. Mallya announced that the airline's plans on this order have been deferred for at least five years for now. This is the third time the airline has deferred delivery of its order.

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AirAsia unveils Airbus A320 in Formula 1 team Lotus livery

On the eve of the Singapore F1 grand prix, Tony Fernandes promoted Malaysian low cost carrier AirAsia unveiled a re-painted Airbus A320-216 from its fleet in the livery of Formula 1 Team Lotus of which Dr. Fernandes is also the principal.

Click on the image for a high-resolution view.

The aircraft registration 9M-AFY has been flying since early August, and one can only wonder why it took the consummate marketer, Dr. Fernandes so long to cross leverage his two interests, but then better late than never.

Additional pictures can be found here and here.

May be Dr. Vijay Mallya should consider a similar cross-branding exercise by painting some of his Kingfisher Airlines aircraft in the livery of his Formula One team, Force India.

Picture courtesy AirAsia.

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