Mounting losses and aggressive competition have forced India’s Kingfisher Airlines to abandon its low-fare business model and focus instead on serving the premium, business class passengers across the world.
Kingfisher Airlines has decided to do away with its low-cost carrier, Kingfisher Red, and focus on its premium segment. Debt-strapped, Kingfisher plans to shut down the budget carrier in four months.
Vijay Mallya, the airline group’s chairman, said on Wednesday that several measures have been initiated to tackle the financial problems caused by high interest burden and rapidly increasing fuel costs. The announcement has left the competitors and analysts cross-eyed as low-cost air travel is supposed to be currently the hottest thing in Indian aviation sector.
“We are doing away with Kingfisher Red because we do not intend to compete in the low-cost segment,” Mr Mallya was quoted as stating by reporters on the sidelines of the airline’s shareholder meeting.
“We believe that there are more than enough guests who prefer to travel the full service Kingfisher class and that shows through in our own performance where load factors in the Kingfisher class are more than Kingfisher Red,” he continued.
The ‘doing away’ is surely not a good news for Indian travellers who seek cheap air tickets on flights. Even international travellers on Indian holidays who hope to land up with cheap flight tickets while travelling within India will be left with limited choices.
Kingfisher first burst onto the Indian aviation scene in the year 2005 as a full-service airline. In 2008, the airline made an entry into the low-cost segment when it bought out Air Deccan – India’s first budget airline. The move resulted in Kingfisher Airlines being publicly listed as well as offering cheap flight tickets to budget travellers.
“Clearly the margins of Kingfisher Class are better than Kingfisher Red as the yields are better”, Vijay Mallya said, adding that reconfiguration of aircraft has already begun and should be concluded over the next four months.
The company later issued a statement that asserted that the airline is undertaking cabin reconfiguration “which will add significant number of seats and, hence, generate additional revenue at minimal cost.”
“All of Kingfisher’s Airbus aircraft will have a first class with incremental seats in economy. At this time Kingfisher will be dropping the Kingfisher Red class of service. This effort will be concluded in the next four months,” the statement read.
Cash-Strapped
Kingfisher has never made profit since its inception and now the firm believes that it needs extra cash as the airline struggles to survive in a challenging market. The airline intended to raise $250-$350 million through an issue of global depositary receipts but did not follow through on the plan. Kingfisher also tried to attract private equity investment but it also didn’t work out.
“Kingfisher continues to work with the consortium of banks to further reduce the interest cost. Some of the proposed initiatives include sale and lease-back of some of its aircraft and other assets to reduce loans and converting part of its rupee loans into low-cost forex loans,” Mallya was quoted by different news portals.
Deviation from the Market Trend
Indian aviation is a fast growing market with firms like Boeing and Airbus inundated with orders worth $50 billion for the Indian carriers. The growing economy of the country is likely to spruce up the business travel among the executive class, while the middle class is set to expand the business of low-cost carriers.
Kingfisher’s strategy seems to be completely opposite to that of Jet Airways, country’s market leader in terms of passenger carried. Last month, Jet Airways announced its plans to increase the proportion of its low-fare flights, from 72% to 85-95% in the next five years. It is reported that three out of every four tickets sold by the Jet Airways is in the low-cost flight segment.
