Companies & Sectors
Facing mounting debt, Mallya scraps Kingfisher Airlines’ low-cost operations

Kingfisher Red gets the boot, Vijay Mallya says that the debt-plagued airline was exiting its low-cost operations because of "intense competition" and insists that the carrier has "several initiatives" in its kitty

Vijay Mallya, chairman of private airline Kingfisher Airlines, announced at the company's annual general meeting (AGM) today that the company was exiting its low-cost operations-Kingfisher Red—and would concentrate on its full-fledged service. Kingfisher has decided to quit the low-cost service due to "intense competition", according to Mr Mallya.

"We have several initiatives. We are doing away with Kingfisher Red because we don't intend to compete in the low-cost segment," Mallya told reporters at Bengaluru after the company's AGM.

During the quarter ended June 2011, Kingfisher reported an EBITDAR (Earnings before Interest, Depreciation, Amortisation and Rentals) margin of 15.4%, which compares favourably with figures like 6.4% and 7.2% reported by other airlines.

But debt remains a huge drag on the airline.

"Kingfisher implemented a debt-recast package during the year under review, pursuant to which loans from bankers in excess of Rs1,300 crore and funds from promoters of approximately Rs745 crore were converted into share capital," said Mr Mallya.

"Further, the interest rate on the recast loans was lowered to 11% and the period of repayment was extended to 9 years. Kingfisher continues to work with the consortium of banks with a view to further reduce the interest cost," Mr Mallya informed the company's shareholders.

The axe had to fall on the low-cost operations. "We believe there are more than enough guests who prefer to travel the full-service Kingfisher Class, and that shows through in our own performance where the load factors in Kingfisher Class are more than in Kingfisher Red," he said.

Some of the proposed initiatives taken by the airline 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 based on existing forex cash flows.

The Indian aviation industry is burdened with the high cost of ATF (aviation turbine fuel) coupled with a weakening rupee, he said. "As far as dues to the oil companies and airports are concerned, Kingfisher is complying with the agreed payment arrangements," he added.

Clarifying about some statements made by the company's auditor earlier this month that its net worth has eroded, Mr Mallya said, "The airline continues to work aggressively to raise fresh capital."

Post the debt-recast exercise which was implemented in December 2010, long-term funds amounting to over Rs500 crore have been infused into Kingfisher.

But it will not be easy going for the airline. Yesterday, 27th September, 13 flights of Kingfisher Airlines were cancelled due to "scheduled maintenance."

"Some flights have been cancelled due to scheduled maintenance and this is planned in advance," the airline had said in a statement. On speculation that the cancellation was due to non-payment of fuel dues to oil marketing companies, the airline had said, "There is absolutely no issue with fuel dues. We are in full compliance with the payments terms with oil companies as mutually agreed from time to time."

The flights that were cancelled yesterday include Chennai-Port Blair, Chennai-Rajahmundry, Chennai-Tiruchi, Chennai-Salem, Chennai-Coimbatore, Chennai-Visakhapatnam and Chennai-Madurai, airport sources had said, according to reports.

Private carriers have also been battered in domestic markets. Shares had tanked as much as 8% on the BSE (Bombay Stock Exchange) in September as a weak rupee put pressure on their operating margins. Concerns over the EU debt crisis and a weak economic recovery are also not helping, either.

The movement of the rupee impacts operational expenses of aviation companies as payments for leasing or purchase of aircraft, fuel purchased abroad and spares are generally made in dollars. Treasury managers have said that unless there is stability in the euro-zone, the rupee may touch the sensitive Rs52 a dollar mark in the medium-term, if it does not breach this level. Analysts had also warned that aviation stocks could see further selling pressure in the coming weeks.



Vinay Isloorkar

5 years ago


Kudos to Mr Mallya for a " head over shoulder" decision to move away from the "top line trap". Exide should learn something from this. Their focus on low margin institutional sales at the cost of the profitable after market has eroded their bottom line.


5 years ago

We have booked 2 tickets by Kingfisher Red for 25/12/2011(Mumbai/Kochi) and return on 30/12/2011(i.e.Kochi/Mumbai) by the same Airlines.Can anybody clarify what will happen to our travel?Will the flights be now cancelled?



In Reply to Sundaram 5 years ago

Dear Sundaram,
Hope Santa M.Singh hands over some crores as Xmas gift to the 'King' who is 'fishing' for freebies that case, enjoy your flight...else, sorry for your plight! Wish you abundant good need it & more...


In Reply to pinoo 5 years ago

Thanks,Pinoo,for your good wishes!I checked with Kingfisher personnel and they inform me that though my flights have been already taken off the list,I would be accomodated in an alternate flight which departs 20 minutes later and is in service.I'm keeping my fingers crossed and praying!!!!

a v moorthi

5 years ago

routes cancelled as seen above is that majority of them involves travel of 6-8 hours by train ( 350 - 450 KMs). in such routes air tickets of even low cost airlines will be about 3-4 times of II AC fare by train and so load factor will be less than 50% most of the time. it is only in routes beyond 1000 Km the low cost airlines by just charging double the fare of II AC could have 90% load factor (i.e0 why routes like Delhi - Hyderabad, Cochin, Bangalore are always full in low cost airlines.


5 years ago

This was expected , Low cost & Mallaya dont gel together. This acquisition was solely to kill competition.

SEBI grants approval to BSE SME Exchange

SME Exchange platform will provide new investment avenues for market participants and investors

The Securities and Exchange Board of India (SEBI) has accorded approval to the proposed SME Exchange by BSE Ltd. Small and medium enterprises (SMEs) have complained of difficulty in accessing both debt and equity capital. While the government has taken several measures to ease access to credit, giving them easier access to equity is the next step in that process.

SME Exchanges like AIM (London), Canada (TSXV), Hong Kong (GEM), Japan (Mothers), Korea (KOSDAQ) and US (NASDAQ) were studied in detail to understand their salient features. Learnings from the OTCEI, the capital market realities, and difficulties faced by SMEs have been taken into account while formulating the BSE SME Exchange in the Indian context.

Past few months, BSE SME Exchange has conducted several seminars for educating the SMEs on the benefits of listing and the preparations required for listing on the BSE SME Platform across India. BSE SME has tied up with channel partners who include various institutions engaged in the development of SMEs. More seminars are lined up to cover all parts of the country in this year. Additionally, BSE SME has planned for sectoral seminars for auto ancillaries, infrastructure, pharmaceuticals, manufacturing, agro based industries, suppliers to OEMS etc. BSE SME is also planning to take SME cluster approach in the development of SME segment.


Tata Motors to decide after studying Singur judgment

Tata Motors to study the judgement before taking action

"Tata Motors has learnt of the Hon'ble Calcutta High Court's ruling on The Singur Land Rehabilitation & Development Act 2011. The company will study the judgment and decide its next course of action." This was the statement issued by Tata Motors after the judgement.

The Calcutta High Court order had upheld the Singur Land Rehabilitation and Development Act. This was the verdict of Justice Indra Prasanna Mukherjee rejecting the Tata Motors' plea challenging the legislation.

In the late afternoon, Tata Motors was trading at around Rs156.40 per share on the Bombay Stock Exchange, 0.45% up from the previous close.


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