United Breweries Group chairman Vijay Mallya launched Kingfisher Airlines in 2005. (Photo: Neelam Mathews)
August 19, 2013, 12:45 PM
The death knell for India’s Kingfisher Airlines sounded as lender banks took possession of the airline’s 25,850-sq-ft headquarters property in Mumbai on August 10. Carrying some $1 billion in outstanding debt, liquor tsar Vijay Mallya and his United Breweries Group have seen wholly owned Kingfisher accumulate $2.6 billion in losses since its launch in 2005. Most recently, it registered a loss of $188 million for the quarter running from April to June. Once again it collected no revenue due to its grounding on October 1 of last year. It still technically employs some 2,000 people, none of whom it has paid for the past 10 months, and retains a fleet of 15 airplanes out its former complement of 66, including three self-owned ATR turboprops.
Kingfisher’s exit reflects the fragility of India’s aviation business as a whole. The sector registered disappointing financial results for the second quarter and projections for this quarter suggest little improvement on only marginal year‐over‐year traffic growth. Severe discounting during the current quarter failed to stimulate the market.
“July yields [are] down approximately 18‐ to 20 percent relative to the Q1 average, and August is expected to see a further 5‐ to 8 percent decline,” cautioned Kapil Kaul of Sydney-based consultancy Center for Asia Pacific Aviation (CAPA).
As a weak currency adds to a hostile cost environment driven primarily by high fuel prices, “there exists an overall systemic weakness with low fares and high costs,” and no clear initiatives by the government to improve the financial situation, said Kaul. A high taxation regime, lack of infrastructure and shortage of skills remain impediments to growth as well.
However, some expectation of at least short-term improvement appears warranted, as new partnerships resulting from direct foreign investment by Etihad in Jet Airways and startup AirAsia India take hold in October–the start of the traditional festival period. “Traffic is expected to be supplemented by increased passenger movements driven by state elections in November, and then by general elections some time before May next year,” said Kaul. “We expect that by the end of March next year domestic traffic will match or slightly exceed the previous high water mark of just over 60 million annual domestic passengers.”