As if the problems with global fuel prices weren’t enough, Kingfisher has gone ahead and undertaken strategies that only seem a do ‘and’ die effort. How is Mallya even sustaining the unbelievable losses quarter after quarter? B&E’s Shashank Tripathi and Angshuman Paul meet Vijay Mallya and other top Kingfisher executives and investigate...
But look at what Kingfisher is doing on the other side. Frighteningly, amidst all this bloodbath, it is all set to commence its international operations in September 2008. The Daily Bangalore-London and Bombay-London flights would commence by September 3, while the Bangalore-San Francisco flight would soon follow. The company has even planned to start flights to New York, Singapore, Hong Kong and the Middle East shortly after that. Mind you, company has planned all this at a time when most of the international carriers have either cut their flights to numerous destinations or are planning to do so.
This at a time when international airlines are cutting left, right and centre. According to figures, three big airlines, American, Delta and United, have been cutting down their services dramatically. Where American Airlines plans to reduce 86 flights in November, Delta plans to cut 68, while United has decided to cut 266 flights per week as well. Moreover, other regional airlines flying in America are all set to slash over 1,200 weekly commuter flights. In fact, the Los Angeles International Airport (LAX) has seen a drop of 16.4% in flights in the last one year. If you thought this was worrying Kingfisher, you won’t even catch a whisper of that! Kingfisher is planning to provide their international fliers with what they call ‘better than world-class amenities’. The Kingfisher First cabin would feature an in-seat massager, touch screen controls, mood lighting, noise cancellation headphones by BOSE and in-seat chargers and USB connectors. Furthermore, an on-board chef would prepare international cuisines as per the passenger’s demand, while a well-stocked bar with a bartender in the lounge-like arrangement would make the experience more delightful. Quality is what they are boasting. Suicide is what it seems to us!
As per Airbus’s website, Kingfisher’s order-list stands at 71 aircraft, out of which 10 have been delivered. There are growing concerns that Kingfisher might need to further delay or cut deliveries to avoid losses. Where in heavens is the money coming from for Mallya? During all these years, the United Breweries Group has been supporting the losses of Kingfisher Airlines. When we caught up with Mallya’s speech at the Farnborough International Air Show, UK on July 17, 2008, he was still resolute, “The UB Group has huge cash flows which will see Kingfisher through turbulent times. Kingfisher is well funded. It has optimised its operations and therefore we are not nearly as vulnerable as our competitors.” But with losses amounting to thousands of crore, optimisation still remains a chimera.
Kingfisher Airlines recently raised a loan of Rs.1,000 crore from ICICI Bank to support its escalating expenses as the condition of UB Group appears to deteriorating. This can also be quite apparent from the fact that in the past one month, the share price of United Breweries Holdings Ltd. has plummeted petrifyingly. It has dropped from Rs.1,255 on October 31, 2007, to Rs.279 on July 23, 2008. The Air Deccan share, which was at a high of Rs.335 on December 19, 2007, is languishing at a deathly Rs.79.65 on July 23, 2008.
Worse, without an intelligent hedging strategy against oil price hits [for example, Southwest Airlines in 2007 locked into oil at $51 a barrel], Kingfisher is being hit fatally on a daily basis. Is the worse just around the corner? Senior Aviation Analyst Brij Bharadwaj tells us, “Although survival in today’s scenario depends upon how deep pocketed you are, if the current trend continues, there might be no Kingfisher Airlines next year.” One might forget that at one point a couple of years back, Mallya was also fighting hard to take over Sahara Airlines [when Jet was still in arbitration]. A few months ago, Mallaya was in talks with EADS to revive its single piston engine aircraft manufacturing business. There was also news that he has pledged a personal stake of $200 million to the US-based Epic aircraft to develop very light jets. Added to this is Mallya’s recent failed bid to take over Spicejet. Is Mallya flailing arms in a dying attempt to save Kingfisher? How long will shareholders of the UB Group allow cross subsidisation of unbelievable losses? Is there anything positive Mallya can really look forward to in his airlines? Oh yes, the Kingfisher ladies do smile pretty, but as Cat Stevens puts it, “Girl, it’s hard to get by just upon a smile.” Seriously Mallya, where do you think you are going?!
But look at what Kingfisher is doing on the other side. Frighteningly, amidst all this bloodbath, it is all set to commence its international operations in September 2008. The Daily Bangalore-London and Bombay-London flights would commence by September 3, while the Bangalore-San Francisco flight would soon follow. The company has even planned to start flights to New York, Singapore, Hong Kong and the Middle East shortly after that. Mind you, company has planned all this at a time when most of the international carriers have either cut their flights to numerous destinations or are planning to do so.
This at a time when international airlines are cutting left, right and centre. According to figures, three big airlines, American, Delta and United, have been cutting down their services dramatically. Where American Airlines plans to reduce 86 flights in November, Delta plans to cut 68, while United has decided to cut 266 flights per week as well. Moreover, other regional airlines flying in America are all set to slash over 1,200 weekly commuter flights. In fact, the Los Angeles International Airport (LAX) has seen a drop of 16.4% in flights in the last one year. If you thought this was worrying Kingfisher, you won’t even catch a whisper of that! Kingfisher is planning to provide their international fliers with what they call ‘better than world-class amenities’. The Kingfisher First cabin would feature an in-seat massager, touch screen controls, mood lighting, noise cancellation headphones by BOSE and in-seat chargers and USB connectors. Furthermore, an on-board chef would prepare international cuisines as per the passenger’s demand, while a well-stocked bar with a bartender in the lounge-like arrangement would make the experience more delightful. Quality is what they are boasting. Suicide is what it seems to us!
As per Airbus’s website, Kingfisher’s order-list stands at 71 aircraft, out of which 10 have been delivered. There are growing concerns that Kingfisher might need to further delay or cut deliveries to avoid losses. Where in heavens is the money coming from for Mallya? During all these years, the United Breweries Group has been supporting the losses of Kingfisher Airlines. When we caught up with Mallya’s speech at the Farnborough International Air Show, UK on July 17, 2008, he was still resolute, “The UB Group has huge cash flows which will see Kingfisher through turbulent times. Kingfisher is well funded. It has optimised its operations and therefore we are not nearly as vulnerable as our competitors.” But with losses amounting to thousands of crore, optimisation still remains a chimera.
Kingfisher Airlines recently raised a loan of Rs.1,000 crore from ICICI Bank to support its escalating expenses as the condition of UB Group appears to deteriorating. This can also be quite apparent from the fact that in the past one month, the share price of United Breweries Holdings Ltd. has plummeted petrifyingly. It has dropped from Rs.1,255 on October 31, 2007, to Rs.279 on July 23, 2008. The Air Deccan share, which was at a high of Rs.335 on December 19, 2007, is languishing at a deathly Rs.79.65 on July 23, 2008.
Worse, without an intelligent hedging strategy against oil price hits [for example, Southwest Airlines in 2007 locked into oil at $51 a barrel], Kingfisher is being hit fatally on a daily basis. Is the worse just around the corner? Senior Aviation Analyst Brij Bharadwaj tells us, “Although survival in today’s scenario depends upon how deep pocketed you are, if the current trend continues, there might be no Kingfisher Airlines next year.” One might forget that at one point a couple of years back, Mallya was also fighting hard to take over Sahara Airlines [when Jet was still in arbitration]. A few months ago, Mallaya was in talks with EADS to revive its single piston engine aircraft manufacturing business. There was also news that he has pledged a personal stake of $200 million to the US-based Epic aircraft to develop very light jets. Added to this is Mallya’s recent failed bid to take over Spicejet. Is Mallya flailing arms in a dying attempt to save Kingfisher? How long will shareholders of the UB Group allow cross subsidisation of unbelievable losses? Is there anything positive Mallya can really look forward to in his airlines? Oh yes, the Kingfisher ladies do smile pretty, but as Cat Stevens puts it, “Girl, it’s hard to get by just upon a smile.” Seriously Mallya, where do you think you are going?!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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