Anyone looking for an example of how quickly hard times can reverse fortunes in aviation need look no further than Kingfisher Airlines and its boss, the Indian booze baron Vijay Mallya.
Once a leading light among the new, private ventures poised to profit from India's burgeoning wealth, Kingfisher - launched in 2005 and named after one of the most popular brands in Mallya's massive United Breweries empire - has stumbled into 2012 with a crushing debt burden, a crippled fleet and a desperate need for a financial saviour.
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At its height, Kingfisher ran an extensive domestic network. The airline built a fleet of 60 Airbus and ATR aircraft with nearly 150 on order or option and, between the main operation and low-cost subsidiary Kingfisher Red, controlled nearly 28% of the Indian domestic market in 2008 - compared to just 16.3% for Air India.
But 2008 turned out to be the summit. In November of that year, Mallya iced plans for regional and long-haul services due to poor market conditions.
Just how poor soon became evident. After years of double-digit passenger growth fuelled by the launch of new carriers like Kingfisher and ticket prices driven low by competition, rising operating and fuel costs led to ticket price hikes - and passenger numbers fell by nearly 5%.
HANGOVER
For Kingfisher, over-investment proved costly. In its year to 31 March 2011, Kingfisher lost 10.3 billion rupees (Rs) ($227 million), reflecting some stabilisation after a loss of Rs16.5 billion the year before. However, the carrier is going backwards again, having lost Rs4.69 billion in its most recent second quarter, more than double its loss for the comparable year-ago period.
Today, whether Kingfisher survives to carry out a plan - supposedly from next month - to exit the low-cost market and concentrate on higher-margin premium passengers remains to be seen. Earlier this month, India's aviation regulator recommended Kingfisher be wound up because it feared the carrier's financial strife was compromising safety; nearly a third of its fleet was grounded for want of spares, with aircraft being cannibalised for parts.
Then, last week, ATR removed Kingfisher's 38-aircraft order from its backlog, describing the airline as an "unreliable customer".
Kingfisher is reported to be seeking funds through sale and leaseback of its aircraft. But, says Suzanne Rab, a partner in London law firm King & Spalding, "against a background of increasing oil prices, taxes on fuel and pressures on margins, it is questionable how effective that will be without major investment".
Kingfisher clearly needs more than a sale-leaseback cash boost. Debt restructuring left it owing $1.23 billion to a consortium of 13 banks led by State Bank of India, whose chairman has publicly declared the carrier in default. It owes money to suppliers and staff, and Kapil Kaul, head of South Asia at Sydney's Center for Asia Pacific Aviation (CAPA), reckons Kingfisher needs at least $250 million in the short term and $800 million in the long term to remain viable.
If it is any comfort to Mallya, at least he has company. Other privately-owned airlines in India - certainly including Jet Airways and SpiceJet, though possibly excepting IndiGo - are in dire need of equity investment. All are suffering from the weakness of the Indian rupee, which exacerbates the rising cost of dollar-denominated fuel. And, state-owned Air India is distorting the Indian market with subsidised fares.
However, it remains paradoxical that Indian airlines, which serve one of the world's fastest growing markets with an aspirational middle class whose incomes are rising 17% yearly, will collectively lose $2.5 billion in the year to March 31, says CAPA.
A proposal to permit foreign investors to own up to 49% equity in Indian carriers may help. But the debts of Kingfisher have led some analysts to question whether foreign carriers would be willing to invest.
As for Kingfisher, there may be hope if it can survive long enough to benefit from oneworld airline alliance membership from February. "This should give it better access to global routes," says Rab.
Hope, of course, is always a reserve currency for airline bosses. As Mallya himself put it last year when dismissing speculation on the potential collapse of his carrier: "We shall survive and flourish and prove you all wrong."
- Additional reporting by Dominic Perry in Paris
Source: Flight International
