A week after Kingfisher Airlines announced its decision to discontinue its low-cost arm Red, the Mumbai-based company on Wednesday clarified a part of the increase in yield would help it recover a rise in the cost of operating a full-service carrier.
Chief Executive Officer Sanjay Aggarwal said the 2005-founded entity bore similar costs in operating low-cost carriers and full-service carriers in terms of fuel, airport charges, engineering and maintenance and crew costs.
“Full-service carriers incur additional costs on global distribution, in-flight catering, ground amenities and the frequent flyer programme. These additional costs are more than recovered through higher yields,” Aggarwal said in a release.
Only a fourth of the incremental yield is spent on providing the extra services associated with a full-service carrier. The remaining is net contribution to the bottom line, he said.
Aggarwal further explained that a detailed study over the last six months during the high oil price regime had “clearly demonstrated” that Kingfisher’s full-service product managed to generate higher yields and load factors. They are “consistent with the assessment that the business travel segment is more sustainable than the extremely price sensitive low-fare segment”.
Kingfisher said only three of the five airlines currently participating in the low-cost segment had full-service carriers: Air India, Jet Airways and Kingfisher Airlines. “While competition certainly exists in this full service segment, it is tempered because of the frequent flyer loyalty programmes that are offered by each of them. In short, we believe that the competition will be far more intense in the low-fare space than in the full-service space,” Aggarwal pointed out.
“There will be no reduction in Kingfisher’s fleet size or its network. Our guests will continue to enjoy the benefits of Kingfisher’s network that provides connectivity to 60 domestic and 8 international destinations,” he added.