One is yet not sure if a slew of measures Vijay Mallya of Kingfisher Airlines announced on Wednesday will change the colour of the numbers on the balance sheet. Yet, figuratively, his debt-ridden company is getting out of low-cost Kingfisher Red, which it got by acquiring Deccan Aviation during mid-2007.
Faced with limited options, when the markets are not really conducive to raising equity capital, Mallya, as CMD of the 2005-founded firm, is trying to negotiate in whatever little space he has left. That is, sweat more equity from what has been invested.
The aim is to push up revenues from fine-tuning operations, shed some realty assets, sale and lease back around 10 A320 aircraft thus reducing the cash outflow, reconfigure its fleet to drive in more revenues, swap some high-cost rupee loans into low-cost forex loan and try to purchase aviation turbine fuel from global players in an effort to reduce the sales tax burden imposed by various states in India.
“We are getting out of Kingfisher Red, which is our low-cost service offering,” Mallya said here. “We are reconfiguring our Airbus fleet so that they will all be dual class. The number of first-class seats may be reduced from the current levels in order to fit in a larger number of economy seats which will go up by 10 per cent.”
The company, he said, would be offering full service on all its Airbus aircraft. The aim: more seats, higher occupancy and hopefully higher ticket values, he said after an eventful annual general meeting of Kingfisher Airlines.
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The company flies a total of 66 aircraft, 39 of which are from Airbus, while the rest is of ATR, the turboprops which connect Tier-II towns in India. A majority of the Kingfisher Red class of service is on these turbo-props.
All ATR aircraft of Kingfisher Airlines will continue to operate in a single configuration as a Kingfisher Class full-service product. All advance reservations made by guests in the Kingfisher Red class of service would be fully honoured, said the company’s officials. This is so, because the reconfiguration will take about four months to complete.
According to the officials, the load factors in Kingfisher First have been 50 per cent on an average. “As such, the capacity is being reduced on the existing dual class Airbus aircraft and introduced on existing single-class Airbus aircraft. Kingfisher will, therefore, offer the Kingfisher First service on all its Airbus routes albeit with an overall reduction in capacity,” a source said.
Why the phase-out? Officials said Kingfisher Class (full service economy class of service), over the past six months has generated higher yields and seat factors than the no-frills Kingfisher Red class of service. “Following the re-configuration of all Airbus aircraft, the number of economy seats across the Airbus fleet will increase by approximately 10 per cent and this capacity will be offered across the board as a Kingfisher Class full service product,” he said.
Industry analysts are skeptical about this move by Kingfisher Airlines to exit the low cost model. “Getting into the full service offering across all routes is a challenge,” notes one among them.
Added another: “Kingfisher Airlines is still looking at offering meals. For a maximum of 2-3 hour flight, a full-service meal is not required.”