7/11/13 A look into Kingfisher Airlines poor performance: India Today

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A look into Kingfisher Airlines poorperformanceDHIRAJ NAYYAR | November 19, 2011 | 11:14

The six months between April and September 2011 have been

disastrous for all airlines in India because of a steep rise in crude

prices. Oil prices went from around $88 a barrel in January 2011 to

almost $115 in April, a massive 25 per cent increase in just three

months. Fuel costs add up to 40 per cent of the variable costs of

airlines. Oil prices hovered around the $100 mark until September

when they came down to $80 a barrel. In November, the price is

again up to $100. The rise in the price of fuel was exacerbated by a

fall in the rupee, which has declined by 11 per cent against the

dollar. An estimated 70 per cent of airlines' expenses are incurred

in dollars.

Kingfisher Airlines has losses of Rs 732 crore between April and

September. Jet Airways lost more-Rs 836 crore. Yet, it is Kingfisher

which is gasping for air, not Jet. Why?

History matters. Unlike other airlines, which have had ups and downs, Kingfisher has never recorded a

profit since it began operations in 2005. In 2010-11, when crude prices were moderate and the rupee

strong, Kingfisher recorded losses of Rs 1,027 crore. In comparison, Jet's loss was Rs 86 crore. SpiceJet,

which lost Rs 312 crore between April and September this year, made a profit of Rs 100 crore in 2010-11.

IndiGo was said to have recorded a Rs 500-crore profit in 2010-11.

Kingfisher's poor financial performance stands in contrast to its award-winning performance for service. It

is the only Indian airline and one of seven globally to have a five-star rating from UK-based aviation

consulting firm Skytrax. Kingfisher may be a victim of its business model which focuses on the upper-end

flier. The slowdown of 2008-2009 decimated the high-end market. There is evidence that price matters

most to the Indian consumer. But Vijay Mallya is determined to stick to his model. In September, he

announced closure of Kingfisher Red, the low-cost arm which emerged after his takeover of Air Deccan in

2007-08.

The rest of the Indian aviation industry seems headed in the opposite direction. IndiGo and SpiceJet have

done well as low-cost carriers. Jet now runs more than half its services under the low-cost brand it started

in 2009, Jet Konnect.

7/11/13 A look into Kingfisher Airlines poor performance: India Today

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Kingfisher's debts add to its already high costs-its interest expense to net sales ratio in July-September was

21 per cent. The ratio was 6.8 per cent for Jet and 1.1 per cent for SpiceJet. The airline will need a big

revenue boost to offset costs. Unfortunately, it may have the wrong business model.

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