Mallya to ground low-cost Kingfisher Red in four monthsSeptember 28th, 2011 - 10:14 pm ICT by IANS
Bangalore, Sep 28 (IANS) ‘King of good times’ Vijay Mallya Wednesday decided to ground his low-cost Kingfisher Red brand by January 31, 2012 as his cash-strapped airline firm hit turbulence due to huge debts and the high cost of aviation fuel.
“Yes, we are doing away with Kingfisher Red, as we don’t intend to compete in the low-cost segment. But all is not gloom and doom,” an unfazed Mallya told reporters on the margins of the 16th annual general meeting of Kingfisher Airlines Ltd Wednesday.
Two years after floating Kingfisher Airlines in 2005, Mallya bought budget carrier Air Deccan in 2007 for Rs.1,120 crore from Deccan Aviation Ltd, set up by India’s low-cost airline pioneer, Captain G.R. Gopinath in 1995.
Noting that the margins of Kingfisher Class were better as its yields were higher than the low-cost operations, Mallya earlier told the shareholders that he was exiting Kingfisher Red as it did not make sense to compete in the budget segment anymore.
“We believe there are more than enough guests who prefer to travel the full-service Kingfisher Class. And that shows through in our own performance where load factors in Kingfisher Class are more than in Kingfisher Red,” Mallya, who is chairman of the company, observed.
The bleeding airline is yet to make profits as it reported Rs.264 crore net loss in the first quarter (April-June) of this fiscal (2010-11) up from Rs.187 crore in the same period of last fiscal (2009-10).
Referring to high crude prices, especially aviation turbine fuel (ATF), Mallya lamented that the high cost of jet fuel and a weakening rupee were the biggest challenges faced by the Indian civil aviation sector, including his airline.
Outlining plans to ease the debt burden (about Rs.6,000 crore) and raise additional capital to keep his high-profile airline flying, Mallya secured the shareholders’ nod for a Rs.2,000-crore (Rs.20 billion/$401 million) rights issue after the beleaguered company failed to raise $100 million through the general depository receipts (GDR) route last fiscal due to unfavourable external factors.
“Timing is everything. We’ll obviously take all factors into consideration before we launch the rights issue. You must appreciate that pricing of the issue will also be a determining factor in how attractive it is. Sometimes, in a bad environment, a lower price becomes an attractive investment,” Mallya told the shareholders who were agitated over the company’s poor financial performance.
Over the next four months, Kingfisher will undertake cabin reconfiguration to add more seats for generating additional revenue at minimal cost.
“Our Airbus aircraft will have a first class with incremental seats in economy. During this time, we will be dropping the Kingfisher Red class of service,” Mallya said.
To reduce the high cost of interest burden and raise working capital to maintain stead cashflow, Mallya said the airline would also take initiatives in consultation with the consortium of banks, which hold 23 percent of equity in the listed firm.
“Though we are operating about 360 flights daily on the domestic routes, we are careful in terms of our yield management. We have not added any more planes. We are achieving the highest load factors in our history.
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