The Recent Kingfisher Debacle And What Could Follow

Posted on December 3, 2011 in Business and Economy

By Rishin Mukherjee:

A recent status update on Facebook painted a very comical picture of the current situation that Kingfisher Airlines and its owner Vijay Mallya find themselves in. The status update was about how the liquor baron had provided enough liquor for all the parties in India and provided “good times” to a large section of India. The update further went on to say that people should drink more beer so that Mr. Mallya could pull out his airlines company out of the deep losses it finds itself in. The status update was referring to the recent announcements made by the Kingfisher Airlines about the losses they have picked up over the recently finished September quarter. The airline announced that they did not have enough cash flow for their day to day operations. They have been forced to cancel various flights over the last few weeks. Kingfisher is currently the 2nd largest carrier in India. The airline is partially owned and promoted by the famous UB group, owned by Vijay Mallya ,who also owns the Force India F1 team.

The losses reported were around 470 crore, which turned out to be a huge cause of concern for stock holders of the company, with massive selling seen by many investors. The company and the owner met with various parties, including the government, the State Bank of India and other investors for a bail-out. The aviation sector on the whole has had a tough quarter, with rising fuel costs, increasing competition, and although the market itself has grown over the past few months, most of the major airlines are losing money fast. Air India was recently in the news for a similar situation, with the company requesting a similar bail-out from the government. Vijay Mallya has requested the government to allow foreign investors to put their money in the airlines. The current market conditions do not have a lot of scope for small term investments, not certainly to the amount of 600 crore which the company is looking for, and foreign investors might be the only option for a long term investment of the sorts. The company has cited various reasons for the losses it has incurred and the inability to raise ticket prices and the operation of various unviable air routes ranks highly in this list. The competition is tough in the aviation market at present, and although the recent take-overs of Air Sahara by Jet Airways and Air Deccan by Kingfisher Airlines did reduce the number of individual players in the market, companies are still afraid to raise prices lest it may lead to their loss of passengers and a consequent drop in their market share.

Although there are various options for Kingfisher Airlines to look at, Vijay Mallya has firmly stated that the company wont shut down in the near future. The company is looking for bail-out packages from all sources, and is modifying its flight list so as to not run flights on loss-making routes. It remains to be seen what the company management can do in case bail-out packages are not made available. After all, no Indian would like to see the “king of good times’ as Vijay Mallya is popularly known, having to shut down the Kingfisher Airlines, an airline which shares its name with the extremely popular Kingfisher alcoholic beverage. It remains to be seen whether the government shares the same views.