Kingfisher Airlines (BOM:532747)

QUOTE AND NEWS
The Economic Times  May 9  Comment 
Retirement fund body EPFO is probing the issue of non-compliance in provident fund (PF) contribution by Kingfisher Airlines relating to international workers.
The Hindu Business Line  May 7  Comment 
A court hearing a cheque bounce case against promoter of defunct Kingfisher Airlines Vijay Mallya today directed him to appear before it on the next hearing in July, failing which it will issue a war...
The Economic Times  Apr 30  Comment 
Mallya promoted companies, including the now defunct Kingfisher Airlines owe over Rs 9,000 crores to a consortium of 17 banks led by the SBI.
The Hindu Business Line  Apr 30  Comment 
Auction of brands and trademarks of Kingfisher Airlines turned out to be a damp squib today as lenders failed to attract a single bidder for sale of these pledged assets at a reserve price of Rs 366.
guardian.co.uk  Apr 29  Comment 
Businessman known as ‘King of Good Times’ for playboy lifestyle faces extradition request after collapse of firm The Indian government has asked the UK to deport the liquor tycoon and self-styled “King of Good Times” Vijay Mallya after...
BBC News  Apr 28  Comment 
The Indian government has asked the UK to deport Vijay Mallya, the former head of Kingfisher Airlines, who is thought to be in London.
Reuters  Apr 24  Comment 
The government said on Sunday it had revoked the passport of Vijay Mallya, the embattled tycoon and lawmaker who last month fled abroad as lenders pressured him to repay about $1.4 billion owed by his defunct Kingfisher Airlines.
Reuters  Apr 18  Comment 
A court on Monday issued a warrant for the arrest of tycoon and lawmaker Vijay Mallya, who has left the country with creditors stepping up pressure to recover about $1.4 billion owed by his defunct Kingfisher Airlines.
The Economic Times  Apr 18  Comment 
Mallya has been at an unknown location since March 2 after Kingfisher's creditors stepped up pressure to recover the $1.4 billion they are owed.
The Hindu Business Line  Apr 16  Comment 
Questioning the “business model” of long-grounded Kingfisher Airlines for Vijay Mallya’s mounting woes, Finance Minister Arun Jaitley has said the airline sector as such is doing well in India with m...




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Error creating thumbnailKingfisher is an Indian airline operating both domestic and international flights. Kingfisher Airlines provides flights to more destinations than any other domestic carrier. [1] Kingfisher operated with an average load factor of 67.9% during the first half of 2009.[2] The load factor for an airline measures the percentage of available seats that are filled during a specific period. The average load factor for Kingfisher's three closest competitors by market share was 69.43%. Over the same period Kingfisher operated with an Available Seat Miles(ASM) of 6.6 million. The ASM of an airline is equal to the number of available seats times the number of miles flown. The average ASM of the same three competitors by market share was 5.22 million for the same period.

For year ended March 2009 Kingfisher had revenues of 10.9 billion dollars for average revenues of 2.72 billion dollars a quarter (as of Sept. 25, 2009 exchange rate 1 dollar = 48.1 rupees). [3] However, Kingfisher had a loss of 3.34 billion dollars for year ended March 2009 and a loss of 504.5 million dollars for the second quarter of 2009.[3] This loss was mainly due to a sharp decrease in demand for flights and losses due to the start-up of international operations.[3]

The rising cost of fuel has posed many problems for the global air travel industry. Kingfisher reacted to these problems by returning or deferring the delivery of new aircraft as well as by changing some of its routes. Kingfisher added 3 new international destinations to its flight network in September 2009 as part of these route changes. Another issue facing Kingfisher is the unusually high tax imposed on Aviation Turbine Fuel (ATF) by certain states in India. Legislation is being supported by the Minister of Finance and the Indian airline industry to lower the tax on ATF.[4]

Business Overview

Founded in May 2005, Kingfisher's route network has grown to include 69 cities in India and 7 international cities. Kingfisher added 3 international destinations to its network in 2009.[5] Kingfisher is recognized as a '5-star airline' for its excellent product and service quality by Skytrax, an independent travel forum and air travel information organization. Kingfisher has a fleet of 74 aircraft ranging from ATR 72-500 (70 passengers) to Airbus A330 (300 passengers) and operates 400 flights a day in India.[6] [5]

Kingfisher Airlines is the largest Indian airline by number of passengers carried over domestic routes.[7] Over the first 6 months of 2009 Kingfisher carried 5.44 million domestic passengers, which amounted to 22% of all domestic travelers in India, and 144,561 international passengers.[8] [2]

Business and Financial Metrics

For year ended March 2009 Kingfisher had revenues of 10.9 billion dollars compared to revenues of 3 billion dollars for 9 months ended March 2008. [3] Kingfisher maintained an average revenue of revenues of 2.7 billion dollars for the 2nd quarter of 2009.[3] However, Kingfisher had a loss of 3.35 billion dollars for year ended March 2009 and a loss of 510 million dollars for the second quarter of 2009.[3]

The increase in revenues from March 2008 to March 2009 is due to a 12% increase in revenue per Revenue per Available Seat Mile. Despite these increasing revenues Kingfisher had losses due to start-up costs of international operations, new routes, training requirement and the high cost of aviation fuel in India and lower load factors.</ref name=clause41>

Over the second quarter of 2009 Kingfisher operated 23% less flights due to less demand leading to a 6% drop in revenue compared to the previous quarter.[3] Furthermore, an upswing in personnel costs was caused by the increase in number of employees and their salaries.[3]. Despite its financial losses, Kingfisher still managed to carry the most passengers in the domestic industry by carrying 25.3% of passengers flown in the country.[3]

Kingfisher operated with an average load factor of 67.9% during the first half of 2009.[2] The load factor for an airline measures the percentage of available seats that are filled during a specific period. Over the same period Kingfisher operated with an Available Seat Miles(ASM) of 6.6 million. The ASM of an airline is equal to the number of available seats times the number of miles flown.

Selection of Financial Data for FY 2006-2008 (Rupees in billions) [9] [10] [11] [12]
9 months ended March 2008 Year ended June 2007 15 Months ended June 2006
Revenue 144 214.2 135.1
Gross Profit -2.16 0.69 0.04
Gross Profit Margin -15% 3.22% 0.296%
Operating Expenses 17.61 20.73 13.47
Operating Income -3.565 -4.072 -2.071
Net Loss 1.88 4.19 3.41

Although the Indian economy managed to stay level during 2007-2008 the rise in crude oil prices resulted in a 60% rise in the average price of aviation turbine fuel (ATF) from April to September 2008.[13] Along with higher ATF prices, high duties and taxes on ATF in India resulted in higher fares and lower demand for air travel.[14] The increase in fares coupled with the lean season (June to September) caused a drop in demand and load factor of 6%, bringing Kingfisher's load factor in line with the industry.[13]

Although demand was decreasing, Kingfisher's capacity over many routes was increasing, leading to fares below break-even on certain routes.[14] These resulted in high losses for the Indian air travel industry and Kingfisher as seen by the increasing operating expenses and operating loss.

In December 2007, Kingfisher completed its merger with Air Deccan to increase its service offerings.[15] After the merger, Kingfisher began to offer "Kingfisher Red" flights (low fare economy class) in addition to its business and premium economy class services.[14]

Business Segments

Ticket Sales (97.3% of Sales) - Most of Kingfisher's revenues come from ticket sales. Domestic passengers made up 97.3% of these sales during the first half of 2009.[2] [11]

Helicopter Charter (2.26% of Sales) - Kingfisher also offers helicopter charter services to certain destinations in India. Kingfisher made 349 million Rupees in revenues from these charters between July 2007-March 2008.[16]

Cargo Services (0.22% of Sales) - Cargo services also contribute to Kingfisher's yearly revenues. From July 2007-March 2008, Kingfisher made 3.17 million Rupees by transporting cargo.[16]

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This graph is a breakdown of Kingfisher's revenue by business segment in 2008. Kingfisher's main source of revenue is ticket sales.[11]

Key Trends and Forces

Rising Fuel Costs Have Caused Kingfisher to Make Several Adjustments

Fuel prices progressively increased by a total of 28% between June 2007 and March 2008.[14] This led to a 22% increase in direct operating expenses per quarter during the same period.[11] Increasing expenses caused Kingfisher to charge higher prices on certain routes in its network, return 11 aircraft, and defer delivery on future aircraft.[17]

Legislation Lowering the High Tax on Aviation Turbine Fuel Will Decrease Kingfisher's Operating Expenses

The Ministry of Civil Aviation is in discussions with the government to lower the sales tax imposed by certain states on ATF.[14] In August 2009, except for a few states that charge 4% tax on ATF, the sales tax on ATF in India was 25-35%.[18] With ATF making up a large amount of an airline's operating costs, legislation to uniformly lower the sales tax in India will let Kingfisher operate with higher profit margins.

Increased Demand for International Routes

Although it is primarily a domestic carrier, Kingfisher slowly increased its international offerings in 2009 by providing flights between Mumbai and Singapore as well as between Mumbai and Hong Kong. The vice president of the company has announced that the success of these new routes will determine whether Kingfisher will go ahead as planned and offer more international flights out of Mumbai.[5] Kingfisher's research shows that these flights fit in with their policy to redeploy capacity to routes with higher yields.[5] However, the start-up costs of these new routes were very high and led to an operating loss in 2009.[3]

Increased Demand for Low-Cost Flights

After its merger with low-fare airline Air Deccan in 2007, Kingfisher has been able to offer low fare domestic flights as part of its Kingfisher Red class of service.[19] This lower fare class has let Kingfisher offer low cost domestic flights in a period when demand for premium class tickets has decreased. As a result, Kingfisher is able to compete with low-cost carriers that were able to offer lower prices on its routes. Kingfisher now offers a single class low fare flight on 70% of its route network.[18] Furthermore, by merging with Air Deccan Kingfisher has increased the size of its network and fleet.

Competition

As Kingfisher is primarily a domestic flight provider, its main competitors are other Indian airlines. Along with Kingfisher, Air India-Air India Express-Indian Airlines, Jet Airways-Jet Lite, and IndiGo control nearly 80% of the domestic market.[20]

  • Air India-Air India Express-Indian Airlines: Air India is India's national carrier and operates out of 17 Indian cities. Aside from domestic flights, it offers services to 31 international destinations in Europe, Asia, the Middle East, and America.
  • Jet Airways-Jet Lite: Jet Airways is primarily a domestic airline, serving 43 destinations withing India and 20 overseas and operates 380 flights daily.
  • IndiGo: IndiGo positions itself as India's low-cost domestic carrier. It only serves destinations in India. It serves 20 destinations within India.

Air India and Indian Airlines are two state owned airlines that work together on many flights. The table below lists the main performance parameters of these four companies for the first half of 2009. [20]

First Half 2009 Competitive Metrics [20]
Airline Passengers Carried (million) Revenue Passenger Kms (million) Available Seat Kms (million) Load Factor (%)
Kingfisher Airlines 5.44 4.51 6.65 67.9%
Air India-India Express-Indian Airlines 2.81 2.94 4.64 63.4%
Jet Airways-Jet Lite 5.04 4.78 7.07 67.6%
IndiGo 2.82 3.06 3.96 77.3%

Market Share

In July 2009, these 4 airlines carried 79.5% of all domestic passengers in India.[21] The remaining 21.5% of passengers were carried by other private Indian airlines such as Spicejet, Go Air, and Paramount.

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This graph is a breakdown of the market share in the Indian domestic air travel industry by passengers carried for July 2009. [21]

References

  1. Kingfisher Annual Report 2006-2007, p.1
  2. 2.0 2.1 2.2 2.3 Director General of Civil Aviation Air Transport Reports "Monthly Traffic and Operating Statistics of Kingfisher Airlines on Scheduled Domestic and International Services During 2009"
  3. 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Kingfisher Airlines Clause 41 Q1FY10 with Commentary
  4. Indian Express "On AP cue, Kerala cuts ATF tax to 4 pc" March 6, 2008
  5. 5.0 5.1 5.2 5.3 Kingfisher Press Release, "Kingfisher Airlines Announces Roadmap for Next Phase of International Routes", July 11 2009
  6. Kingfisher Airlines - Our Fleet
  7. Director General of Civil Aviation Reports "Domestic Passengers carried by Indian Scheduled Airlines"
  8. Passengers Carried by Scheduled Domestic Airlines
  9. Kingfisher Annual Report 2005-06 "Profit and Loss Account", p.35
  10. Kingfisher Annual Report 2006-2007 "Profit and Loss Account", p.40
  11. 11.0 11.1 11.2 11.3 Kingfisher Annual Report 2007-08 "Profit and Loss Account", p.31
  12. Kingfisher Airlines Clause 41 Q1FY09
  13. 13.0 13.1 "Kingfisher Airlines Update Presentation" October 2008
  14. 14.0 14.1 14.2 14.3 14.4 "Kingfisher Annual Report 2007-2008 "Management Discussion and Analysis", p.21
  15. Business Standard "Kingfisher to Merge with Air Deccan" December 20, 2007
  16. 16.0 16.1 Kingfisher Annual Report 2007-2008 "Management Discussion and Analysis", p.22
  17. Air Transport Intelligence News "Kingfisher's debt INR60bn, aims for INR5bn in fresh equity" July 29, 2007
  18. 18.0 18.1 Indian Express "Enforcement of uniform ATF tax unlikely" August 14, 2009
  19. Kingfisher Annual Report 2007-2008, p.3
  20. 20.0 20.1 20.2 Directorate General of Civil Aviation Reports "Air Transport Reports"
  21. 21.0 21.1 Directorate General of Civil Aviation Reports "Market Share and Seat Factor Report"
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