Business Today

Are good times here again?

Low ATF prices and a possible shift in FDI policy for aviation hold out prospects of a speedier turnaround for Kingfisher Airlines.

K.R. Balasubramanyam | Print Edition: January 25, 2009

Going into the third quarter of 2008-09, Vijay Mallya’s Kingfisher was the most troubled airline in India. The carrier had accumulated losses of Rs 2,500 crore thanks largely to an unprecedented surge in Air Turbine Fuel (ATF) prices over the previous six months. Kingfisher’s projected losses for 2008-09 at Rs 1,500 crore was more than twice the estimated total profits (Rs 600 crore) of UB Group companies! But a slew of recent pricing developments and policy murmurs suggest that the worst may be over for the airline and its turnaround may happen sooner than expected.

Vijay Mallya: “I think the worst is over?
Vijay Mallya
With crude cooling off over the last two months, low ATF prices have helped bring down Kingfisher’s fuel bill (the exact figure will be known when KF announces its third quarter results). In a recent presentation, Kingfisher said it expected crude to settle at around $70-90 a barrel over the next 6-12 months (from $38 a barrel currently). In addition, measures like route rationalisation—the airline cut services to several destinations over the past two months— and putting on hold expansion plans, including deferring delivery of some 80 aircraft, have helped rein in expenditure. Mallya told BT after KF’s annual general meeting in Bangalore on December 26 that he expected the airline to break-even operationally in December with revenues of Rs 500 crore from passenger, cargo and ancillary services.

“I think the worst is over and there’s no reason why private equity investors, who had expressed interest when oil was at $100 a barrel, shouldn’t be more interested when oil is $36 a barrel,” said Mallya, who has been scouting for $400 million (Rs 1,950 crore) capital for his airline over the past six months. His talks with PE firms have been stuck over issues of valuation.

But Mallya may now get what he has always wanted—an overseas airline as a partner—as there is news that the government may allow foreign carriers to pick up equity in their Indian counterparts. Mallya would prefer a strategic partner, for he believes that it will not just offer a better valuation, but would add value to KF’s own operational efficiency. British Airways, Singapore Airlines and Virgin etc., could be possible suitors, but Mallya, in an e-mail response to a BT query, offered no more than “there is no point in discussing something that is currently not permitted”.

That Mallya is in high spirits again is evident from Kingfisher’s plans to start services from Mumbai to London Heathrow, Singapore and Hong Kong as well as a flight between Bangalore and Colombo over the next 6-8 weeks. He has also followed other airlines in cutting fares and offering sops to boost sales. Clearly, he is feeling buoyed by the expected good results for the December quarter. But as industry experts say, Mallya’s challenge lies in extending that performance to the last quarter of 2008-09.

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