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Kingfisher crisis: Business model to be blamed for the mess?

Once voted the best carrier in India, the business model of Kingfisher Airlines was always a recipe for disaster. Those in the aviation business were amazed and amused to see its self-styled 'king of good times' owner, Vijay Mallya, splurging on the airline as if there was no tomorrow..

Sanjay Singh | October 21, 2012 | Updated 11:10 IST

As the Directorate General of Civil Aviation (DGCA) announced the suspension of flying licence of Kingfisher Airlines on Saturday, aviation experts were heard telling each other "I told you so".

Once voted the best carrier in India, the business model of Kingfisher Airlines (KFA) was always a recipe for disaster. Those in the aviation business were amazed and amused to see its self-styled 'king of good times' owner, Vijay Mallya, splurging on the airline as if there was no tomorrow.

Though KFA sensed trouble for the first time only in the second half of 2011, its unique method of functioning was always criticised for being "unsustainable".

FULL COVERAGE:Kingfisher crisis

KFA was an airline for people with a taste for luxury. While its astronomical fares pushed it out of the bounds of the country's biggest consumer section - the middle class - the airline's in-flight service standards were set too high to maintain for a long time . Fliers were treated to expensive wine, quality food and best entertainment facilities even on domestic, short distance flights. The airline staff, till the time they got their salaries, were among the best paid in the country.

Too good to last

KFA's extravagant flying service was too good to last forever. On Saturday, the DGCA made it official - Kingfisher Airlines is on ventilator support with minimal chances of revival. The aviation regulator suspended the Scheduled Operator Permit (SOP) of KFA, following Mallya's failure to come up with a viable plan of financial and operational revival after the airline's pilots and engineers went on a strike on September 29. The DGCA said the airline had not addressed any of the issues raised in its October 5 showcause notice. "They were asked to submit their operational preparedness plan for resumption of flights. Instead, they sought more time to file a reply to the showcause notice and did not indicate any timeframe for submitting a detailed response. As a result, their request was rejected," a DGCA official said.

KFA reaction
KFA, however, put up a brave face after receiving the DGCA order. "We would like to clarify that this is not a cancellation but a temporary suspension which is valid only till such time that we submit a concrete and reliable revival plan to the satisfaction of DGCA… We have in any case always maintained that once the issues with the employees are resolved, we will first present our resumption plan to DGCA for review, before resuming operations," a statement by KFA read. Aviation experts are keeping their fingers crossed over the revival chances of the airline. Kapil Kaul, the CEO of Centre for Asia Pacific Aviation, a South Asian aviation think-tank, said: "The licence cancellation is on expected lines. So the Kingfisher story is following a very logical conclusion. What we must now focus on is the effects of its closure with respect to what it means to lenders, debtors, its staff and suppliers... The revival of Kingfisher is only possible if the promoters pump in almost a couple of thousand crores immediately."

Salary woes

KFA's real trouble began when its engineers , who had not received their salaries since January, went on a strike from September 29 . They refused to certify the planes, demanding payment of at least four months' salary and that too before Diwali. They were later joined by the pilots, which led the company to declare a lockout on October 1. Mallya, an industrialist and a liquor baron known for his flashy lifestyle and lavish parties, is battling for a lifeline. KFA is saddled with a loss of Rs 8,000 crore and a debt burden of another Rs 7,524 crore, a large part of which it has not paid since January. It was declared a non-performing asset (NPA) by bankers earlier this year. Kingfisher's lenders, including the SBI, are concerned over the suspension of the airline's licence but are not yet considering recovery of their loans through sale of its assets. "We are concerned as we have no control on these developments. We were prepared for all these. The last thing we bankers want is a complete shut-down of the airline, as we want it to resume operations and repay our money," said S. Vishwanathan, MD (mid-corporates), SBI.

Civil aviation minister Ajit Singh said KFA will have to satisfy the DGCA about safe flight operations and also make sure that its employees are not disgruntled before it resumes its services. "Their planes are not being serviced, their engineers are on strike and they (the airline) are not even able to give their flight schedule," Singh said. Asked about the allotment of Kingfisher's slot, he said: "I presume they would be allotted to other carriers." The DGCA has disapproved the winter flight schedule - from October 28 to March 31 - of the crisis-ridden airline. The grounding of the airline has triggered speculation of a further rise in airfares. With Kingfisher out of the picture, competitors such as Jet and IndiGo would get a larger share of the market and, hence, a bigger say in terms of pricing power. "The airfares have been on a constant rise with 40-50 per cent hike compared to last year. With Kingfisher losing its licence, the airfare structure will now go up further," said Santosh Rathore, a travel agent.

Courtesy: Mail Today 

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