Mumbai: Barely a month after it launched its first international flight, Kingfisher Airlines Ltd has decided to stop expanding global operations, including a Mumbai-London flight that was to start later this month.
The airline has also sold to Nigeria’s Arik Air three of the five Airbus A340 planes it bought for overseas flying.
“All international operations are under the scanner with the current global slowdown, and now we are re-evaluating further route launches,” chairman Vijay Mallya said over the phone.
“We have to respect the current global economic meltdown and, therefore, we are reviewing all our earlier projections.”
Kingfisher, which launched daily Bangalore-London flights on 3 September, has secured approvals to fly to the US, the UK, Singapore, United Arab Emirates, Saudi Arabia, Kuwait, Sri Lanka, Bangladesh, Malaysia, Thailand, Maldives, Pakistan and Hong Kong.
Weighed down: Kingfisher Airlines has pushed its initial break-even target by a year. Ramesh Pathania / Mint
Indian carriers are trimming international operations also as part of their route rationalization.
Kingfisher’s bigger rival, Jet Airways (India) Ltd, the second largest carrier in the country, announced on Friday it was temporarily withdrawing from its Mumbai-Shanghai-San Francisco route because of poor passenger response.
Kingfisher had already said it would scale down flights to the US even before launching the route.
Mark Martin, an analyst at consulting and accounting firm KPMG’s New Delhi offices, said Kingfisher’s decision to put its international operations on hold is temporary. “Once this trouble is over, Kingfisher can always bounce back with its original plans on the international routes,” he said.
The airline is also facing tough competition from foreign airlines that are increasing India flights and sharply reducing fares.
British Airways Plc. introduced a base fare of Rs9,990 to London from India, just ahead of Kingfisher’s international debut, which forced the latter to price its Bangalore-London flights at about Rs10,000. Both fares exclude taxes and other fees that add up to about Rs9,700.
Kingfisher has now pushed its initial break-even target by a year to factor in these issues and jet fuel costs.
“Considering that oil prices have dropped and are now hovering around $85-90 (Rs4,139-4,383) a barrel, Kingfisher Airlines is expected to break even by fiscal year 2010,” said Mallya, but declined to specify losses.
“I can only tell you about the losses once accounts (after integrating the books of Deccan and Kingfisher) are finalized,” Mallya said, adding that the airline is in talks with potential investors to raise up to $400 million.
Kingfisher, which bought the low-fare Air Deccan from Deccan Aviation Ltd in 2007, is integrating the accounts of the two entities and expects to publish combined financial results for the June and September quarters by 31 October.
On the domestic front, too, Kingfisher Airlines has withdrawn two Airbus A320 planes, and is returning two more to lessors. It has also deferred taking deliveries of 32 others from the airline manufacturer Airbus SAS.
“We have served notices to lessors for taking four more back. These eight planes were previous owned by Deccan Aviation and this was as per our original business plan to reduce capacity,” Mallya said.
Kingfisher has hired consultancy Accenture Ltd to advise on its international operations and on its wide-body planes.
To add to its woes, oil marketers Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd have asked Kingfisher to settle outstanding jet fuel dues.
Jet fuel, or aviation turbine fuel, accounts for 45% of the operational costs of Indian carriers and is 70% more expensive than in foreign markets because of multiple taxes and 20-25% sales tax levied by various states.
“Oil companies have given ultimatum to all airlines. But under the current economic slowdown, it (the sector) is unable to accept this,” Mallya said. “Once crude oil prices go up, oil marketing companies pass the entire burden to carriers, but not vice versa.”
Kingfishers is also studying the feasibility of importing jet fuel, in association with some Indian oil marketing companies and Reliance Industries Ltd, which recently started selling jet fuel.