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Kingfisher Airlines doubles loss on fuel costs

Kingfisher Airlines doubles loss on fuel costs
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First Published: Tue, Nov 15 2011. 12 40 PM IST

Updated: Tue, Nov 15 2011. 12 40 PM IST
Mumbai: India’s cash-strapped Kingfisher Airlines doubled its loss in the September quarter on higher fuel prices and operating costs amid investor worries about its ability to remain aloft in a fast-growing but loss-making industry.
The carrier, controlled by flamboyant liquor tycoon Vijay Mallya, has been late paying salaries and said on Tuesday it had suffered “substantial losses” and its net worth had been eroded.
Shares in Kingfisher, which fell to a record low last Friday after the carrier cancelled scores of flights during the week, were up roughly 1% on Tuesday. The stock has lost about 67% since the start of the year, shrivelling its market value to $213 million.
“This industry needs some structural reforms. The impractical competition among players has driven down ticket prices and the high fuel cost is also hitting very badly,” said Sharan Lillaney, an airline analyst with Angel Broking.
Kingfisher, which has said it is not worried about its long-term viability, has been asked by its creditors to raise $160 million in equity and is considering a proposal to sell real estate to help pave the way for a debt restructuring, a banker said on Monday.
The carrier, which has never turned a profit, recently announced plans to exit the low-cost segment, a move that puzzled some observers given India’s price-sensitive market.
It said that while passenger revenue rose 9%, its revenue per average seat kilometre fell by 16% from a year earlier even as its cost per average seat kilometre rose 8%.
Kingfisher’s aircraft fuel bill jumped 70%.
Debt Restructuring
Earlier this year, Kingfisher, the country’s No.2 carrier by market share, cut its debt through a restructuring by issuing shares to 14 banks, including State Bank of India and ICICI Bank, the country’s two biggest lenders.
The carrier had $1.5 billion in loans at the end of the quarter, down 7.5% from a year earlier.
Kingfisher’s net loss in the quarter ended 30 September deepened to Rs469 crore ($93 million) from Rs231 crore in the year-ago period, the company said in a statement. Its loss was its biggest since the March 2010 quarter.
“While all airlines have taken a deep hit this quarter because of high fuel prices, Kingfisher is in such a bad shape that they need to look for funds to stay afloat,” said Neeraj Dewan, director at New Delhi-based Quantum Securities.
Despite passenger traffic on track to grow at roughly 17-18%, the Centre for Asia-Pacific Aviation (CAPA) expects Indian airlines to lose at least $2.5 billion in the fiscal year that ends in March, with state-owned Air India likely to account for more than half of that.
Air India has long been on government life support, and some in the industry blame it for pushing prices below cost.
“They continue to initiate below-the-belt pricing, but then everybody else follows it,” said Kapil Kaul, CAPA’s chief executive for the Indian subcontinent and Middle East.
Private carriers Jet Airways, the country’s largest airline, and budget operator SpiceJet, also reported losses in the September quarter.
Kingfisher has become one of the main casualties of high fuel costs and a fierce price war between a handful of airlines which, between them, have ordered hundreds of aircraft for delivery over the next decade in an ambitious bet on the future.
Kaul said Indian airlines’ fuel costs are 60-70% higher than the global average because of taxes. Airport charges are also rising, said Jasdeep Walia, an analyst at Kotak Securities.
“The cost environment is ... becoming severe from all sides and you cannot pass it on to the market because of the state-run carrier’s pricing policy,” Walia said.
New Delhi is considering lifting its ban on direct investment in the sector by foreign airlines, according to media reports, which could provide a lifeline to Kingfisher if it finds an investor.
“In a market that is growing at 18 to 20%, there is no reason why anybody should be making losses,” Sudheer Raghavan, chief commercial officer at rival Jet Airways told an analysts’ conference call on Monday.
“At the end of the day, it is a highly competitive market and, this being a perishable product, there is always pressure to drop fares,” he said.
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First Published: Tue, Nov 15 2011. 12 40 PM IST