Mumbai: Vijay Mallya-promoted Kingfisher Airlines Ltd joined other leading operators in making a turnaround when it posted an operating profit in the second quarter, a traditionally weak season during which approximately 30% of its medium-sized planes were grounded, resulting in an 18% reduction in seats offered.
While India’s second largest airline by passengers carried reported an operating profit of Rs175 crore for the quarter ended 30 September against a year-ago operating loss of Rs65 crore, it reported a net loss of Rs230 crore for the second quarter, narrowing from the year-ago Rs419 crore loss.
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Kingfisher Airlines earned an average Rs4.56 lakh per flight during the quarter, 38.85% higher than the year earlier.
Airline passenger growth rose 12%, while airlines added 8% more capacity from the year ago. Rival Jet Airways (India) Ltd posted a net profit of Rs12.40 crore compared with a net loss of Rs406.69 crore. SpiceJet Ltd posted a net profit of Rs10 crore compared with a loss of Rs101.29 crore in the year-earlier period.
“The operating performance is driven by the growth in aviation demand, focus on improving network profitability and various cost reduction initiatives. Despite an 11% reduction in the number of departures, Kingfisher posted a 24% improvement in operating revenues,” said a media statement.
It also said arrangements have been reached with the engine manufacturer to ensure grounded aircraft are operational in the near future and it renegotiated a contract with ticket-booking company Sabre Holdings.
Rashesh Shah, an analyst at domestic brokerage ICICI Securities Ltd, said the results will help the airline improve its performance in the next quarter, which is a strong one for airlines.
“The results are in line with our estimates. There is no cause for worry in the immediate future. The debt recast by banks will also help Kingfisher Airlines,” Shah said.
Kingfisher Airlines is at an advanced stage of debt recast discussions with banks. State Bank of India, the lead bank, has passed the debt recast proposal and other lenders are in the process of seeking similar approvals from their respective boards. The debt recast includes conversion of a portion of the loans extended by the banks as well as the promoter into share capital, a reduction in interest rates and rescheduling of repayment dates. Once approved and implemented, the recast will result in significant financial benefits, including reduction in interest costs while also ensuring conservation of cash, the airline said in a note to investors.
Shares of Kingfisher Airlines rose 2.06% to Rs81.65 on Monday. The airline lost Rs73 crore in the quarter due to the grounding of planes.
The loss before tax and other income was RS240 crore compared with a Rs416 crore loss in the year earlier. The airline’s domestic division posted an operating profit of Rs108 crore against an operating loss of Rs147 crore in the year earlier.
However, international operations continued to be in the red, posting an operating loss of Rs53 crore versus a Rs134 crore loss in the year before. Kingfisher Airlines said it’s going slow on international expansion and striving to put six grounded planes back in the air. “We are now strictly focusing on cutting cost and increasing service quality. With planes back in our fleet, we will be able to gain more market share without compromising on yields,” a senior Kingfisher Airlines executive said. He did not want to be identified.
On 8 November, Mint reported that Kingfisher Airlines had drawn up an emergency three-month turnaround plan to restore financial health. This includes the debt recast, putting grounded planes back on the flight roster and slowing down the expansion of loss-making overseas operations.
As part of a Reserve Bank of India-sanctioned relief package for the airline industry, SBI Capital Markets Ltd, representing a consortium of 15 banks, will announce a debt-recast plan for the carrier.
Interest rates will be cut by at least 3.5 percentage points and Kingfisher will get seven years to pay back its loans with a two-year moratorium on principal repayments. The carrier’s debts amounted to Rs7,413 crore as of 31 December. Under the plan, the loans will be pooled, allowing the banks to share the risk.