The Financial Mess That Is Kingfisher (Guest Post)

It’s baby time, and I’m taking a couple weeks off from blogging to get to know the little guy. This is the first of the guest posts that I’ll be putting up over the next couple weeks, and it focuses on one mess of an airline.

Could there ever be an airline as bad as Air India, who Cranky named the worst airline ever in August of 2011? Well, at least from a financial perspective Kingfisher Airlines is approaching that level. Yes, that Kingfisher Airlines; the one with a 5 star rating from Skytrax.

Now some of you might be shocked at this statement, and I am engaging in a bit of hyperbole; but since Cranky named Air India the worst airline ever in August of 2011, the fiscal situation at Kingfisher has denigrated to such an extent, that it can be placed in the same ballpark as the mess at Air India.

Kingfisher Tails

Don’t believe me? Well let’s play a little game. Pull up Cranky’s post from August and read these next few statements and compare them to some of the events in the Air India.

  • On July 18th, 12 Kingfisher flights were cancelled due to non-payment of fuel dues to 3 Indian fuel companies (Air India has had more than 25 flights cancelled for this same reason over the past 4 months.
  • In August, Kingfisher deferred payment of salaries to its employees due to a lack of cash.
  • Over the summer, Kingfisher had its in-flight entertainment shut off for non-payment
  • Up to 13 Kingfisher flights were cancelled on September 27th for “Scheduled Maintenance”
  • In late September a report from Veritas Investment Corp proclaimed Kingfisher to be bankrupt.
  • Over the past 3 months, Kingfisher have had 7-15 of their fleet of 27 ATR turboprops grounded due to “maintenance issues” which has prevented Kingfisher from returning these aircraft to lessors.
  • In late November, lessors began to re-possess Kingfisher aircraft, starting with a pair of AerCap owned A320s.
  • Kingfisher lost a ton of money during the US 3rd quarter period, paying nearly 22% of its quarterly revenue in interest and finance charges; their debt situation makes American’s look positively appetizing.
  • In early December, Kingfisher was put on a cash and carry operation at its hub in Mumbai; under which the carrier has to pay for its operations (landing and parking amongst others) at the beginning of the day in cash, or they will not be permitted to operate flights from Mumbai on that day. Airlines typically pay for larger blocks of time (at least a month) using checks, but enough of Kingfisher’s checks bounced that the airport decided that it couldn’t afford to rely on Kingfisher’s shoddy credit.

And just to top it all, in early November, Kingfisher pulled an almost Qantas-esque move, announcing plans to cancel more than 30, then 50 daily flights; representing around a 15% capacity cut. While these types of schedule changes are not unprecedented (see Delta pulling down a ton of trans-Atlantic flights during this fall period), Kingfisher’s management of the whole situation was pretty bad. They gave their passengers no advance notice that the cancellations would hit . . . . None. Passengers were literally informed the day of; leaving thousands stranded around India. Certainly business travelers were alienated by the move; business travel in India does not work exactly the way that it does in the US, but reliability is still hugely important to such passengers. This sort of surprise move tends to spook most travelers (like Qantas’ fleet grounding did), and could affect Kingfisher’s revenue performance moving forward. Given that Kingfisher was in dire financial straits at the time (and is still looking for an equity partner), the move might not have been so bad had Kingfisher not stated less than a month before that it planned to re-align its strategy to capture a larger share of the business travel market.

In mid October, Kingfisher announced that it would be dropping its low-cost arm Kingfisher Red; and focusing on the full service business. This move was almost universally criticized by aerospace analysts in the region who pointed to the fact that air travel growth in India is mostly occurring in the low cost sector. However, I believe that it was the correct move. Kingfisher has such high unit costs (even at their “low cost” subsidiary), that any attempt to match India’s true LCCs on pricing would basically be selling tickets at a loss. Aiming for high value business travelers to offset higher costs makes sense; but not if you alienate those very passengers with your next move.
Given the picture I painted above, one might question whether Kingfisher will be in business for very long, and if OneWorld really wants Kingfisher in its alliance. Neither question is much of a concern. See [Kingfisher CEO] Vijay Mallya is a bit like Richard Branson in that Kingfisher is his pet dream project, not the core business. As with Richard Branson’s various Virgin media brands, the true source of funding behind Kingfisher is Mallya’s United Breweries conglomerate, which makes some of India’s most popular alcoholic beverages among other things. But the UB Group has tired of paying for Kingfisher’s sustained losses and accumulated debt, so Mallya is looking for an outside investor. However, Vijay Mallya is a very well connected businessman both in financial and political circles. There is no doubt that Kingfisher will get the funds it needs to stay in business for the immediate future.

His connections in politics have also paid dividends; already the Indian government is re-considering its stand on Foreign Direct Investment (FDI) in Indian airlines of up to 26%. He has also managed to at least start discussion about the burdensome regulations and taxes levied on the Indian aviation sector. In fact, there is plenty of noise around a potential joint OneWorld equity investment in Kingfisher. Which brings me to my second point, OneWorld needs an Indian partner too much (after going 0 for China) to simply give up on Kingfisher. Moreover, Kingfisher is still a superb service airline. Their flight crew is top notch, and the IFE on their domestic flights is as good as, if not better than that of most US carriers. In fact, Kingfisher’s service will remind you of the 80s and 90s in the US, when checked bags were free, and in-flight meals plentiful. Thus you shouldn’t regard my discussion of their finances above as an admonishment not to fly Kingfisher. They are in no danger of going out of business any time soon, and financial relief is forthcoming (hopefully) from the Indian government. Kingfisher is currently scheduled to enter the oneworld Alliance on February 10th, 2012, and unlike Air India I’m almost certain that Kingfisher will seal the deal.


Vinay Bhaskara is an up-and-coming aviation analyst and history buff based in the United States. He covers the global aviation industry with Bangalore Aviation and Aspire Aviation. You can follow him on Twitter at @TheABVinay.

26 Responses to The Financial Mess That Is Kingfisher (Guest Post)

  1. Rohit Rao says:

    Estimated reading time: 2-3 minutes.

    As another blogger on Indian aviation, I couldn’t disagree with you more.

    “the fiscal situation at Kingfisher has denigrated to such an extent, that it can be placed in the same ballpark as the mess at Air India.”

    I’d argue strongly that Air India is in a much BETTER ballpark than Kingfisher, some of which is attributable to improvements by AI, but a lot of which is because Kingfisher is getting significantly worse day by day.

    “Moreover, Kingfisher is still a superb service airline. Their flight crew is top notch, and the IFE on their domestic flights is as good as, if not better than that of most US carriers.”

    This is the experience of a well respected posted on the Airlines of India forum @ Flyertalk:
    http://www.flyertalk.com/forum/17759205-post195.html
    “Avoid…. Avoid… Avoid!!!!!!!!!!!!!!!

    Flew IT on LHR-DEL and was among the worst flights ever!

    – No Champagne anymore. Forget Dom, not even any sparkling wine!
    – No in flight kits provided for a night flight so no Toothbrush
    – Only KF beer and White and McKay whiskey being served.
    – The bar no longer open on the flight
    – When my colleague insisted on a different whisky they opened a bottle of duty free black label after a long heated debate
    – No table cloth laid for dinner
    – No snacks, only pop corn.
    – Flight in biz was empty and when I asked for a second helping of ice cream was told its over.

    Over all the worst flight I have ever taken.

    The night before the flight left at 856pm even though the departure time is 910 and when I got to the gate at 9ish there was no one to be found at all. I had to stay the night and wait until next day 5pm to get rebooked. The call center refused to help me.”

    “They are in no danger of going out of business any time soon, and financial relief is forthcoming (hopefully) from the Indian government. Kingfisher is currently scheduled to enter the oneworld Alliance on February 10th, 2012, and unlike Air India I?m almost certain that Kingfisher will seal the deal. ”

    I disagree here as well. As I said in the post on my blog on the topic of a Kingfisher bankruptcy (http://aeroblogger.com/2012/01/06/kingfisher-airlines-death-spiral/), I fully expect to go under in the next few months, and I would not be surprised in the slightest if they never joined oneworld. In the unlikely chance that they manage to stay afloat, they will not be in good shape for a while. Their fleet is falling apart (as you can see from that photo on my blog), and they can’t fix that without quite a bit of pain. They have a systemic financial problem, and that means that is awfully difficult to fix.

    “In mid October, Kingfisher announced that it would be dropping its low-cost arm Kingfisher Red; and focusing on the full service business. This move was almost universally criticized by aerospace analysts in the region who pointed to the fact that air travel growth in India is mostly occurring in the low cost sector. However, I believe that it was the correct move. Kingfisher has such high unit costs (even at their ?low cost? subsidiary), that any attempt to match India?s true LCCs on pricing would basically be selling tickets at a loss.”

    For this part, I agree completely with you. However, their implementation of this strategy turned out to be just as half baked as everything else their management has done recently. But certainly, this is a better result for them then trying to continue their “split operations”

    One thing that this post doesn’t even talk about is the fact that a recent report published by the DGCA (Indian equivalent to the FAA) said that pulling Kingfisher’s operating permit might be in order because their financial pressures might impinge on safety. I blogged about that here (http://aeroblogger.com/2012/01/05/dgcas-financial-surveillance-report-full-of-controversy/) for those interested in reading more. Various people then tried to defend Kingfisher, and the DGCA decided that they won’t be revoking the permit, but it shows that Kingfisher is in really rough shape.

    I certainly wouldn’t get on one of their planes myself, nor would I recommend anybody else doing it either.

    Regards,
    Rohit Rao

    • Bill Sexton says:

      This mirrors our experience exactly. We flew LHR-BOM in “first” – what a joke – and it is certainly the worst business class flight experience I’ve ever had. Fly BA or Jet, don’t waste you money on this bunch of charlatans. I’m returning 11 Feb BOM -LHR, assuming they havent gone bust by then, and don’t expect an improved experience over the outbound leg. Utter shambles is my view.

  2. I know someone who works for a large US company that goes to India a lot and they were told out of the blue one day that no one was to fly or book any new travel on Kingfisher due all the cancellations.

    • Rohit Rao says:

      Smart company it seems.

      They don’t have to worry, because they aren’t missing anything. Kingfisher can no longer afford their catering bills either.

  3. Dan says:

    This sucks. I flew Kingfisher’s “Kingfisher First” product from LHR-BLR back in 2008 when one could redeem NW miles on them.

    I love love love the product, and it’s probably the best “J” (business, not true first) marketed product out there. (That is, if you like hip and trendy.) I really am looking forward to treating my wife to the Kingfisher First experience when they join One World.

    However, they need to get their operational act together, because no airline with a reputation of stranding passengers is going to get much business.

    • Dan and David,

      That is ultimately Kingfisher’s dilemna; they are chasing after passengers that they scared away with their own actions.

    • Rohit Rao says:

      Perhaps a quote of the most recent trip report on FlyerTalk of Kingfisher First might change your mind?

      ?Avoid?. Avoid? Avoid!!!!!!!!!!!!!!!

      Flew IT on LHR-DEL and was among the worst flights ever!

      – No Champagne anymore. Forget Dom, not even any sparkling wine!
      – No in flight kits provided for a night flight so no Toothbrush
      – Only KF beer and White and McKay whiskey being served.
      – The bar no longer open on the flight
      – When my colleague insisted on a different whisky they opened a bottle of duty free black label after a long heated debate
      – No table cloth laid for dinner
      – No snacks, only pop corn.
      – Flight in biz was empty and when I asked for a second helping of ice cream was told its over.

      Over all the worst flight I have ever taken.

      The night before the flight left at 856pm even though the departure time is 910 and when I got to the gate at 9ish there was no one to be found at all. I had to stay the night and wait until next day 5pm to get rebooked. The call center refused to help me.?

  4. HansGolden says:

    I flew Kingfisher on Saturday DEL-HYD and service was great (I used a recent promo to acquire Kingfisher Silver status and got 4 free checked bags (I got 3 free bags as a Star Gold on my incoming CO flight and Kingfisher Silver gives one additional piece when connecting from the US) and a lounge invitation) and the plane was only about 15% full. Their random cancellations and dire headlines in Indian newspapers (a bunch of pilots just quit because of non-payment of salaries) have dropped their loads to levels that will ensure they continue to lose money at an ever-increasing rate.

    • You’re right, the service is still pretty solid for the most part.

      With regards to random cancellations and the headlines, the Indian media is typically not very good at reporting about aviation, but the people do respond to it. They’ve had all these reliability problems right as they altered their business model to cater more to business travelers.

      • Rohit Rao says:

        Not really. They’ve been getting progressively less reliable as time went on for the last 8 or 9 months now. It’s been clear that they’ve been unhealthy financially from the get-go.

        If you go to FlyerTalk, where a lot of the really frequent flyers in India hang out, you would have seen complaints about Kingfisher’s reliability for a long, long time now.

        Unfortunately, it doesn’t look like they’re getting better.

  5. Rohit,

    Air India is far far worse. They can’t even cover the cost of FUEL on many of their flights.

    With regards to service, that is one person’s opinion; not always representative of the whole.

    The quotes from the DGCA report in the TOI article were likely taken out of context and modified by the author. I am reserving judgment until I can get a copy of that report myself.

    • Rohit Rao says:

      As for the DGCA report, fair enough. I’ve been actively looking for a copy of the report myself, and it seems that a pilot I know at SpiceJet has access to it. Now I just need to get access myself…

      As for Air India, I continue to disagree. Comparing the financial results of Kingfisher and Air India is futile, because Air India is functioning both as an airline and as a government jobs creation program. As a state-run carrier, it has both of those functions, and it has no choice in the matter.

      Air India is commanding a yield premium and significantly higher load factors over Kingfisher for the most recently released Aviation Ministry data. They have higher dispatch reliability as well, with a far lower delay and cancellation rate than Kingfisher. From an operational and revenue standpoint, there is no doubt that Air India is at an advantage to Kingfisher. From a cost standpoint, they still are terrible, I will admit. But it’s not a fair comparison

    • Rohit,

      I just read the report; none of those issues are new; most of it was mentioned in my post.

      To me it seems as though DGCA anticipates future problems due to financial stress; the current problems are more or less in line with those of the other private carriers: so from my perspective KF doesn’t really have a safety problem at the moment.

      Air India is mis-managed; corrupt, and just generally screwed up. I’ll believe it when I see it

      • Rohit Rao says:

        The part about 1/3 of Kingfisher’s fleet being grounded because they can’t afford maintenance is a bit worrying to me personally.

        And as for AI, I guess we’ll just have to agree to disagree – clearly attempting to convince each other of their screwed-up-ness or lack there of is a waste of time.

        • Sanjeev M says:

          LOL you two :)

          Either way 9W stands to benefit from all this. It’s playing smart by keeping its focus international away from LCC’s and hopefully new destinations and an alliance announcement will come soon.

          However, to compete against EK, India need a real hub. I thought DEL was it, and to an extent AI has tried to do something with the timings and all. Jet seems willing to wait forever for BOM T2 to open.

          Another beneficiary is SriLankan, who serves many regional Indian destinations, and could potentially develop a huge transfer operation.

          I guess its just a wait and see situation. Hope the drama doesn’t go on forever like an Indian TV serial.

          • Rohit Rao says:

            Every carrier stands to benefit from this. Having a ton of capacity in a market disappear opens the door to expansion and higher yields. Capacity discipline was lacking by Indian carriers, and this will really make up for it.

            To be honest, 9W has faced precisely the same issues as KFA has. Combining an LCC and a FSC is futile and an easy way to end up in losses. It’s just that 9W’s management has been more competent, so they have been able to hold on. Recently, it came out that they are phasing out 9Wk and S2 as well, consolidating with the FSC model as well.

            UL and EK will also benefit quite a bit from this. Sometimes I wish that India would kick EK out and let the Indian carriers serve their own market, but I know that it won’t happen any time soon ;)

  6. CF says:

    Sorry about all the moderated comments here. I was getting a lot of spam from a company that had “Fisher” in the name, so I specifically had it set up to require moderation if Fisher was used. As you can imagine, KingFISHER has tripped the moderation a lot.

  7. Sanjeev M says:

    Thanks Vinay for your article. I know you and Devesh wrote a lengthy article over on Bangalore Aviation about IT and what they can do. I personally believe IT should have gone the route of American carriers and established fortress hubs at HYD and BLR, connecting people between the Gulf, India, and SE Asia. We don’t need 5 carriers on LHR-DEL and LHR-BOM. I do agree with you that IT is smart in dropping Red.

    It is true, however, that taxes and fuel in India are killing all carriers.

    Vinay you do mention free bags on IT is a differentiator, however SpiceJet and Indigo offer 20kg’s which is enough for domestic Indian trips.

    I think the other thing to realize is that Indian Railways is a huge factor in this and their service improvements and relative ease of rail travel in India is something to consider.

    • Rohit Rao says:

      It certainly is something that is worth it to consider. When passengers can travel from Hyderabad to Delhi for around $10 one way on Indian Railways (compared to $100 on a flight) in reasonable comfort – a bed, and edible meals, it really does make it difficult for airlines to compete for the same passenger.

      A senior exec at SpiceJet was quoted a while back saying that the availability of sleeper class trains changes the yield dynamics of low fare carriers significantly. SpiceJet instead competes against passengers in the AC classes, who tend to be less price sensitive than leisure/VFR passengers in other countries.

      Even with that yield advantage, all the airlines of India are struggling. It certainly is interesting to think about why that is, but that’s another topic altogether…

  8. I don’t know anything about the financial mess of Kingfisher, but I flew with them once last summer, and I didn’t have any complains. Mind you, I usually fly low-cost airlines, so my expectations are not very high to being with.

    • Rohit Rao says:

      Their issues have been getting progressively worse over the last few months to the point where yesterday when I was at the airport, 5 out of 5 Kingfisher flights departing in the next few hours were delayed or cancelled. Employee morale is in the pits as well, with staff not having received paychecks in months (to be fair, Air India has this problem too).

      Employees have been quitting at a rapid pace, and recently, a large group of KFA flight attendants move to Air India, where they felt that they would be more likely to maintain job security and pay. Considering that Air India staff haven’t been paid in a few months either, that really says something about the state of morale.

  9. Cook says:

    Best wishes to you, Mrs. Cranky and Cranky Junior. (Let’s hope that he does not earn his name!) I’m happy for all of you and delighted that you can take a few weeks to bond with Cranky Junior. I wonder when he will make his first flight!

  10. Ashwin says:

    Not that I want to shy away from all the intense discussion created by Rohit, Sanjeev et al, but I would like to address the “butterfly effect” of the entire process.

    Great post by the author, I must say, addresses the financial misery that all airlines in India face. Although both airlines (Kingfisher and AI) might actually be in the same financial crisis, I strongly disagree that the characteristics of the crisis are the same.

    The major reasons for the distinguishing factors are:

    In the case of AI: The government won’t really help out the airline financially. Not only that, data (can’t share IOSA data, Sorry!) and experts have clearly shown that from an operational perspective, AI isn’t doing so bad. The foreign investment, will result in a higher interest rate, which will result in a little more pressure for AI to perform and produce the profit. The same profit will look much sweeter with a government-induced financial kitty with the strict domestic interest rules for air carriers.

    In the case of Kingfisher: I’m sure most of you will agree that Vijay Mallya is not the most knowledgable person about aviation and made the biggest mistake when he founded the airline non-independently from all of his (let’s call them..) “other endeavors”. This had led to Kingfisher being on par with the likes of Jet Airways over the years, operationally, but not financially. Mallya had no business being the CEO of a company he doesn’t know much about. Aviation is a completely different ball-game. By the time he decided to let somebody bring the success of Flight Options to Kingfisher, it was too late. He still has a lot of rope (political, financial, etc), but his decision-making has been flawed by a industry-stereotype I am guessing.

    Theoretically, a solvable problem. Both airlines with great potential in one of the world’s most booming markets, but deciding not to use the failsafe. Quite a predicament that will result in a lucky break for some neighbors.

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  12. Tony says:

    It’s a bit sad.
    They seem to have the brand recognition, but bad planning, execution and hubris.
    That being said, perhaps India should allow cabotage to happen. This has worked well for Latin America in terms of competition, quality of service and increased travelers. Most importanly, increased safety and add new jobs.

    I think India’s commercial aviation would be greatly improved if Emirates, Lufthansa, Cathay Pacific, Jetstar, Singapore, or even Ryan Air were to fly domestically.

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