As I write this piece, I am very deeply pained. It is as if I am writing an obituary for a shining star, one that contributed to building Brand Bengaluru. Deep in RED, it was always, is the Fly Kingfisher(formerly Kingfisher Airlines). This luxury brand of flamboyant,extravagant domestic flyer's dream-liner, KF is now mired in a financial turbulence. KF owes its lender banks and fuel companies(HP in particular) an amount of 7000cr. INR.Whoop that's a very big amount. Hence are the concerns. And they are growing and so are the voices of the critics.
So what went wrong. Didn't Dr. Vijay Mallya see the obvious downfall earlier. Lets take five and analyze the KF model first. When it was launched, like all other UB brands, KF was touted as a premier luxury airline. But at around the same time, there was a person who was quite literally the competition demolish-er. Venture capitalist and farmer Capt. G R Gopinath, who started the Deccan charter services, started Air Deccan and was a pioneer for low cost flying in India. KF ,however, had a good opening because Air India was quite literally the white elephant that it is today and Jet was still reeling from the after-effects of the Sahara Airlines buyout and in effect,the luxury flyer was disappointed with Air Deccan. Banks, seeing the initial success, pumped in more cash into the airlines and it was a win-win situation. In subsequent years, KF purchased Air Deccan, renamed it as Kingfisher Red, the low cost sibling of KF. It also meanwhile went international, ushered in a fleet of Airbus A380s and was the the first Indian airline to be given a 5-star rating by Skytrak. All was almost like a fairytale.
But every script has its fair share of villains. In this case it was Crude Oil. The rising prices of crude oil, at almost $150 per barrel was a burden to even the common man. This also resulted in a sharp rise in Aviation Turbine Fuel. ATF prices are the main parameter in determining the total tax paid when a person travels by air. Along with this there was the problem of no powerful regulating authority apart from the DGCA. Also there was the inherent UB problem of overindulging in everything they do.
The beans however were spilled during the Q4 financial results for fy11; Q4 results for FY11.
When ,realistically ,the airline sector was undergoing a crisis, KF registered an unusual profit. The nail in the coffin ,however ,was driven by Hindustan Petroleum ,which refused to supply fuel at a few airports across north India for non-payment of dues. There were even unconfirmed results of Taj-Sats refusing to supply food to KF at Bengaluru also.But KF went overboard still and launched 3 new international routes(new routes) until the bubble finally burst. From 19th october onwards, KF flights started to be grounded and even BP and IOCL refused to extend credit line to Mallya's flagging airline.
Views and expressions started to come in thick and fast in online as well as business circles. On a lighter note, some tweeple suggested Mallya to relieve Deepika Padukone as the airline's brand ambassador.Everyone had a say, including our Prime Minister ,who even suggested a bail-out package for the enterprise ,when Mallya finally approached the government on 11th November for a bail-out. Clearly its wings were clipped and the opulence and the aura of airlines being a safe business venture was shattered. On 11th November 2011, KF had suffered an estimate loss of Rs. 1027cr and a mounting debt of Rs. 7507.08cr. KF stocks plummeted by 19% to an all time low.
The way ahead for KF is a difficult one. But the only viable solution around the horizon ,if KF were to survive, is the influx of Foreign Direct Investment. Stakeholders in the airlines, especially the lending banks will have to bear the brunt of their mistake for the time being and since a premier GOI bank is involved in this, the direct impact will be on the exchequer. As talks are still on and as days pass by ,I sincerely fear and pray that this does not go the way of Pan-Am, TWA or Alitalia. Hope Mr.Mallya finds a way to get out of this muddle. Till then, definitely, Bad Times Ahead!!!
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But every script has its fair share of villains. In this case it was Crude Oil. The rising prices of crude oil, at almost $150 per barrel was a burden to even the common man. This also resulted in a sharp rise in Aviation Turbine Fuel. ATF prices are the main parameter in determining the total tax paid when a person travels by air. Along with this there was the problem of no powerful regulating authority apart from the DGCA. Also there was the inherent UB problem of overindulging in everything they do.
The beans however were spilled during the Q4 financial results for fy11; Q4 results for FY11.
When ,realistically ,the airline sector was undergoing a crisis, KF registered an unusual profit. The nail in the coffin ,however ,was driven by Hindustan Petroleum ,which refused to supply fuel at a few airports across north India for non-payment of dues. There were even unconfirmed results of Taj-Sats refusing to supply food to KF at Bengaluru also.But KF went overboard still and launched 3 new international routes(new routes) until the bubble finally burst. From 19th october onwards, KF flights started to be grounded and even BP and IOCL refused to extend credit line to Mallya's flagging airline.Views and expressions started to come in thick and fast in online as well as business circles. On a lighter note, some tweeple suggested Mallya to relieve Deepika Padukone as the airline's brand ambassador.Everyone had a say, including our Prime Minister ,who even suggested a bail-out package for the enterprise ,when Mallya finally approached the government on 11th November for a bail-out. Clearly its wings were clipped and the opulence and the aura of airlines being a safe business venture was shattered. On 11th November 2011, KF had suffered an estimate loss of Rs. 1027cr and a mounting debt of Rs. 7507.08cr. KF stocks plummeted by 19% to an all time low.
The way ahead for KF is a difficult one. But the only viable solution around the horizon ,if KF were to survive, is the influx of Foreign Direct Investment. Stakeholders in the airlines, especially the lending banks will have to bear the brunt of their mistake for the time being and since a premier GOI bank is involved in this, the direct impact will be on the exchequer. As talks are still on and as days pass by ,I sincerely fear and pray that this does not go the way of Pan-Am, TWA or Alitalia. Hope Mr.Mallya finds a way to get out of this muddle. Till then, definitely, Bad Times Ahead!!!
For related topics: Click here
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