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When full service carrier Kingfisher Airlines enacted a latest round of route and capacity cuts last week, it represented simply the latest evidence that the carrier is headed for bankruptcy and is in a death spiral. Part of the drawdown involved the cancellation of almost all of Kingfisher’s international operations, which occurred after the airlines lessors began demanding the return of the carrier’s widebody Airbus A330-200 aircraft. The majority of Kingfisher’s international routes will be terminated by the 25th of March, with Mumbai-London Heathrow persisting till early April, and Chennai-Colombo and Mumbai-Dubai remaining indefinitely. Even more damning is the spate of domestic operational changes, which see a further 42 flights cancelled in the Summer Season of 2012, bringing the carrier down to around 100 daily flights using 20 aircraft (a mix of A320 family and ATRs- and down from a previous schedule of ~160 flights using 28 aircraft), a far cry from its proud 350 flights per day with 66 aircraft level in Summer of 2011. The nature of these cancellations is also very troubling, as an airline that wanted to become India’s premium, business travel, has instead vacated many of the most important such sectors in the country. Kolkata, the 3rd largest city in India, and 4th busiest domestic airport has been abandoned entirely, while the carrier no longer serves India’s 6th busiest airport at Hyderabad from Bangalore, Chennai, Delhi, or Mumbai, nor the important Chennai-Delhi sector. Even in former centerpiece Bangalore (where the carrier once had its single largest operation), Kingfisher operates just 25 flights per day, a far cry from the almost 60 flights per day that they operated two years ago. Other important cities around India, including wealthy Ahmedabad and Amritsar are being canned as well, and the confluence of such cuts will simply force high-value frequent flyers and business travelers into the arms of other airlines (primarily national carrier Air India and private sector rival Jet Airways). See the bottom of the story for a catalogue and map(s) of Kingfisher’s route changes. International cancellations a financially prudent move Beyond these capacity reductions, the carrier’s dance with its various creditors and lenders continues. Fuel and other supplies have been hit and miss over the past few days, leading to random flight cancellations. The easiest comparison to make for Kingfisher’s current situation is that of a wounded deer; Kingfisher’s creditors and lessors are surrounding the wounded airline like wolves, and it is only a matter of time before they pounce (resulting in a Kingfisher shutdown). But that impetus will not be coming from the DGA or Civil Aviation Ministry, as they cannot legally (or ethically) shutdown Kingfisher so long as the airline continues to meet the bare minimum standards of operation (5 aircraft, a base amount of equity, et. al). Either way, the international drawdown is (finally) a move that makes strong business sense on Kingfisher’s part. In contrast to Kingfisher’s operationally profitable domestic flights, their international operations have been hemorrhaging cash for a long time now, posting an EBITDAR loss (earnings excluding taxes, depreciation, amortization, and rents) of 36 crores as opposed to an EBITDAR profit of 161 crores on domestic operations in Q3 of FY 2011-2012. By ending international operations and returning the aircraft to lessors, Kingfisher will save crores of rupees in employee, distribution, and maintenance costs. A large chunk of Kingfisher’s maintenance spend was going towards keeping the three A330s operational, and hopefully the carrier can re-instate some of their grounded A320s and ATRs with some of the released funds. Loss-making routes should never persist at a carrier with financial difficulties on the scale of Kingfisher’s. But curiously, Kingfisher has elected to keep serving just two international destinations, meaning that it will have to continue with many of the structural costs and supplier contracts associated with the overall operation. It will need to keep employees in Dubai and Colombo for just one flight per day, and have separate employees at Colombo to handle the ATRs (as the Chennai-Colombo sector will operate 6 times per week with A320 and once weekly with the ATR 72). This will limit the positive effect on Kingfisher’s finances, as they cannot reduce the full 469 crores of international driven expenditure. Domestic draw-down doesn’t have as many benefits Whereas pulling down international operations will be beneficial to Kingfisher’s health, we are not so convinced that doing so domestically will have the same healthful effects. Remember, Kingfisher’s financial liabilities and commitments are still those of a carrier 3 times its planned size this summer. While loss making operations are loss making operations, they still provide cash flow for Kingfisher to keep even more of its contracts from defaulting (as they can pay the bare minimum contractually required without violation). The adverse revenue effects of operating just 100 flights per day extend beyond a linear reduction; what frequent flyers remain are likely to abandon the airline as it can no longer take them where they need to go. There is a required “critical mass” in flights to sustain any full service or established carrier, and Kingfisher is rapidly approaching that line. The biggest losers in Kingfisher’s decline will be the airline’s creditors and shareholders (obviously) who are likely to see all or part of their investments turned to dust. But close behind are the aircraft manufacturers like Airbus and ATR, who have lost a significant source of aircraft orders in Kingfisher. When ATR cancelled Kingfisher’s outstanding order for 38 ATR 72-500s last year, more than 15% of ATRs backlog of ATR-72s was wiped out in one fell swoop, a paper loss of more than $300 million. While Airbus as a whole, with its broader customer base, will not be affected as much by Kingfisher’s inevitable cancellation of its orders from Airbus, on a program specific level the effects will still be evident. Kingfisher’s order for 15 A330-200s is around 10% of that variant’s backlog, and the loss of 5 A380-800 orders will also push back that program’s planned break-even point. The lessors will survive, as Kingfisher’s aircraft are highly desired assets (especially A320s) that can be placed with other airlines quite easily, but Airbus will accrue a paper loss of a few billion dollars. At this point, it might be more prudent for Kingfisher to simply cancel their entire order book of 92 aircraft and salvage some funds from the deposits placed with Airbus to secure these firm orders. Kingfisher’s withdrawals will have positive effects on the other carriers in the Indian market; Jet Airways and Air India in particular are well positioned to capture some of the premium passengers and frequent flyers who will leave Kingfisher, and Jet’s international operations should receive a shot in the arm. But the effect internationally and within India will be muted so long as airlines continue stepping in to backfill lost Kingfisher capacity. For example, within days of Kingfisher cancelling its service to London-Heathrow, Virgin Atlantic stepped into resume service, maintaining the overcapacity currently seen on India-London sectors. IndiGo, Jet, GoAir, Air India (not likely but…), and SpiceJet will have to resist the urge to replace Kingfisher’s domestic flights; the resultant rise in fares might push the airline sector back towards profitability. Kingfisher should shut down and re-launch For Kingfisher, the best step forward might very well be to shut down, re-structure its contracts and debt, then re-launch as a smaller carrier. While there are many possible forms that a re-launched Kingfisher could take, we feel that the best strategy is to focus on regaining its frequent flyer base. What has become apparent in reading internet commentary (not a perfect source to be sure) by travelers, is that most still have fond memories of Kingfisher and would fly the airline again in a heartbeat if they could be assured of its viability. Our suggested method is for Kingfisher to re-launch as a Metro focused airline with high frequency flights (at least two, preferably three flights per day on most city pairs). The following 15 cities: Bangalore, Mumbai, Delhi, Hyderabad, Ahmedabad, Cochin, Kolkata, Chennai, Pune, Jaipur, Kanpur, Lucknow, Trivandrum, Calicut, and Nagpur, would provide a solid base of destinations, and if the carrier were to focus in particular on Bangalore, Mumbai, and Ahmedabad; they could sufficiently operate up to 120 flights per day connecting these destinations with a mix of around 18 A320 family aircraft and 7-8 ATR 72s. Such a network would allow Kingfisher to provide an efficient dispersion of passengers for British Airways and other OneWorld partners (assuming that they’d be willing to induct Kingfisher), and re-attract at least 50% of its former frequent flyer base. Then, if this operation proved successful, the carrier could slowly add more domestic destinations back into the fold. All the while, they should seek to maintain their peak service levels, while running operations efficiently and limiting employee salaries to prevent cost overruns. International operations, the thing that first drew Mallya into his ill-fated acquisition of Air Deccan, should be pushed 2-3 years down the line, and resumed properly with OneWorld backing. Hopefully, Kingfisher will see the light and pursue these types of changes, keeping one of the world’s greatest service quality airlines alive into the distant future. Kingfisher Domestic Operational Changes for Summer 2012 courtesy of airlineroute.net
Bangalore – Chennai 2 of 6 Daily service Cancelled
Bangalore – Hyderabad 2 of 5 Daily service Cancelled
Bangalore – Kochi 10 of 24 weekly service Cancelled
Chennai – Coimbatore 2 Daily service Cancelled
Chennai – Hyderabad 1 Daily service Cancelled
Chennai – Mangalore 1 Daily service Cancelled
Chennai – Tiruchirapally 1 Daily service Cancelled
Chennai – Vishakapatnam 1 Daily service Cancelled
Delhi – Ahmedabad 1 Daily service Cancelled
Delhi – Amritsar 2 Daily service Cancelled
Delhi – Chandigarh – Srinagar 1 Daily service Cancelled
Delhi – Chennai 2 Daily service Cancelled
Delhi – Gauhati – Bagdogra – Delhi 3 weekly service Cancelled
Delhi – Jammu 1 of 2 Daily service Cancelled
Delhi – Kolkata 2 Daily service Cancelled
Delhi – Lucknow 2 of 3 Daily service Cancelled
Delhi – Pune 1 of 4 Daily service Cancelled
Delhi – Ranchi – Patna – Delhi 1 Daily service Cancelled
Delhi – Srinagar 1 of 2 Daily service Cancelled
Hyderabad – Pune 1 of 2 Daily service Cancelled
Hyderabad – Rajahmundry 1 Daily service Cancelled
Hyderabad – Vishakapatnam 2 Daily service Cancelled
Kolkata – Aizawl 1 Daily service Cancelled
Kolkata – Bagdogra 1 Daily service Cancelled
Kolkata – Bhubaneswar 2 Daily service Cancelled
Mumbai – Ahmedabad 1 Daily service Cancelled
Mumbai – Coimbatore 1 Daily service Cancelled
Mumbai – Delhi 2 of 11 Daily service Cancelled
Mumbai – Goa 1 of 3 Daily service Cancelled
Mumbai – Kolkata 1 Daily service Cancelled
Kingfisher International Operational Changes for Summer 2012
Routes that will continue marked in blue
Chennai – Colombo 1 Daily service RESUMES from 25MAR12. Airbus A320 operates 6 times a week, ATR72 once a week. This represents capacity increase prior to temporary suspension
IT061 MAA1125 – 1315CMB ATR 3
IT061 MAA1250 – 1405CMB 320 x3IT062 CMB1415 – 1605MAA ATR 3
IT062 CMB1505 – 1640MAA 320 x3Mumbai – Dubai 1 Daily service is MAINTAINED on/after 25MAR12, 2-class A320 operating
IT043 BOM2030 – 2200DXB 320 D
IT044 DXB2330 – 0405+1BOM 320 DOther International routes remains to be cancelled for the moment.
Bangalore – Dubai 1 Daily service Cancelled eff 25MAR12
Delhi – Bangkok 1 Daily service Resumption eff 25MAR12 is Cancelled
Delhi – Dubai 1 Daily service Cancelled eff 25MAR12
Delhi – Hong Kong 5 weekly service Cancelled eff 15MAR12
Delhi – Kathmandu 1 Daily service Resumption eff 25MAR12 is Cancelled
Delhi – London Heathrow Operation until 10APR12
Kolkata – Bangkok 1 Daily service Cancelled
Kolkata – Dhaka 1 Daily service Cancelled
Mumbai – Bangkok 1 Daily service Resumption eff 25MAR12 is Cancelled
Mumbai – Hong Kong 1 Daily service Cancelled since 12MAR12
Mumbai – London Heathrow 1 Daily service Cancelled since 14MAR12
Mumbai – Singapore 1 Daily service Cancelled since 14MAR12
Tiruchirapally – Colombo 1 Daily service Cancelled eff 25MAR12
