Turbulent times continue for Kingfisher Airlines

Turbulent times continue for Kingfisher Airlines, the second-largest carrier by market share in India. The airline, which operates about 340 flights a day, has cancelled nearly 40 flights a day for the last few days.

According to the airline, the cancellations are on account of aircraft reconfiguration and route rationalisation measures. But there certainly is more to this. Its announcement in September to exit the low-cost business, in retrospect, feels more like a dignified attempt at reducing capacity -a 'fly less and spend less' strategy. Even the flight cancellations over last few days have come on the back of nearly 100 pilots having exited the airline over the last few months and its fast-mounting dues with airport companies and oil companies.

What's disconcerting about these cancellations from the business point of view is that the airline hasn't managed to sustain operations in what is considered as the strongest quarter of the year. October to December are traditionally the months where airlines in India make as much as 70 to 80 per cent of their total yearly revenue.

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The airline's peers, too, are not doing well. Jet Airways posted a loss of Rs 713 crore for the June to September period, as compared to a profit of Rs 12 core for the same period last year. Meanwhile, SpiceJet has reported a loss of Rs 240 crore for June to September compared to Rs 10 core profit in the same period last year. Both the airlines have attributed the loss to depreciation of the rupee, higher fuel prices, and some 'irrational' -read low- prices from Air India.

But Kingfisher's troubles are graver. The airline which started operations in 2005 hasn't reported a profit ever. What is also worrisome is that a bulk of the airline's Rs 6,000 crore debts are on account of operating losses and only some of it is due to the merger with the loss-making Air Deccan that Kingfisher took over in 2007. This is much unlike the big-ticket aircraft acquisitions which are behind the bulging debts of Jet Airways and Air India, which the airlines can use as assets if need be.

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The Vijay Mallya-owned airline desperately needs funds . Earlier this year, Kingfisher had cut its debt through a restructuring by issuing shares to 14 banks, including State Bank of India and ICICI Bank. According to the plan, a consortium of 13 banks converted a Rs 750 crore loan into 23.37 per cent equity in the airline, valuing its shares at a nearly 62 per cent  premium over the prevailing market price. That apart the airline is looking to raise funds via a Global Depository Receipt issue, and convert some of its part of its rupee loans into low-cost foreign currency loans.

However, this alone is not enough. Even a policy change where a foreign airline is allowed to invest anywhere between 24 to 26 per cent in an Indian carrier, may not help the airline entirely. The airline's stock closed on Friday at a new lifetime low and down nearly 10 per cent versus Thursday, which is certain to make investors cagey. Also, the loss of goodwill of the flyers over the last few days is likely to make them adopt a wait-and-watch approach at the very least. So even if the airline were to get more funds, it will be a while before it can bolster enough loads in its aircraft to run a profitable operation.