Low-cost carrier Kingfisher Red would shut down in four months with the airline group chief Vijay Mallya on Wednesday saying several measures have been initiated to face financial problems caused by high interest burden and burgeoning fuel costs.
“We are doing away with Kingfisher Red because we don’t intend to compete in the low-cost segment... (But) all is not doom and gloom as people like to report,” Mr. Mallya told reporters after the Annual General Meeting of the Kingfisher Airlines in Bangalore.
“We believe there are more than enough guests who prefer to travel the full-service Kingfisher Class, and that shows through in our own performance where the load factors in Kingfisher Class are more than in Kingfisher Red,” he said.
Mr. Mallya had bought over the erstwhile Air Deccan, the first Indian low-cost airline founded in 2003, and rebranded it as Kingfisher Red in August 2008. Air Deccan then had a fleet of 21 aircraft, all in economy-class configuration.
“Clearly the margins of Kingfisher Class are better than Kingfisher Red as the yields are better”, he said, adding that reconfiguration of aircraft have already started and should be completed over the next four months.
A statement from the company later said Kingfisher is undertaking cabin reconfiguration “which will add significant number of seats and, hence, generate additional revenue at minimal cost.”
“All of Kingfisher’s Airbus aircraft will have a first class with incremental seats in economy. At this time Kingfisher will be dropping the Kingfisher Red class of service. This effort will be concluded in the next four months.”
Mr. Mallya said that at the AGM, the shareholders unanimously approved a Rs. 2,000-crore rights issue.
The shareholders had earlier approved Global Depositary Receipt (GDR) issue. But the GDR, a financial instrument used by private markets to raise capital in either U.S. dollars or euros, could not be launched due to various external factors like the high crude oil price regime, he said.
“But there are always opportunities that show up and we are obviously examining all options available to us including the rights issue that was approved today,” he said.
In the wake of reports of financial turbulence faced by Kingfisher, Mr. Mallya allayed apprehensions of his shareholders saying the airline would need to infuse more funds to remain afloat and efforts were being made in that direction. He also sent a communication to the shareholders.
Elaborating on initiatives being taken to improve margins and reduce the interest burden, he said a debt recast package has been implemented, which includes Rs. 1,300 crore loan from bankers. In addition, funds of promoters to the extent of Rs. 745 crore were converted into share capital.
Among the steps being taken were sale and lease-back of some aircraft and other assets to reduce loans and conversion of some rupee loans into low cost forex loans based on existing forex cash flows.
The Kingfisher chairman said that aviation demand remains strong and Kingfisher has a market share of approximately 20 per cent. “Kingfisher is also India’s most awarded airline, recognised for the quality of its product and service and its vast network,” he said.