It’s the irony of Indian aviation that despite a market growing at 18 per cent for last 11 months, five out of six Indian airlines are bleeding. If Air India was in the news for the last few months over the CAG report, aircraft purchases, and merger issues, Kingfisher Airlines has been in the focus in the last few days for flight cancellations, cash shortages, and survival fears.
Kingfisher hoped that the press interaction on November 15th would clear much of the negative air. The airline listed out a few options in its kitty to tide over the turbulent times. But the statement that the airline was “in discussions with a strategic Indian investor,” was perhaps, the most attractive of all solutions provided by the airline. After all, such an investor will certainly help the airline tide over its additional working capital need of Rs 800 crore and also address the issue of its nearly Rs 7,500 crore worth of debts.
Kingfisher’s chairman Vijay Mallya told Business Today that the strategic investor could put in upwards of Rs 1,000 crore in the airline. He also said that the airline has applied for working capital loans from banks worth Rs 600 crore. This will certainly provide the airline the much needed fresh lease of life. At least till the aircraft reconfiguration and route rationalisation measures start showing results.
But Kingfisher’s pains are mirrored -in a lesser extent- in the operations of its peers as well. All the three listed airline companies have shown a loss for the June to September period. High aviation fuel prices and depreciating rupee is where the blame has been assigned. Then there are policy issues, like high sales tax on aviation fuel and airlines having to fly unviable routes to develop connectivity in the country, that are adding to the hardship. Lastly, it’s the inability of Indian airlines to hike ticket prices that is hitting them the hardest.
Vijay Mallya, in his interaction with the press on November 15th, did admit that one way to fly Kingfisher out of the mess was to raise prices. But he also conceded that the airline had “got stuck” while trying to raise prices. Dinesh Keskar, India head for aircraft manufacturer Boeing, estimates that Indian carriers are under-cutting themselves by as much as Rs 1,000 on prime routes like Mumbai-Delhi.
It’s the way the market is structured that prevents any airline in India from raising prices. No airline owns a significant chunk of the market, which means that if one airline does try to hike fares and others don’t follow suit, its fliers will be easy business to its competitors. This means that no airline raises prices until it knows that others are likely to do the same.
So until one of them decided to turn bold, bank on its product and hike fares, airlines can merely hope for another consolidation -like how Jet Airways bought Air Sahara and Kingfisher Air Deccan and got some control over the market. Or they can hope for some relief in terms of economic conditions or policy changes.