The mounting losses of domestic aviation companies despite strong demand conditions underscore the mismatch between revenues and costs incurred to convert this demand into sales. Merely sustained demand, which grew 20% in the September quarter, is not sufficient to run profitable operations and airlines need to chalk out different strategies to align operations to changing cost structures. 

Kingfisher, which declared numbers late on Monday, appears to be in a worse shape compared with peers such as Jet Airways and SpiceJet, not least because the extent of its losses has widened significantly. For the six months to end-September, it reported a net loss of 732 crore, which was almost two-thirds the of 1,026 crore loss it posted in FY11. While its two peers also posted losses in the first six months of FY12, they had profits in FY11 to their credit as per a report in ET by Rajesh Naidu.

Relative to its peers, Kingfisher's costs are higher. For instance, its interest expense to net sales ratio stood at 21% in the September quarter, much higher than 6.8% for Jet Airways and 1.1% for SpiceJet, which is a low-cost carrier unlike the other two. 

The greater spread of its operations, especially routes that its peers do not fly to and are unprofitable, means the pressure on costs is worse. Amid this uncertainty in the company's operations, there are two critical scenarios that can help it in the current situation-strategicinvestment and consolidation. But both these come with their own set of issues. 

For any strategic investor - an Indian or foreign airline --- in a capital-intensive business such as aviation, a lucrative exit point is a must. Hence, the option of strategic investment would make sense only if the government gives a green signal for meaningful minority stake - at least 26% -- for foreign airlines. Only this would widen the possible universe of buyers to include other strategic investors. 

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