Kingfisher Airlines on Wednesday said that it will quit its low cost aviation business, Kingfisher Red. Its chairman, Vijay Mallya said that the segment was too competitive and there are enough passengers for a full service operation. "Yes, we are doing away with Kingfisher Red. We don't intend to compete in the low-cost segment. But all is not gloom and doom," Mallya said.
Kingfisher Airlines' decision to terminate its low-cost carrier operations is aimed at increasing its attention on the full-services model, which has relatively lesser competition. However, the move seems unviable since it will not only impact Kingfisher's market share and financial performance in the coming quarters but also increase prominence of low-cost rivals including Spice-Jet and Indigo in the domestic aviation industry.
The decision, however, is likely to cause more harm than good given price-conscious Indian travellers. The data from Directorate General of Civil Aviation (DGCA) shows that more passengers have chosen to fly by low-cost carriers over the past two years. In 2009, low-cost carriers accounted for 39% of total airline passenger traffic. The share bulged to 50% in the seven months to July 2011.
"Kingfisher Airlines is working with a consortium of banks to further reduce interest costs and raise working capital as the carrier looks to restructure its fleet by selling and leasing back some of its aircraft to lower debt," Mallya said. The airline, which operates 370 flights every day, expects to increase its capacity by 10 percent by reconfiguring its aircraft which will significantly improve revenues, he said.
"The high cost of ATF (aviation turbine fuel) coupled with a weakening rupee is the biggest challenge that the whole aviation industry in India is currently dealing with and we are no exception," Mallya said in a speech at the airline's annual shareholders' meeting. He said that the company is currently buying jet fuel from Reliance.
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