Kingfisher Airlines

India domestic passenger growth slows to 8% in Dec-2011; 2012 growth to slow from 16.6% in 2011

India’s domestic air passenger growth slowed to 8% in Dec-2011 to less than half the pace of growth experienced in calendar 2011 and down from the 17-22% growth rates seen between Jun-2011 and Oct-2011. While passenger numbers in India’s domestic market have seen growth now for 31 consecutive months, the result for Dec-2011 marks the end of 16 consecutive months of double-digit growth. This single-digit growth in the peak month of Dec-2011 (to 5.63 million passengers) is a sign that slowing economic growth is affecting air travel and reflects impending capacity caution by some of the nation’s largest players.

India’s domestic passenger numbers increased 16.6% to 60.7 million passengers in 2011, averaging out at 5.1 million passengers per month, and up 74% from 2006 levels. The largest stand-alone carrier was IndiGo with a 19.5% market share, with IndiGo also the fastest growing carrier in 2011.

Non-stop US-India market continues to shrink with American Airlines ending Chicago-Delhi service

The number of carriers operating direct service between the US and India will decline to two – Air India and United – from 01-Mar-2012 when American Airlines ends its sole service to India, a daily service between Chicago O'Hare-New Delhi. The cancellation of the unprofitable routes comes as American rationalises its network as part of its bankruptcy filing. The carrier stated that the service is being cancelled due to the “historical financial performance of the route and its future outlook given the global economic climate and high oil prices.” The poor financial performance on the route, American's longest at 7484 miles, relates to the impact on yields of competitive pricing as American was able to consistently report high load factors on the route over the past 12 months. 

Robust growth in India domestic market fails to translate into profits

India’s domestic aviation traffic posted double digit growth of 11.1% in Nov-2011 to reach 5.4 million passengers for the month. Growth has slowed from the 17-22% rates seen since Jun-2011, however India remains one of the fastest growing domestic markets in the world, with growth expected to continue despite the current financial challenges experienced by key players in the Indian aviation market.

In the first 11 months of 2011, domestic passenger numbers increased 17.6% to 55.0 million passengers, averaging out at 5 million passengers per month. India’s domestic market has seen passenger growth now for 30 consecutive months, with 15 consecutive months of double-digit growth. Domestic traffic has increased by 85% in the past five years since Nov-2006, with domestic traffic now 41% above Nov-2007 levels, 80% above Nov-2008 levels and 32% above Nov-2009 levels. 

Kingfisher to join oneworld in Feb-2012 becoming first alliance-affiliated carrier in India/SAARC

Kingfisher Airlines will become part of oneworld from 10-Feb-2012, becoming the first carrier from the Indian subcontinent to join any of the global airline alliances. Air India’s application to become a member of the Star Alliance was rejected at the end of Jul-2011 while Jet Airways is yet to announce its alliance plans but is said to be in discussions with both Star Alliance and SkyTeam (SkyTeam is reportedly in discussions with a number of Indian airlines, including LCCs). Kingfisher Airlines will also be the first of three airlines to join oneworld in 2012, in its largest membership expansion drive for five years, with airberlin set to follow shortly after Kingfisher and Malaysia Airlines joining later in the year.

Joining oneworld will give Kingfisher Airlines, currently facing considering financial pressures, global visibility, brand awareness and scope to improve revenue. According to reports in The Business Standard, Kingfisher is expecting at least a 5% increase in revenue through codeshare agreements with partner airlines. There will also be cost savings through common use of inventories and joint purchases. oneworld’s continued confidence in the struggling carrier is also a positive boost for the carrier, which has significantly reduced capacity and is currently seeking INR6.7 billion (USD127 million) in short-term working loans.

Woes continue for Kingfisher Airlines amid steep losses and unviable debt burden

The woes continue for Kingfisher Airlines, which this week reported a steep loss in the fiscal second quarter, with the carrier forced to dismiss speculation of a potential collapse of the carrier. “To suggest an immediate grounding of the airline is neither fair nor reasonable,” chairman Vijay Mallya said, adding: “To write the epitaph of Kingfisher Airlines is constantly neither fair nor accurate. We shall survive and flourish and prove you all wrong”.  

The problems at Kingfisher Airlines, an airline which has never reported an annual profit, are reflective of the difficulties facing the entire Indian airline industry, with most carriers struggling to operate profitably despite India’s rapid economic growth and a close to 20% annual increase in air travel. “It is a very competitive environment, it is a high-tax environment and it’s a hostile environment as far as investment is concerned. The fact of the matter is that the entire industry is in serious trouble,” Dr Mallya said.