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India's 5-star model that fails to take off

Publication Date : 22-10-2012

 

Once voted India's best carrier, Kingfisher Airlines, weighed down by US$1.4 billion in debt, has had its wings clipped after its licence was suspended.

The airline, known for its personal valet service at airports and free meals, failed to convince India's regulator that it was "safe, efficient and reliable".

The Directorate General of Civil Aviation last Saturday suspended Kingfisher's licence until it can produce a financial revival plan.

Troubles have been mounting for the seven-year-old airline, which saw its fleet grounded early this month after pilots and engineers who have not been paid for seven months went on strike.

Helmed by Vijay Mallya, a flamboyant industrialist and liquor baron who calls himself the King of Good Times, Kingfisher did not adopt the budget airline model and was done in by high fuel costs and landing charges at Indian airports, and competition from no-frills carriers.

"The whole business model of Kingfisher was wrong. Mr Mallya kept saying in the early days that he had created a five-star airline but he overlooked the fact that India is a price-sensitive market where young people will switch airlines for a mere 100-rupee difference," said Jitendra Bhargava, former executive director of state-owned Air India.

Kapil Kaul, regional head of the Centre for Asia-Pacific Aviation, a leading consultancy, said: "There is blame at Kingfisher's doorstep in the way they ran and managed it but the problems are also because of a negative operating environment in the country."

The decline of India's second- largest airline highlights the woes of the country's struggling aviation sector, which has a collective debt of $20 billion last year.

The government has tried to help the sector by allowing foreign airlines to take up to a 49 per cent stake in Indian carriers and allowing domestic carriers to directly import jet fuel instead of buying it from refineries at higher costs.

Kingfisher's shutdown has benefited other rival domestic airlines. Experts noted that airfares have already risen by up to 30 per cent, due in part to a major religious festival.

Mallya, who has given his personal guarantee for the loans, is expected to take another shot at reviving the airline as he tries to protect his other companies, mainly his mainstay liquor business, from the airline fallout.

"With Kingfisher, everything is on the line," said Rishi Sahai, a director at consultancy firm Cogence Advisors in Delhi.

Last week, a Hyderabad court issued an arrest warrant for him after cheques for 103 million rupees ($1.91 million) bounced. The warrant was withdrawn after the creditor was paid.

The businessman has been out of the country for more than two weeks, but his top management is expected to meet employees in the coming week. About 6,000 workers are affected.

He was spotted at the Formula One Grand Prix held in South Korea on October 14 and is certain to be present when the race is held in New Delhi this weekend, according to those in the know. He is a co-owner of the Force India team.

Meanwhile, his son and heir Sidhartha, on whose 18th birthday Kingfisher was launched, is busy promoting next year's Kingfisher calendar, India's version of the Pirelli calendars.

"Guys, check out the first promo for The Hunt For The Kingfisher Calendar Girl 2013..." he tweeted on Friday.

 

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