KINGFISHER AIRLINES LIMITED
(FORMERLY KNOWN AS DECCAN AVIATION LIMITED)
ANNUAL REPORT 2011-2012
To The Members,
Your Directors present the 17th Annual Report along with the Audited
Accounts of your Company for the year ended March 31, 2012.
Your Company's operations during the year ended March 31, 2012 have
(Rs. in million)
Year ended Year ended
March 31, 2012 March 31, 2011
Gross Income 58,239.08 64,955.62
Earnings before financial charges, lease
rentals, depreciation & amortization & taxes
(EBITDAR) 1,222.08 11,084.37
Depreciation & Amortization 3,418.66 2,410.38
Lease Rentals 8,684.52 9,839.96
Financial charges 12,763.35 13,129.40
Profit/(Loss) before taxes (23,644.45) (14,295.36)
Provision for taxes (including FBT) 11,180.85 4,933.85
Net Profit / (Loss) from ordinary activities
after tax (12,463.60) (9,361.51)
Exceptional Item 10,816.48 912.47
Net Profit / (Loss) after tax (23,280.08) (10,273.98)
Scheduled Airline Operations:
During the year under review, your Company recorded a domestic market share
of 15.6% and carried more than 10.5 million passengers across both domestic
and international sectors. Fleet size of aircraft used in scheduled
operations stood at 55 aircraft at year end. Despite significant downsizing
measures in the second half of the year, your Company operated over 110,000
flights in the year and maintained connectivity to key destinations in the
country through the year, including under-serviced stations such as
Dharamsala, Shimla, Kulu, Hubli and Kandla.
During the first half of the year, your Company had been able to recover
the Airbus A320 family aircraft in your Company's fleet which were grounded
in 2010-11 due to V2500 engine related issues. This reflected in strong
operating performance for both the quarters of the first half of 2011-12.
Your Company had also made public its intent to exit the low-cost model and
to reconfigure aircraft along with a phased transition to the Full-Service
model. Your Company has been able to partially progress on this plan.
However, given the pressure on the cost front due to unabated increase of
fuel prices, Rupee de-valuation, rising interest rate and continued
downward pressure on yields, your Company decided to downsize operations
starting November, 2011. Despite the operational downsizing, the cash
losses continued, leading to discontinuation of services from IATA's
Billing and Settlement Plan (BSP). Despite the additional disadvantage
created, your Company designed alternate means to sell and distribute
As a part of the overall downsizing of operations during the year under
review, your Company also temporarily shut down operations on its
international network to contain operational losses.
Your Company continues to maintain a 'member-elect' status with the
oneworld Alliance. The 15 to 18 month complex integration process was
successfully near completion for the February 10, 2012 integration date.
However, in light of priorities centered around your Company's
recapitalization efforts, the oneworld management team agreed with your
Company to defer the joining date - a move that would give your Company
more time to address the challenges. They agreed to work with your Company
during this phase with an aim of setting a new joining date.
Your Company continued to focus on major cost control initiatives during
the year to reduce distribution costs, implement fuel optimization systems
and processes, improve aircraft utilization, optimize headcount and re-
negotiate general contracts in order to enforce cost competitiveness, which
is reflected in an improvement in the non-fuel EBITDA cost index.
Your Company continued its focus on various marketing and commercial
initiatives including tie-ups with corporate houses to get premium business
and launch of the Business Mileage program targeted at Small Medium
Enterprises (SME). During the year under review, your Company won the `Best
Indian Airline' Award from Business Traveller Magazine - London, `Best
Airline for Business Travel within India' and `Best Airline for Leisure
Travel within India' from Conde NAST READER Travel Awards and 'Best Loyalty
Innovation' Award in the 'Judge's Choice' category at Loyalty Awards 2012
hosted by Flight Global.
In view of operating losses incurred during the year, your Directors do not
recommend payment of any dividend.
The statement of your Company's interest in its only subsidiary, Vitae
India Spirits Limited, as at March 31, 2012, prepared in accordance with
the provisions of Section 212(3) of the Companies Act, 1956 is attached to
the Balance Sheet.
Your Company had successfully established itself as one of India's largest
domestic carriers by passengers flown and cities served over the last
decade. Your Company has long enjoyed market leadership with a wide network
reach in India, an awarded frequent flyer program and wide distribution.
Due to the current situation, your Company is operating as a 'holding
pattern' with limited operation, pending policy changes which are in the
The Indian airline industry is currently exposed to one of the toughest
operating environments and is expected to struggle with profitability
pressures, with one of the highest prices for Jet Fuel across the world
given tax structure, recent depreciation of the rupee, and the high cost of
borrowing. The Government of India is in the process to usher in fiscal
measures and reforms that will make the operating environment more
conducive for profitable business, viz.
* Approved direct import of jet fuel by airlines.
* Allowed External Commercial Borrowings (ECB) to the extent of USD 1
billion to be used as working capital.
* Opened the international market to private carriers by taking away the
right of first refusal from the national carrier.
* In the process of modifying the Foreign Direct Investment (FDI) policy
that will allow foreign airlines to invest in Indian carriers.
Your Company will undertake a phased and pragmatic approach to re-induction
of capacity as well as further market expansion. The focus will be on
maximizing the nascent potential of the domestic Indian market and
capitalizing on strategic international routes.
Your Company will continue to closely monitor key market trends as well as
macro-economic environment in the Country from a global perspective linked
to the recovery plan.
Optionally Convertible Debentures
Loans / Inter Corporate Deposits from certain business associates
aggregating to Rs.7,093 million were converted into 70,931,985 8%
Optionally Convertible Debentures of Rs.100/- each ('OCDs') which were
convertible into equity shares within a period of 18 months from their
issue, after which they were redeemable.
During the year under review, your Company, on February 18, 2012, allotted
79,868,051 Equity Shares of Rs. 10/- each of your Company pursuant to the
conversion of 19,975,000 OCDs of Rs 100/- each.
Subsequent upon the said allotment of equity shares as mentioned above,
United Breweries (Holdings) Limited (UBHL) along with its subsidiaries
holds 47.89% of the paid-up share capital of your Company and therefore
your Company ceases to be a subsidiary of UBHL.
Subsequent to the year under review, your Company further allotted to the
then holders of the OCDs pursuant to the exercise of the conversion option
1. 35,642,361 Equity Shares of Rs. 10/- each of your Company, pursuant to
the conversion of 8,422,290 OCDs of Rs 100/- each on April 10, 2012.
2. 62,160,364 Equity Shares of Rs. 10/- each of your Company, pursuant to
the conversion of 14,427,421 OCDs of Rs 100/- each on April 24, 2012.
3. 133,272,991 Equity Shares of Rs. 10/- each of your Company, pursuant to
the conversion of 28,107,274 OCDs of Rs 100/- each on June 23, 2012.
As on date, all the OCDs have been converted into equity shares.
During the year under review, your Company's Authorised Share Capital
remained unchanged at Rs. 42,500,000,000/- comprising of 1,650,000,000
Equity Shares of Rs. 10/- each and 2,600,000,000 Preference Shares of
During the year under review, the Issued, Subscribed and Paid-up Share
Capital of your Company has increased from Rs. 10,508,792,230/- divided
into 497,779,223 Equity Shares of Rs. 10/- each and 553,100,000 8%
Cumulative Redeemable Preference Shares of Rs. 10/- each to Rs.
11,307,472,740/- divided into 577,647,274 Equity Shares of Rs. 10/- each
and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs. 10/-
Subsequent to the year under review, the Issued, Subscribed and Paid-up
Share Capital of your Company has increased to Rs. 13,618,229,900/- divided
into 808,722,990 Equity Shares of Rs. 10/- each and 553,100,000 8%
Cumulative Redeemable Preference Shares of Rs. 10/- each.
The trading in the equity shares of your Company is under compulsory
dematerialization mode. As of date, equity shares representing 99.91% of
the equity share capital are in dematerialized form. As the depository
system offers numerous advantages, members are requested to take advantage
of the same and avail of the facility of dematerialization of your
As regards observations in para 4 of Auditors' Report, the Statutory
Auditors have qualified their report with a remark that the receipt of
subsidy from aircraft manufacturers should be recognized as income on an
systematic basis over the period necessary to match them with related costs
which they are intended to compensate though the accounting treatment does
not appear to be covered by the Accounting Standard (AS)-19 (Accounting for
Leases) issued by the Institute of Chartered Accountants of India. In the
opinion of the Directors:
(1) The lessor of the Aircraft is a person other than the Aircraft
manufacturer and the lease contract is independent of the contract with
(2) The termination, if any, of the lease contract does not in any event
breach the conditions for the grant of subsidy by the Aircraft
(3) The subsidy value, referred to in Para 4 of the Audit Report have been
received by your Company during the 15 months period ended June 30, 2006.
As per Section 28 (iv) of the Income Tax Act, 1961, and precedents
available under Income Tax laws, including pronouncements of the Apex
Court, the revenue arising out of support packages will be treated as
income for taxation purposes and therefore, it would not be prudent for
your Company to treat the said revenues differently in the books of
Accounts and for taxation purposes.
(4) In the event of non compliance of the contract with the Aircraft
manufacturer, the resultant possibility of recovery of subsidy granted by
the Aircraft manufacturer has been disclosed as contingent liability and
this accounting treatment adopted by your Company is also based on the well
established principle of differentiation of revenue receipt and capital
In view of the above, in the opinion of your Company, the accounting
treatment of the support package received from the Aircraft manufacturer,
as Income in the year of accrual and receipt is in order.
The fair market value of these Aircraft is not easily ascertainable due to
the unique specifications of the Aircraft. Therefore, the management has
obtained the valuation report for Aircraft of similar type from a leasing
company to ascertain the fair market value which is higher than the sale
price of these Aircraft. This is also supported by the fact that the
insurance value to be covered as per respective Lease Agreements is much
more than the sale value of the Aircraft.
As regards the observations in para 5 of the Auditors' Report, your Company
has adopted the Exposure draft on Accounting Standard - 10 (Revised)
`Tangible Fixed Assets' which allows such costs on major repairs and
maintenance incurred to be amortized over the incremental life of the
asset. Your Company has extended the same treatment to costs incurred on
major repairs and maintenance for engines pertaining to aircrafts acquired
on Operating Lease.
As regards the observations in paras 8, 9 & 10 of the Auditors' Report, the
note numbers 36(b), 39 & 52 to Notes to Financial Statements are self
As regards the observations in the Annexure to the Auditors' Report, your
Company has taken / is taking necessary steps to ensure improvement in
certain procedures and also compliance with relevant laws.
Mr. A. K. Ravi Nedungadi, Director, retires by rotation and, being
eligible, offers himself for re-appointment.
During the year under review, the following Directors resigned from the
Board of Directors of your Company:
1. Diwan Arun Nanda - with effect from
September 5, 2011
2. Mr. Piyush Mankad - with effect from
January 9, 2012
3. Mr. Ghyanendra Nath Bajpai - with effect from
January 9, 2012
4. Mr. Vijay Amritraj - with effect from
March 14, 2012
5. Mr. Anil Kumar Ganguly - with effect from
March 17, 2012
Subsequent to the year under review, Mr. Manmohan Singh Kapur was appointed
as an Additional Director with effect from April 24, 2012 and holds office
up to the date of the ensuing Annual General Meeting of your Company.
Notice in writing has been received from a Member signifying intention to
propose the appointment of Mr. Manmohan Singh Kapur as a Director of your
Company at the ensuing Annual General Meeting.
M/s. B. K. Ramadhyani & Co., your Company's Auditors have confirmed that
they are eligible for re-appointment at the ensuing Annual General Meeting
and it is proposed to re-appoint them and to fix their remuneration.
Listing of Shares of Your Company
All the equity shares of your Company are listed on the Bombay Stock
Exchange Limited and The National Stock Exchange of India Limited. The
listing fee for the year 2012-13 has been paid to these Stock Exchanges.
A report on Corporate Governance is annexed separately as part of this
Report along with a certificate of compliance from a Company Secretary in
practice. Necessary requirements of obtaining certifications/ declarations
in terms of Clause 49 have been complied with.
Management Discussion and Analysis
Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges,
the Management Discussion and Analysis Report is annexed and forms an
integral part of the Annual Report.
Employee relations remained cordial. The information as are required to be
provided in terms of Section 217(2A) of the Companies Act, 1956 read with
the amended Companies (Particulars of Employees) Rules, 1975, have been
included as an annexure to this Report.
Employee Stock Option Plan (ESOP)
Your Company had approved ESOP 2011 at the last Annual General Meeting of
your Company held on September 28, 2011. As on date, your Company has not
granted any option under ESOP 2011.
Disclosures as required by Clause 12 of the SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme), Guidelines 1999 are annexed to
Conservation of Energy, Research and Development, Technology Absorption,
Foreign Exchange Earnings and Outgo
The particulars as prescribed under section 217(1)(e) of the Companies Act,
1956 and the rules framed there under are not applicable to your Company.
The relevant information relating to Foreign Exchange Earning and Outgo
appears in the Note No. 31(a) to (e) to the Financial Statements.
Directors' Responsibility Statement
Pursuant to Section 217(2AA) of the Companies Act, 1956, in relation to the
Financial Statements of your Company for the year ended March 31, 2012, the
Board of Directors reports that:
* in the preparation of the Accounts for the year ended March 31, 2012,
the applicable accounting standards have been followed along with proper
explanation relating to material departures;
* accounting policies have been selected and applied consistently and that
the judgments and estimates made are reasonable and prudent so as to give a
true and fair view of the state of affairs of your Company as at March 31,
2012 and of the Loss of your Company for the year ended March 31, 2012;
* proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities;
* the accounts for the year ended March 31, 2012, have been prepared on a
going concern basis.
Your Directors place on record their sincere appreciation for the continued
support from shareholders, customers, the Government of India especially
the Ministry of Civil Aviation and the Directorate General of Civil
Aviation, the various State Governments, Airports Authority of India, the
Reserve Bank of India, lending banks and financial institutions, suppliers,
other business associates and employees.
For and on Behalf of the
Board of Directors
Mumbai Dr. Vijay Mallya
August 10, 2012 Chairman & Managing Director
STOCK OPTIONS GRANTED DURING THE YEAR UNDER THE ESOP 2005 & 2006
Disclosures as required by Clause 12 of the SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme), Guidelines 1999.
Sl. Particulars (ESOP 2006) (ESOP 2005)
(a) Options granted Nil Nil
(b) The Pricing formula Rs. 65/- Rs. 65/-
(c) Options vested Nil Nil
(d) Options exercised Nil Nil
(e) The total number of shares arising as a
result of exercise of options Nil Nil
(f) Options lapsed Nil Nil
(g) Variation of terms of options Nil Nil
(h) Money realized by exercise of options Nil Nil
(i) Total no. of options in force Nil Nil
(j) Employee wise details of options granted:
(i) Senior managerial personnel Nil Nil
ii) Any other employee who received a grant in
any one year of option amounting to 5% or more
of option granted during the year. Nil Nil
(iii) Identified employees who were granted options,
during any one year, equal to or exceeding 1% of the
issued capital (excluding outstanding warrants and
conversions) of the Company at the time of the grant Nil Nil
(k) Diluted Earnings Per Share (EPS) pursuant to
issue of shares on exercise of options calculated
in accordance with Accounting Standard AS-20 N.A. N.A.
(l) Method of accounting followed for value of
charge on stock options (as per the Guidance Note
on Stock Based compensation by ICAI) Intrinsic Intrinsic
(m) Difference of amount of ESOP charge calculated
as per the Intrinsic Value Method and the fair value
of the options (Black Scholes Method)
(n) Proforma Earning Per Share if the Charge
have been accounted in accordance with fair
value method (Black Scholes Method)
(o) (i) weighted-averaged exercise prices Rs.65.00 Rs.65.00
(ii) weighted-average fair values of options Rs. 137.93 Rs. 78.54
for options whose exercise price either equals
or exceeds or is less than the market price
of the stock
(p) A description of the method and significant
assumptions used during the year to estimate
the fair values of options :
(i) risk-free interest rate (%) N.A. N.A.
(ii) expected life (years) N.A. N.A.
(iii) expected volatility (%) N.A. N.A.
(iv) expected dividends (%) Nil Nil
(v) the price underlying share in market at the
time of option grant N.A. N.A.
MANAGEMENT DISCUSSION AND ANALYSIS
1. Industry structure and development
a. After a period of recovery for the global economy in 2011, recently
signs of stress have appeared with the emergence of financial crises in
Europe and sharp increases in prices of commodities. This has reduced the
outlook for global economic growth to about 2% in 2012. When compared to
the recent past, India's economic growth has slowed with the real Gross
Domestic Product (GDP) growth for 2011-12 at 6.5% and a target of 6.5% also
indicated for 2012-13.
b. The global airline industry in 2011-12 recorded moderate growth and
profitability of all major airlines across the world was significantly
reduced due to sustained high level of fuel prices.
c. The International Air Transport Association (IATA), that represents 240
airlines comprising about 84% of total air traffic, has forecast global
airline traffic growth at nearly 4%, primarily driven by above average
demand growth in Middle-East, Latin America and Asia Pacific. Also,
domestic passenger traffic trends observed in 2012 vs. 2011 in India is a
cause for concern.
d. Jet fuel continues to remain a significant element of cost with IATA
forecasts pegging this cost element at 36% of operating costs in 2012, up
from 30% in 2011 with an average crude oil price (Brent) outlook of US$ 135
2. Industry Operating Environment
a. As per IATA forecast for March 2012, the global airline industry is
expected to post a net loss of US$
5.3 billion in 2012 with an estimated average crude oil price of US$ 135
per barrel. This is in stark contrast to IATA's original outlook for 2012
at the beginning of the year which had forecast a net profit for the
industry at US$ 3 billion.
b. The Indian airline industry which is exposed to one of the toughest
operating environments globally is also expected to struggle with such
profitability pressures, more so with one of the highest prices for Jet
Fuel across the world given the tax structure, recent depreciation of the
rupee, and the high cost of borrowing.
c. For the year under review, the increase in passenger traffic was
relatively lower than that achieved in previous years, estimated at 13%
compared to 20% in the previous year ended March 31, 2011. However,
capacity in the industry grew by 17% for the same period and this
consequently led to a marginal decrease in the industry load factor by
approximately 1 percentage point compared to the previous year.
d. Yields have been under pressure through large periods of the year. This
was a result of irrational pricing policies adopted by some competitors and
above average addition of capacity by low-cost carriers. Coupled with this
situation, the rise in fuel prices through the year has significantly
constrained the profitability of the industry.
3. Internal control systems and their adequacy
a. Your Company has a proper and adequate system of internal controls
commensurate with its size and nature of operations to provide reasonable
assurance that all assets are safeguarded, transactions are authorized,
recorded and reported properly and applicable statutes, codes of conduct
and corporate policies are duly complied with.
b. The Internal Audit department reviews the adequacy and efficacy of the
key internal controls, guided by the Audit Committee of the Board.
c. One of the objectives of the Company's Audit Committee is to review the
reports submitted by the Internal Audit department and to monitor follow-up
and corrective actions by Management.
d. Your Company has a compliance procedure to ensure that all laws, rules
and regulations applicable to it are complied with.
e. The Company Secretary is the designated Compliance Officer to ensure
compliance with Securities and Exchange Board of India regulations and with
the Listing Agreement with The National Stock Exchange of India Limited and
Bombay Stock Exchange Limited.
f. Your Company has a process of both external and internal safety audits
for each area of operation. Your Company is in full compliance with all
laws, rules and regulations relating to airworthiness, air safety and other
statutory operational requirements.
g. Your Company, as part of its Risk Management strategy, reviews, on a
continuous basis, its strategies, processes, procedures and guidelines to
effectively identify and mitigate risks. Further, the Management has
developed a procedure to ensure adequate disclosures of key risks and
mitigation initiatives to the Audit Committee of the Board.
4. Analysis of operational performance for the period ended March 31, 2012
The current financial period is for the twelve month period from April 1,
2011 to March 31, 2012 (FY12).
Financial Results of Operations:
(Rs. million) (Rs. million) (% difference)
Passenger 49,102 56,210 (13%)
Cargo 4,356 4,519 (4%)
Excess Baggage 327 306 7%
Rebooking charges/cancellation 1,150 1,299 (11%)
Other Income 3,305 2,622 26%
Total Income 58,240 64,956 (10%)
Employees' costs 6,695 6,760 1%
Aircraft/ engine lease rentals 8,685 9,840 12%
Aircraft fuel expenses 29,459 22,740 (30%)
Operating and other expenses 20,863 24,371 14%
Depreciation/Amortisation 3,419 2,410 (42%)
Interest & Finance charges 12,763 13,129 3%
Exceptional Item 10,816 913 (1,086%)
Total expenditure (inc.
exceptional item) 92,700 80,163 (16%)
Your Company's total income stood at Rs. 58,240 million during the twelve
month period from April 1, 2011 to March 31, 2012.
a. Income from services formed 94% of total income at Rs. 54,935 million.
Domestic revenues recorded for the period under review was Rs. 41,126
million as against Rs. 47,731 million in the previous year ended March 31,
2011. Revenue generation has been significantly impacted in Q4, 2011-12 due
to operational downsizing and rationalization of capacity forced by tough
b. During the twelve month period ended March 31, 2012, your Company's
International revenues stood at Rs. 13,809 million as against Rs. 14,602
million in the previous year ended March 31, 2011.
c. Other Operating Income stood at Nil during the twelve month period ended
March 31, 2012 as compared to Rs. 1,263 million in the previous year ended
March 31, 2011, since the benefit of Duty Free Credit Entitlement Scheme
was stopped for the aviation sector during the previous year ended March
d. Other income stood at Rs. 3,305 million during the twelve month period
from April 1, 2011 to March 31, 2012, an increase of 26% when compared to
the previous year ended March 31, 2011. Other Income comprised mainly of
liabilities no longer applicable and written back of Rs. 1,487 million.
Total expenditure including exceptional items stood at Rs. 92,700 million
during the twelve month period from April 1, 2011 to March 31, 2012, an
increase of 16% when compared to the previous year ended March 31, 2011.
a. Aircraft fuel expenses: Expenditure on fuel stood at Rs. 29,459 million
during the twelve month period from April 1, 2011 to March 31, 2012
accounting to 32% of the total costs. Prices have steadily risen through
the year and ended 22% higher than prices at beginning of the year.
Domestic ATF price movement in INR is given below:
Your Company has attempted to contain overall fuel costs by a combination
of route rationalization which saw cut on capacity on unprofitable routes
and fuel consumption saving programs.
b. Aircraft Engine/Lease Rentals: Aircraft/engine lease rentals stood at
Rs. 8,685 million during the twelve month period from April 1, 2011 to
March 31, 2012. Your Company operated 67 aircraft (scheduled and non
scheduled) up to November 2011, 13 of which were owned through finance
leases and 54 are held under operating leases. Since November 2011, till
the end of the financial year your Company returned 16 aircraft and the
fleet as on March 31, 2012 was 55 aircraft.
c. Employee Remuneration and Benefits (Personnel Costs): Employee
remuneration and benefits stood at Rs. 6,695 million during the twelve
month period from April 1, 2011 to March 31, 2012. Your Company saw a
reduction of 1% costs on employee remuneration. The number of employees of
your Company for the period ended March 31, 2012 was 5,696 from 7,317
employees in the previous year ended March 31, 2011.
d. Oth er Operating Expenses: Other operating expenses stood at Rs. 20,863
million during the twelve month period from April 1, 2011 to March 31,
2012. The reduction in cost was mainly due to reduction in operations in
the second half of the fiscal year.
e. Interest and Finance Charges: Interest and Finance Charges amounted to
Rs. 12,763 million during the twelve month period from April 1, 2011 to
March 31, 2012. Loan funds increased to Rs. 91,336 million as against Rs.
70,571 million. Your Company incurred interests of Rs. 12,052 million on
fixed and other loans as against Rs. 11,189 million incurred in FY11. Bank
charges and guarantee commission stood at Rs. 711 million for the year
under review as compared to Rs. 1,941 million in the previous year ended
March 31, 2011.
f. Depreciation and Amortization: Depreciation charges were Rs. 3,010
million during the year ended March 31, 2012 as compared to Rs. 2,030
million in the previous year ended March 31, 2011. Amortization charges
stood at Rs. 409 million during the year ended March 31, 2012 versus Rs.
380 million for the year ended March 31, 2011.
5. Material developments in Human Resources / Industrial Relations front,
including number of people employed
a. The number of employees in the year under review was 5,696.
b. There were no material developments as regards human resources /
industrial relations front during the period under review.
6. Your Company's major initiatives undertaken in FY11 and planned
initiatives for FY12
6.1 Initiatives undertaken in the year under review to enhance your
Company's cost competitiveness:
* Focus on high aircraft utilization for all network scenarios.
* Implementation of significant Fuel Optimization measures such as
rigorous implementation of the Cost Index, re-evaluation of flight dispatch
plans to optimize sector fuel assumptions.
* Re-negotiated select aircraft leases to reduce lease rentals.
* Complete removal of expats from the A320 and ATR fleet and optimization
of headcount of cockpit and cabin crew to fleet count.
* Optimization of meals uplifted on board to control catering cost.
* Re-negotiation of select agreements pertaining to Engineering &
Maintenance, Ground Handling and with Distribution agencies.
* Re-configuration of aircraft to add more seats per aircraft.
6.2 Initiatives undertaken in the year under review to enhance your
Company's revenue productivity:
* Improvement in maximizing network traffic flows by introducing network
pricing and advanced revenue management techniques.
* Increased focus on higher customer retention by focusing on return
* Improvement in cargo revenues through revenue management opportunities.
* Continued focus on high yielding Corporate traffic.
However, from November 2011, revenue generation has been significantly
impacted by the decision for operational downsizing, continued adverse
media publicity and subsequent distribution issues caused by suspension
from the IATA Billing and Settlement Plan (BSP).
6.3 Catering, Airport and Cargo Services related initiatives undertaken in
the year under review to enhance your Company's revenue productivity and
cut further costs:
- Your Company introduced measures to tightly control on-board meal
- Re-designed, cost effective menu options were introduced to suit the
diverse tastes of the discerning Indian consumer.
- Buy-on-Board concept of your Company is now limited to ATR flights.
* Airport & Cargo Services:
Revenue / Cost Related Initiatives
- Despite operational downsizing, Cargo revenue achieved was at 98% of
2010-11 actuals. 'Door-To-Door' cargo service in particular grew by 44.33%.
- Excess Baggage 'Revenue per guest' increased by 25%.
- Re-negotiating ground handling, cargo contracts and lounge rates,
downsizing resources taken from third party agents and airport premise
space reduction has resulted in significant operational cost savings for
the year under review.
- Ground services personnel has been tightly monitored and sized to reduced
scale of operations since November 2011.
- Promoted the active use of 'Web Check-In' facility to reduce congestion
and optimize staffing at airport counters.
- Only Indian Carrier to promote use of Kiosk check-in facility at 4
Metros. Also liaised with airport authorities to introduce facility to
print out tickets with a common kiosk outside airport.
6.4 Marketing and Commercial Initiatives undertaken during the year under
review to enhance your Company's consumer connect:
* To aggressively drive choice for Kingfisher First, your Company's
business class product to corporate flyers.
* To win market share in key markets through innovative offers for
* To leverage associations with Sahara Force India and Royal Challengers
Bangalore (Indian Premier League cricket team) and offer unique experiences
to our guests.
* To further strengthen your Company's relationship with travel agents.
* Increase penetration in the corporate segment.
* Increased rigor in driving sales from global markets.
Marketing initiatives 2011-12
* Your Company launched 'Business Mileage' privilege program for the Small
& Medium Enterprise (SME) segment, with the objective of driving loyalty
amongst the SME segment. The program offers a host of benefits including a
complementary Gold tier and upgrade vouchers.
* During the year under review, your Company developed and successfully
executed consumer and trade promotions which contributed towards
incremental revenue for FY 2011-12, as well as built consumer and guest
engagement through interactive contests across the social media network.
* Your Company leveraged association with Sahara Force India and created
special promotions and packages for KFA guests during the lead-up to the
Indian Grand Prix, offering them an opportunity to witness the race live.
* Your Company launched a thematic campaign, 'India is Kingfisher Country'
in Dubai promoting Kingfisher Airlines as the preferred choice of Airline
in India owing to its connectivity.
6.5 Marketing Initiatives and launches proposed to further improve consumer
* Thematic campaign to win back Consumer confidence.
* Reinforce brand imagery through a new thematic campaign.
* Continue to leverage properties such as Sahara Force India and Royal
Challengers Bangalore to provide unique experiences to guests and trade.
* Drive seat factors through campaigns based on analytics.
6.6 Key Marketing Initiatives from King Club:
King Club ensured a steady link to loyal customers was maintained by your
Company under trying circumstances. Over the year, King Club innovated on
its program designs to better engage the base of its loyal customers.
Between August - October 2011, King Club ran 'Feel the Force' campaign, an
innovative Fantasy Formula1 contest leveraging the Sahara Force India
association and targeted at the inaugural Indian Grand Prix. The campaign
was chosen as the Best Loyalty Innovation within the Judge's Choice
category at the Loyalty Awards 2012 organized by Flight Global.
King Club also maintained key co-brand relationships through the year under
review with American Express, ICICI and other key banks. From the overall
oneworld perspective, King Club also successfully entered and maintained
bilateral frequent flyer partnerships with British Airways, Finnair,
American Airlines, Cathay Pacific Airways allowing King Club members to
earn and redeem King Miles by flying on these airlines anywhere in the
7. Your Company and oneworld Alliance
Your Company continues to maintain a 'memberelect' status with the oneworld
Alliance. The 15 to 18 month complex integration process was successfully
near completion for the February 10, 2012 integration date. However, in
light of priorities centered around your Company's recapitalization
efforts, the oneworld management team agreed with your Company to defer the
joining date - a move that would give your Company more time to address the
challenges. They agreed to work with your Company during this phase with an
aim of setting a new joining date.
8. Your Company's Outlook
a. Your Company which commenced scheduled airline operations in August 2003
endured significant operational challenges through the year - despite a
series of steps to contain operational losses through capacity
rationalization, your Company managed to retain its position within the top
half of the Indian airline industry. Due to the tough operating
environment, your Company is currently operating as a 'holding pattern'
with limited operation, pending policy changes which are in the offing.
This will have an impact on the market share till the anticipated changes
are in effect.
b. The Indian economy will be slower in 2012-13 with GDP growth estimated
to be around 6.5% for 2012-13 and this will potentially reflect in lower
growth for the aviation industry.
c. Domestic capacity expansion will be in line with demand; resulting in
potential stagnation and/or muted growth of industry load factors in 2012-
d. Yields are expected to remain stable given the fierce competition in the
domestic industry. Your Company's phased transition out of the low cost
branding should help in capturing potential yield premium from the
discerning Indian consumer who pegs price to the quality of service being
e. Fuel price has shown continued sustenance through 2011-12, industry
experts believe jet fuel price will correspond to an average crude oil
price of over US$ 120 per barrel. This will continue to constrain airline
f. In 2012-13, your Company plans to focus on recapitalization, phased
recovery of grounded aircraft, regaining premium market yields alongside
driving a focused cost reduction plan to set in the foundation for a
profitable airline of the future.
g. Your Company will also continuously evaluate and potentially re-initiate
limited international operations, which were substantially curtailed by the
end of 2011-12.
9. Opportunities and Threats, Risks and Concerns
a. Your Company's focus in 2012-13 will be to recover its position in the
domestic market aided by anticipated policy changes. Your Company plans to
undertake a phased and pragmatic approach to re-induction of capacity as
well as further market expansion. The focus will be on maximizing the
nascent potential of the domestic Indian market and capitalizing on
strategic international routes.
b. Your Company will continue to closely monitor key market trends as well
as macro-economic environment in the Country from a global perspective
linked to the recovery plan.
c. Your Company will proactively review and undertake measures to maximize
profits and reduce losses, including:
* Planning for phased capacity re-induction.
* Transitioning to a single brand offering.
* Strengthening route structures and reconfiguring aircraft for
* Reviving sales and distribution reach.
* Improving aircraft utilization and scheduling efficiency.
* Focusing on driving revenue premium through yield management.
* Optimizing human resources utilization.
* Comprehensively reviewing costs across all key functions.
d. Your Company continues to actively manage fuel consumption in a bid to
conserve this precious natural resource and contain the adverse impact of
steep increases in jet fuel prices.
e. Sales tax on jet fuel in India continues to be significantly higher
compared to global markets. Sales Tax is currently a State subject and
follows an Ad Valorem methodology. Your Company has made several
representations to both the Central and State governments seeking reduction
in Sales Tax rate on jet fuel as well as proposing a rationalization of the
tax structure to a fixed rate that eliminates direct exposure to Sales Tax
because of fluctuations in crude oil price. A change in the fuel tax regime
on these lines would provide a significant upside to your Company's
operations as fuel now constitutes over 40-45% of the airline's operating
f. Your Company will also explore the opportunity presented for direct
import of jet fuel vide the recent permission granted by the Director
General of Foreign Trade (DGFT) to reduce the incidence of fuel costs.
g. The current FDI policy of the Government of India still does not allow
foreign airlines to invest in domestic scheduled airlines. However, a 49%
investment is allowed to foreign institutional investors. The Government
has been actively considering relaxing this to include foreign airlines
based on several representations made by your Company and other domestic
carriers. This change in policy could provide your Company with widened
access to equity capital and potential to induct strategic partners.
h. The Government of India has been making significant progress with
respect to aviation infrastructure development in the Country and thereby
addressing air traffic congestion at key airports. The results are already
showing with the opening of the modern, world-class Terminal-3 at Delhi
Airport. Expediting these initiatives in other key metros such as Mumbai
and Kolkata coupled with focus on some of the fastgrowing Tier-2 and Tier-3
airports will benefit your Company by providing for more efficient
facilities and better guest experience.
10. Awards & Accolades During the year under review, your Company has
received the following awards and accolades:
1) `Best Indian Airline' Award from Business Traveller Magazine - London.
2) `Flight Global Award for Best Loyalty Innovation' from Flight Global.
3) `Best Airline for Business Travel within India' and `Best Airline for
Leisure Travel within India' from Conde NAST READER Travel Awards.
4) `Best Loyalty Innovation' Award in the 'Judge's Choice' category at
Loyalty Awards 2012 hosted by Flight Global.
Statements in the management discussion and analysis describing your
Company's objectives, projections, estimate, expectations may be `forward-
looking statement' within the meaning of applicable securities laws and
regulations. Actual results could differ materially from those expressed or
implied. Important factors that could make a difference to your Company's
operations include economic conditions in the domestic markets and overseas
markets in which your Company operates, changes in the Government
Regulations, tax laws and other statutes and incidental factors.