Kingfisher Airlines expected to cut capacities further

Kingfisher Airlines, the publicly held civilian airline owned by Bangalore-based UB Group, is expected to cut its already truncated capacity by another 10-15 per cent during the next two quarters. The airline, under the chairmanship of Vijay Mallya, during the past seven months has cut it capacities by as much as 70 per cent to around 100 flights per day when compared to as high as 350 flights per day during last quarter of 2011. Kingfisher Airlines is now operating this schedule with a fleet of 22 aircraft from the earlier 66.

Jasdeep Walia, a noted aviation analyst with Kotak Institutional Equities Research said that during second quarter of Fy13, there is a possibility of another round of capacity reduction by Kingfisher. “Normally, the second quarter is weakest for airlines, when PLFs (passenger load factor) and hence yields, are low and cash losses peak. In our opinion, further cash losses and lack of working capital support from banks can lead to more (smaller than before) capacity cuts by Kingfisher. As of April 2012, Kingfisher accounted for approximately 6 per cent of industry capacity,” Walia said.

Kingfisher Airlines has been during the past nearly 8-10 months has been sucked into severe financial stress over raising debt which is currently at close to Rs 8,000 crore on an eroded net worth, compounded by accumulated losses at more than Rs 5,000 crore. The airline which reported trebling of its losses for the fourth quarter of last fiscal while reporting Fy12 results, said that it is continuing on it’s previously stated “Holding Plan” with a limited fleet and simultaneously progressing on it’s aircraft reconfiguration plan to contain losses in this very tough operating environment for the Indian aviation industry. “The company has a focused fleet re-induction plan and hopes to be back to full-scale operations in the next 12 months backed by a recapitalization plan that the company is actively pursuing and confident of achieving,” the statement from Kingfisher Airlines added.

Walia further commenting on the Indian aviation sector added that after the disastrous FY12, the sector seems to be finding its bearings. “In the first quarter of Fy13, yields have risen approximately 13 per cent from average levels of fourth quarter of Fy12. Yield environment has strengthened with rationalization of capacity in the sector as Kingfisher reduced capacity. In April, industry capacity grew only 1 per cent on a year on year basis. Even after considering anemic passenger growth numbers, the yield environment should remain strong,” he added.

Although the yield environment strengthened since the start of fourth quarter of FY12 most of the gains were offset by a depreciating Rupee.

"The first quarter FY13 would be the first quarter, in which improvement in yields would translate into improved profitability for the sector. Besides, appreciation of the Rupee could be a tailwind for the sector," Walia wrote.