Endgame Kingfisher: Mallya and his grounded mega-dream

There’s a weariness that’s creeping into Vijay Mallya’s voice these days as he responds to criticism blaming Kingfisher Airlines’ flawed business model for the airline’s financial problems.

Gone is the cocksure manner, the swagger that characterised his every flamboyant venture, and the breezy attitude that proclaimed his fondness for the good things in life - and a bearing that tells anyone who doesn’t like it to lump it.

Today, the King of Good Times is assiduously downplaying that image, and even dismissing it as “a figment of everyone’s imagination.”

[caption id=“attachment_219402” align=“alignleft” width=“380” caption=“Vijay Mallya: on a wing and a prayer. Reuters”]  [/caption]

“I don’t live and work for creating an image,” he told CNN-IBN late on Monday. “I’m not a Bollywood star that I need to work for an image.” At the end of the day, he added, “I like to believe that I work very hard.”

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And when he turns to discussing Kingfisher Airlines’ fading fortunes, Mallya sounds borderline contrite. “Kingfisher is struggling today. Do we have a comfortable financial position? The answer is ’no’, and there is no reason to be ashamed about it.”

And when pressed on his commitment to keep Kingfisher afloat, Mallya sounds almost fatalistic. “I am absolutely committed to keeping Kingfisher Airlines going - unless some government agency wishes to ground it” (emphasis added)

Therein may lie a clue to Mallya’s likely endgame strategy for his beleaguered airline. It revolves around flying on a wing and a prayer, and blaming Kingfisher’s troubles entirely on flawed government policy, so that if it comes right down to it and Kingfisher is grounded, he can walk away a martyr.

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Mallya today suggests that Kingfisher’s current problems owes entirely to the income tax department’s freeze on its bank accounts, intended to secure tax dues from the airlines. “The point,” he says, “is that our bank accounts were frozen by the IT authorities very suddenly and that has effectively crippled us.”

Yet, the fact is that there is nothing “sudden” about Kingfisher’s financial problems that led up to the freeze on its bank accounts. The dispute over tax dues - tax that was deducted at source from the airline employees but not credited to government - has been going on for a while now. Likewise, there’s nothing “sudden” about the airline’s default on payments to oil companies and vendors.

Yet, there hasn’t been a manifest earnestness about Kingfisher’s efforts to overcome its problems even over the past year. Where the business plan demanded the surgeon’s scalpel, it’s shown no sense of urgency - even though it has meant death by a thousand cuts.

It is of course true that the Indian aviation industry in its entirety is in a colossal mess, and the government has to bear more than its fair share of the blame.

As Jitendra Bhargava, former Executive Director of Air-India, notes, whereas airlines the word over register a profit with a load factor of 70 percent, Indian airlines lose money even at 80 percent occupancy. The price of aviation turbine fuel in India, with the ad valorem sales taxes levied by the State governments, are a full 10 percentage points higher relative to international prices. On the other side of the equation, given that India remains a price-sensitive market, fares earned per kilometre are among the lowest in the world. So airlines end up getting squeezed at both ends: higher costs and lower earnings.

But this wasn’t unknown to Mallya when he made his foray into the aviation industry, built his brand around heightened customer experience (and leggy cabin crew), and effectively administered the kiss of death to low-cost competition from Air Deccan.

And it was business hubris that inhibited him from acknowledging the reality of the wafer-thin margins that the airline industry operates on, and redrawing his business plans, even though quarter after quarter of losses meant that banks would become increasingly wary of lending.

The irony that confronts Mallya today is that Kingfisher’s current round of troubles, and the cancellation of its fleet of flights, is helping other airlines to bump up their fares in a way that would have helped Kingfisher.

Which may account for the weariness in Mallya’s voice. He did it his way for so long, refused to compromise on a failed business model, and now perhaps wants the airline to be put out of its misery - without having to take any of the blame himself. The King of Good Times, it appears, would rather see his mega-dream killed than scale it down and go down-market.