'For an airline, everything in India is high cost': Mallya

Blaming the challenging operating environment, Vijay Mallya, chairman of cash-strapped Kingfisher Airlines, said “everything is high cost for an airline in India.”

The airline has been struggling due to high operating costs, high fuel costs and severe undercutting of ticket prices and had to cancel more than 200 flights in the past week because of a severe cash crunch.

Speaking at a press conference, Mallya also said that the cancellation of 50-odd flights were blamed on “the wrong reasons” and admitted the issue could have been handled better by the company. “Mistakes happen and there is always room for improvement,” he said. He said the decision was primarily taken because the airline was not willing to fly on loss-making routes and reconfiguration of some aircraft to include more seats.

[caption id=“attachment_131400” align=“alignleft” width=“380” caption=“The airline has been struggling due to high operating high costs, high fuel costs and severe undercutting of ticket prices. Luke MacGregor/Reuters”]  [/caption]

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He also pointed out the airline would from, now on, focus fully on full-service operations.The decision to exit Kingfisher Red, its low-cost carrier, was basically because it offered lower yields than full service operations. There were also no real cost benefits between the two set of operations.

Speaking on the payments to oil suppliers, he said the company had repaid its full outstanding dues to BPCL and IOC. Unsecured outstanding dues to HPCL have also been lowered to Rs 40 crore from Rs 600 crore earlier.

Earlier reports said oil marketing companies had threatened to stop providing fuel for the airline unless it paid its outstanding dues.

Fuels costs, because of the addition of exorbitant taxes, are very high for airlines in India, and account for nearly 50 percent of operating costs, according to some experts.

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Mallya said the airline had applied to the government for permission to directly import fuel and thus avoid sales tax.

He also said there was no question of a government bailout for the airline.“We have not applied for any restructuring or asked banks to take a haircut,” he added, referring to the airline’s meeting with bankers today. “We are applying for working capital management.” The airline was also looking to release Rs 1,000 crore in cash that was in the hands of lessors.

Mallya denied that any bank (13 banks had lent to Kingfisher as a consortium) had asked the promoters to infuse fresh equity into the company. The promoters had invested Rs 3,593 crore in the airline, media reports said.

He also said SBI Caps had been mandated to assess the financial requirements of Kingfisher and the immediate areas of focus would be addressing working capital issues and reducing the interest cost burden.

Sanjay Aggrawal, CEO of Kingfisher Airlines, also pointed out the airline had actually outperformed other airlines at the operating profit level (which excludes the interest cost) over the past five-six quarters.

Kingfisher’s debt load is about Rs 6,500 crore. It current cost of debt is around 14 percent.Mallya tried to downplay the debt figure, saying the airline had nine years to repay the amount and that there were “other private carriers that have more debt than us”.

There was no mention of any asset sale to reduce debt at the conference either.