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BW Businessworld

Best Of Luck To Seabury

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When the going gets tough, the tough make way. I was quite amused to read recently that Kingfisher Airlines hired US- based Seabury Aviation and Aerospace to help sort out problems created by its own management. This is after global consulting firm Accenture, which has been working with the airline for some time, has clearly failed to bring some method into the madness.
 
One can see why the company needs all the help it can get. The airline was launched in May 2005, and the first year and a half went quite smoothly. A lot of Jet — both passengers and employees — shifted allegiance and joined Kingfisher. The airline built its brand and was widely acknowledged for having given Jet a run for its money in service.
 
But with his larger-than-life image and belief in ‘living life kingsize’, Kingfisher chairman Vijay Mallya forgot to keep an eye on one of the most critical components in aviation business — costs. He spent money like water on onboard service and brand building. I remember the CEO of one of Europe’s largest low-cost airlines asking me at a conference overseas whether Mallya was a “maharaja” with “money to throw” as he gaped at the accessories and other trivia the airline gave away to every delegate seated on each table along with its promotional material.
 
Things, however, began to go wrong soon after Mallya decided to take a stake in Air Deccan. In June 2007, he bought 26 per cent of Air Deccan for Rs 155 a share, though the price was running lower at about Rs 145. Later, Mallya’s UB Group made an open offer after which it increased the stake in Deccan Aviation  to 46 per cent. In December 2007, Kingfisher Airlines’ consultant Accenture suggested a merger of the two airlines. This in some ways proved to be a turning point for the airline. Losses of the carrier began to grow even as the external environment took a turn for the worse. Although the merger can’t be held solely responsible, it did make matters worse. The airline’s losses quadrupled from about Rs 409 crore in 2007-08 to Rs 1,602 crore in 2008-09.
 
What also did not help is the period Kingfisher remained headless — the airline did not have a CEO, and Mallya ran it primarily from his private aircraft. This could be due to his inability to find the right man or his reluctance to trust anyone to take full charge. Whatever the reason, it added to the chaos. Employees began to leave in droves. Almost anyone who could find a job has left the airline. Recent reports show close to 200 pilots and co-pilots have quit just this year, in 2010.
 
In fact, 2008 proved to be the final straw in an operation that was already floundering. As oil prices hit new highs, so did the merged entity’s problems. By end March 2009, the airline’s debts had touched over a billion dollars. Equally daunting were its outstandings. Its cheques bounced  regularly and the top executives were at loggerheads with oil companies, vendors and the Airports Authority of India. With its balance sheet bathed in red, the carrier’s plans to raise $400 million for the past two years have remained just that.
 
During 2008-09, the carrier reduced capacity all around and withdrew uneconomic routes. Eight Airbus A320 aircraft and three ATR-42s were returned after Kingfisher initiated a route rationalisation programme. At least two of the international routes (Bangalore to London-Heathrow, and Bangalore to Colombo), launched with great fanfare, were withdrawn. But barring the withdrawal of routes and cut in capacity, no signs of restructuring were evident at the airline even as its rivals used every trick in the book to survive.
 
Even now, as many other Indian carriers are beginning to stabilise their operations (Jet and SpiceJet claimed a profit in the past quarter), Kingfisher continues to burn cash. Since it entered the international market much after Jet Airways, its international operations are yet to start offering returns. These may rise with the airline’s plans to add seven new routes. With the low-cost carriers constantly chipping away at the market, losses on domestic routes remain high.
 
No wonder then that most, including senior officials at the aviation ministry, are sceptical on whether the move to bring in Seabury can actually help Kingfisher check the steadily rising losses. Many of the airline’s disillusioned employees say that besides the fact that the new consultants are unfamiliar with the ins and outs of India’s domestic aviation market, paying these consultants burns a neat hole in the airline’s pockets. As they keep their fingers crossed, no one can deny that hoping someone else to put your own house in order is, perhaps, expecting a tad too much.
 
anjulibhargava at gmail dot com
(This story was published in Businessworld Issue Dated 22-03-2010)