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The King Of Bad Times

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I do not know how many will remember this but way back in 2005, when Vijay Mallya set up his airline (it was an extravagant birthday present for his son), he had hired an American aviation professional, Alex Wilcox (as COO and president), to set it up for him.

Wilcox was with the airline for a very brief period. In fact, within two months of the airline taking to the skies, Wilcox had resigned. While the reasons were never clear, insiders say that Wilcox, who had come to India to set up a no-frills airline for Mallya, realised that what his employer wanted was a full-service high-end carrier with all possible frills. Wilcox, who had experience in the low-cost space, knew he was the wrong man for the job, and quit before he got himself into something he could not handle.

This did not stop the airline from establishing itself as one of the best products in Indian aviation. In fact, in its hey days, Kingfisher Airlines (KFA) took away some of the sheen from Jet Airways' service — which was till then considered unparalleled in the Indian skies. Several awards were heaped on KFA for its product and the quality of service, especially in business class. A number of Jet loyalists were bowled over by the Virgin-like feel that KFA created with its attractive hostesses — little over the top, but very aspirational for the wannabe, yuppie traveller.

Well, it all seemed to be going hunky dory till Mallya woke up to what some of the smaller and cheaper rivals were up to. He began to notice that a poor cousin from his own city — Air Deccan — had a fairly large share of the market and many fliers were quite happy to put up with its low-quality service and flight delays. He spent a lot of 2007 trying to convince Captain Gopinath (who had plenty of problems of his own) to sell Air Deccan to him. Mallya was one of the two high-flying pursuers (the other was Anil Ambani), even though he was convinced that there was no such thing as ‘low-cost' in India, only ‘low-fare' airlines with pretty high costs.

In June 2007, a deal was finally struck. At that time, it was decided that the Air Deccan brand would be maintained and Captain Gopinath would remain as chairman of the board.

But things did not go as planned. When Mallya took over Deccan, it was making losses of Rs 1.5 crore a day, had a market share of 22 per cent, and high load factors of about 75 per cent. KFA changed Deccan's colours, look, feel and the model (value carrier instead of low-fare airline). It reduced the number of flights and destinations, and raised fares. But losses doubled to Rs 3 crore a day, loads fell, and Deccan's market share nosedived. If there was a method behind the madness, it was not apparent to most.

Meanwhile, Mallya also decided to take KFA overseas and, in his typical flamboyant style, ordered several A 380s for its international operations. As expected, and predicted, by many aviation experts, the aircraft order had to be put off.

For several months, the Kingfisher management tried every trick in the book to reverse its troubles. It even hired the services of US-based aviation consultancy firm Seabury to help it out of its troubles. SpiceJet's CEO Sanjay Aggarwal was hired to steer KFA to a path of profitability.

Call it what you will — a combination of bad luck and bad management— but nothing has worked, at least so far. The airline has accumulated losses of over Rs 5,000 crore, debt of over Rs 6,000 crore, and interest payouts that have exceeded the company's market capitalisation.

All attempts to raise money have failed. As bankers in Mumbai point out, no one is willing to put money into what seems to be a bottomless pit. With powerful connections and political clout, some banks were persuaded into a debt restructuring to help keep the company afloat.

Well, last week, things came full circle with Mallya announcing that the airline would exit the low-cost space. The management claimed that the cost of running a low-cost and a full-service product is similar. Mallya told shareholders that yields were far too low with the low-cost offering and that the change would lead to more seats, higher occupancy and, hopefully, higher yields.

Again, industry analysts remain sceptical. Jet Airways, after its own disastrous buy-out of Sahara, has been steadily moving out of the full-service space. It now has three brands — Jet, JetLite and JetKonnect — trying to capture every segment of the market. Yet, it is struggling.

The question is: what makes Mallya think he can wipe the slate clean and start afresh? Easier said than done.

anjulibhargava(at)gmail (dot)com

(This story was published in Businessworld Issue Dated 17-10-2011)