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Identity crisis at airlines as losses mount

Kingfisher now wants to be No.1 low-cost carrier! Jet and Air India increasingly chase low-fare model; And, low-cost airlines try to offer more services on-board.

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It’s a race to the lowest fare for airlines as they grapple with tumbling demand, dwindling cash flows and mounting losses.

And Vijay Mallya-owned Kingfisher Airlines, which takes pride in calling itself a five star carrier, wants to be ahead of all others in this marathon.

That was conveyed by Hitesh Patel, executive vice-president of Kingfisher Airlines, in a letter to the airline’s pilots some days back.

“Just as we were the number one premium carrier in happier times, we must aim to be number one LFC (low fare carrier); that is the challenge before us today. We have some innovative plans and you will hear exciting news shortly,” he said in the missive.

To be the top low-fare carrier, Kingfisher will have to doggedly work towards slashing its cost of operations even as it continued to offer premium services, Patel said.

Rivals  Jet Airways and Air India are also increasingly flying towards the low-fare model.

Jet has launched low-fare brand Jet Konnect while Air India is wooing passengers with low fares.

Sanjay Aggarwal, CEO of SpiceJet Ltd, believes such a move was inevitable in the current market. “Full carriers have already reduced capacity in a meaningful way and are shifting a large part of whatever is remaining (capacity) to low-cost flying,” he said.

Aggarwal said the recent overtures of these airlines were an admission that the market for premium travel was shrinking. “The move only shows that low cost is what the consumers want,” he said.

However, low-cost players do not expect the diversion in strategy by full-service airlines to be very successful.

Aggarwal warned that shifting to low fares by full carriers would help them only if they attuned their cost structures to it. “Their aircraft utilisation has not gone up, distribution costs have not come down, so I don’t know if it will help them,” he said.

An industry expert said just renaming airlines will not prop up bottomlines...it has to be backed with operational efficiencies, too.
M Thiagarajan, managing director of Paramount Airways, feels there is utter confusion in the airline industry due to dipping air travel demand and mounting losses.

“So, we have low-cost airlines that have started adding frills and full service carriers that are trimming them. They are trying every permutation and combination to stay afloat. This is creating a lot of confusion in the industry,” he said.

What has got the airlines in a tizzy are the rising losses, which —- as per the Centre for Asia Pacific Aviation (CAPA) estimates —- touched $2 billion in FY09.

The airline consultancy body, which will be coming out with its forecast for FY10 by June-end, is expecting industry losses to come down in the current fiscal as airlines move towards cost restructuring and tuning their operational structure to lower revenue guidance.

Kapil Kaul, CEO, India and Middle East, CAPA, says there were several reasons for industry losses sliding in the current fiscal.
“Lower fuel cost would be the biggest relief for them. Last year, oil prices had touched $147 per barrel. Today, it is less than half that at $68 per barrel,” he said.

The CAPA chief also said the impact of capacity rationalisation and adjustment of operation to revenue estimates would also reflect in the profit & loss accounts of the airlines.

As per CAPA, industry capacity had fallen by 10% in December and March quarters of the last fiscal. Despite this cut, the full service airline segment, Kaul said, is still saddled with 20% excess capacity.

He is expecting Jet and Kingfisher to shed further 10% capacity in the coming quarters. He says that Jet has already restructured its operations to the new revenue estimates to a large extent and Kingfisher and Air India were also currently doing the same.

“It (restructuring of operations) has to be done quickly so that its result is seen in the profit & loss accounts of these airlines in the next two quarters,” said Kaul.
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