KINGFISHER RED CLOSURE - DISASTER IN THE MAKING!

The world over, almost no FSC has successfully managed to run an LCC under the same umbrella even when the latter has been run as a subsidiary. British Airways tied up with Go (an LCC) and failed. This is because FSCs are about product differentiation and high-paying customers while LCCs are about delivering value-for-money. The two DNAs dont match. Keys to airline success are managing cost: The first cost is CASK, or the cost per available seat kilometre. The critical thing is to have the lowest possible seat cost per person. CASK is a metric that measures what it costs to fly every seat for each km of distance. SpiceJet, for instance, has a CASK of between Rs 2.30-2.40 while for Kingfisher airlines as a whole it stands at Rs.4.80 (very high). The second cost to control is debt. Indigo and SpiceJet have taken aircraft only on lease. Even if they buy them, the aircraft are resold to financiers and leased back. This helps in keeping debt levels to minimum. As on 31 March 2011, Kingfisher had accumulated losses of Rs 4,321 crore, which was more than 50 percent of the companys total net worth. It has restructured debt of Rs 6,000 crore. The third cost is fuel. To help keep fuel costs and maintenance costs in check, Keep your aircraft fleet young, and you get fuel savings. The average age of Indigos fleet, as indicated by aviation website www.airfleets.net is 2.4 years while Kingfisher and Kingfisher Red had 4.6 years and 5.9 (making for an above 5 average for the company as a whole), Jet had 5.8. The fourth cost relates to aircraft maintenance. Globally, airlines have to maintain and service airlines to strict safety standards. This is why airlines with a diverse mix of aircraft tend to have higher costs, because they need separate staff to maintain Boeings or Airbuses or whatever. The fifth cost is the cost of idling. The time the aircraft spends in the air in a 24-hour cycle is utilization rate and is important metric to measure efficiency. Kingfisher fell into the trap of integrating the two operations with very little brand and service differentiation. The issue is simple: when two brands one full-service with all the frills of flying, and another, with low faresare given the same or similar names, how is the consumer to know the difference? It is easy to assume that Kingfisher Reds service is no different from Kingfishers, when the fares of the former are far lower Kingfishers hands were probably forced by a recent report of its auditor, BK Ramadhyani & Co, which said that the companys ability to stay in the

business would depend on its promoters being able to maintain a steady flow of funds into the company. It also said the company had not deposited money collected from employees as tax deducted at source and provident fund contributions.