Kingfisher in Trouble
Indian airline companies are struggling the to keep the head above water. Kingfisher is a prominent private airline company is in news due to the flight cancellations and pilot exiting. Management is even struggling to pay the salaries to the employees so that 50 pilots were exited in the last week alone. About 300 pilots were left in the last six months. The listed players like Jet airways and Spice Jet are also flying with broken wings. These companies are posting losses in the last few quarters. The situation of kingfisher is really pathetic. High operating cost is the first threat of the company. Heavy debt burden is in the other side. Out of the operating expenses, high fuel cost is in the first position. Jet fuel in India is the most expensive in the world. Sales tax imposed by the various state governments in India is between 4% and 32%. It makes fuel, the most expensive item for any airliner player in India. It accounts for the 50% of their operating costs.
Air India is a bleeding candidate in the airline sector. It is selling tickets below its cost for capturing more market share. Since they are offering tickets in the low price, the competitors had to follow the same strategy to sustain. The aviation ministry is not favor any bailout packages for these struggling airline companies.
The recent steps by the central government are marvelous. The government of India has decided to allow direct import of crude oil by airline companies. It will be definitely beneficial for these players because, there are countries available with low jet fuel costs. Kingfisher Airlines is sinking like Titanic. Darwin’s law of Survival of the Fittest is here. Vijay Mallya is begging before the government. Anyway Bail out is not a bad thing. Even Goldman Sachs asked once.
Problems of Kingfisher
Market cap of the company is near Rs 1400 Cr. Kingfisher has a debt of Rs 7000 Cr. That is very huge. A debt worth Rs 14000 Cr was written off in the last year. Company made an operation loss of Rs 1027 Cr last year. Company has to pay an approximate amount of Rs 890 Cr to its fuel suppliers. Indian Oil Corporation has put a cash and carry agreement with them so that they have to pay each drop of the fuel. Both HPCL and BPCL stopped supply completely.