Reasons For Kingfisher Getting Into Red

It is quite an irony that the seats on Kingfisher were available but there were no takers even on the discounted prices. Such is the level of distrust developed with this airline which, ironically, has been the recipient of the prestigious 5-star rating from Skytrax that the people are not sure on whether the fights will take-off or not. The reasons which led the people not to buy cheap air tickets from Kingfisher are essentially related to the long continuing financial woes of the company which has dug into the comfort-level of the people with the airline. Here is a brief but comprehensive assessment of what led to its seemingly unmanageable financial woes:

1.    Unprofitable History: Kingfisher has never registered an annual profit ever since it entered the market. This made its losses sting it even more. The other competitor airlines were far more comfortable since they had some booked profits from the yesteryears.

2.    Acquisition of Air Deccan: In order to capture more market share and embark on international flights operations without waiting for the mandatory 5 year period of operation on domestic sector, it acquired the Air Deccan which had completed the five years into operations. This made it run into losses for years.

3.    Exchange rate of rupee: Most of the airline expenses, to the tune of 80 percent, are incurred in dollars. So, when rupee deteriorated, it inflated the expenses bills considerably.

4.    Rising fuel costs: The times when the fuel costs were rising in 2011 were also the times when almost all the airlines were in red, reporting losses. Fuel costs make for about 40 percent of airline costs and a steep appreciation in prices which is not possible to be absorbed into the price structure immediately, inevitably leads to reporting of losses.

5.    Wrong business model: Experts also point to the wrong model of business adopted by the airline. From the beginning, it has adopted a stubborn stand of attracting the high-end customers by providing luxury services despite the fact that Indian customer is price sensitive. So, while its competitors have fared well as low-cost carriers, it was not able to devise any such road-map to profitability.

6.    Heavy debt burden: To tide over one financial woe after the other, the airline sought more funds from the banks, its main lenders, leading to the piling up of huge debts. With no profits, the interest burden and other expenses were getting higher leading to the deterioration of financial health.