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Kingfisher’s woes | Advantage Lifestyle

When Kingfisher introduced TV entertainment in its never before Kingfisher Class in 2005, it created a buzz and some great innovation in the industry. The first pioneer to go for a full service airline after Jet had nearly monopolised the Private Sector Airlines esp after the Sahara deal, Kingfisher even found an ally in its now next door neighbour’s Deccan, which has now become the staple LCC fare at the airline.

The more than 30 awards, incl 6 Freddies as recently as 2008 mean that the Airline has been a pathbreaker and an iconic brand for India’s global travellers. however, it never could break the barrier set by Jet Airways who continues to showcase profitability and professional management despite the industry’s hiccups in most of 2008 when Oil prices were skyrocketing to 2009 when recession took its toll.

Low Cost Carriers like Spicejet (Modis of Spice, Bangalore) and Indigo have taken to the skies and made never before profits as on the ground new ticketing wars brought Cleartrip, Yatra and Makemytrip to fight over pennies in commissions.  Such a cost conscious environment has now showed up Kingfisher for the troubled Dodo it is in the skies. Unable to take off, Fly kingfisher reported a $100m loss in the latest December Quarter concurrent with revenue losses of 5% Q-o-Q. A debt ticket of more than $1.5 billion makes its efforts at garnering Private equity partnerships even more long-winded. The debate rages on and the airline’s financial obligations keep mounting.  Low cost Carrier Spicejet has published a $25 million profit for the most recent quarter

F1 Grand Prix of Belgium - Race
The King of Good Times in a happier milieu

With the Force India F1 and the Bangalore Royal Challengers investments also causing heartburn with their performance on and off the field and the Kingfisher Calendar suffering in competition with the supermodels of the Continent, India’s desi luxury lifestyle challenge needs to take a hard look at its options and the PE it finds will take the horse to water. Tough days ahead Mr Mallya!

However, not many have finally confused Indian Luxury Lifestyle with its latest icon and while Kingfisher tries to shake off the water from its back, the Indian Luxury goods revolution rages on and has a substantial chunk of India’s Modern retail business. More on that later!

Each of his sporting businesses is worth over a $1 billion though on sentiment and in liabilities too. And that’s the lucre. And because of his aviation, sports and lifestyle interests India’s Beer Baron is known for a little more than his spirit today.

The PE Investors looking at Kingfisher also reflect those who see the fast life connection with India incl Abu Dhabi based Aabar investments and the more Bangalore centric Texas Pacific Group. One would do well to keep per share valuations at the low-end at this stage because this is going to be one very vertical roller coaster ride.

(Pls. note that all Advantage research notes carry a new approximate rate of Rs 40 henceforth for trend equalization and longer lasting predictions. Earlier 2010 notes and tweets mention the conversions at Rs 45 and Rs 42 for every dollar. Of course this assumes that Indian Exporters,e sp IT firms show enough skill in hedging to stay away from highly speculative Double or Quit options and also do not forego hedging which seems to be India’s binary lot courtesy lineage as Satyam, ICICI and Wipro)

Update Meanwhile Jet airways’ latest results show a savings of $18-$19 million in salary costs after a staff cut controversy earlier in the year. Jet Airways is declaring a profit of INR 100 Crores or $25 million in the December Quarter. Jet Airways is the only other Private Sector Full Service Airline in the Indian skies currently

It is also picking up a 26% stake in the Malaysian Airlines’ JV in Aerospace Engineering with GMR for Maintenance activity at Hyderabad Airport.


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