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Will Kingfisher Airlines survive?

Everybody is talking about the financial position of Kingfisher Airlines, the second largest carrier in India with a market share of around 20%. Speaking only based on the financial numbers, yes, Kingfisher is in a dire situation. But before arriving at any conclusion, let's review about its recent quarterly results (three months ended Sep 30, 2011).

  1. Revenues decreased by 19% Q-o-Q, may be an overall effect in the industry
   2. Fuel expenses went up to a new level of 53% of revenues
   3. Employee costs also went up by 5% Q-o-Q, constituting around 12% of revenues
   4. Both Fuel and Employee expenses accounted for 65% of total revenues in this quarter, should really be a concern for Kingfisher
   5. Cash at bank was about $44M at the end of the quarter, around more than 21% of short term loans payable within a year (as of March 31, 2011)
   6. Total secured and unsecured loans as of March 31 ~ $1.4 billion
   7. Kingfisher announced in its earnings call that it may require only around $100-$150M to meet short term needs (working capital)
   8. There are some flip side as well -

            - passenger load factor was down to 77%, compared to 82% in the same period last year
            - reported a EBITDAR loss of around $25M, since two years
            - reported a net loss of around $94M

Interesting to note is that around 75% of revenues were from domestic operations. So, increase in fuel costs in India would obviously have its impact on the magins of Kingfisher. Jet fuel costs are surcharged at a higher rate than many other countries, it's around 50-60%, which made the airliners to shed more money on fuels in India. This was the biggest cause for this financial mess at Kingfisher, followed by the increasing staff costs.

Fuel expenses were 'higher' in the previous quarter (Q1 2012), which Kingfisher was able to overcome due to its increase in revenues in that quarter. There were factors that made Kingfisher hard times this quarter - increasing fuel costs, employee costs and decreasing value of rupee against dollar.

Though the company is making all measures to cut costs like shutting operations in few loss making routes, Kingfisher has no other option.

All the company needs is an infusion of around $100-150M to save its day-to-day operations running. I think it can made it easily by various mesaures like selling more equities or converting debts to equities to sell stakes to the creditors, etc.  Also the talks have already been through with various banks in India.

All the airliners in India are running in losses and this mounting debt may not be a 'significant' problem for Kingfisher and I hope the company would come up from the crisis and this would be a lesson for all the operators in India to tackle their working capital efficiently in order to maintain day-to-day business operations without any financial hitches.