Six years ago, Kingfisher Airlines boss Vijay Mallya told Airline Business during a cover interview how he was "building a sustainable business model in which we cut costs where they can sensibly be cut, but we also offer a premium-class product to the growing wealthy Indian".

He added: "People who get enamoured with the opportunity of converting the railway passenger to the plane, that model is not going to work."

After Indian regulators suspended Kingfisher's air operator's certificate on 20 October, Mallya may look back at his 2006 interview - and those words in particular - for why it all went profoundly wrong.

Mallya, who made his mark with his Kingfisher brand of beer, was on to something in the early years. His plan was to build a strong brand and a superior full service product to compete with Jet Airways and Air India for the increasingly affluent Indian passenger.

But, to prevent low-cost carriers from gaining market share, and eager to get around Indian law that prevented airlines from starting global services until five years into their operations, he ditched that plan and bought Air Deccan to achieve both aims in one go. That backfired spectacularly.

Almost immediately, the hybrid model began to cause problems. The combined entity had ridiculously high costs and too many aircraft on order. The 2008 financial crisis, cut-throat domestic competition and a low-fare market in a high-cost environment made profitability difficult.

Kingfisher has never made a profit and its cumulative losses stand at around Indian rupee 70 billion ($1.3 billion). Its true debt levels are hard to gauge, given the numerous debt-to-equity conversions that have only diluted the value of its shares.

In March, Kingfisher cancelled its international services after defaulting on aircraft lease payments. Domestic operations halted on 1 October after the few remaining employees, frustrated at not being paid for months, went on strike. At that time, it was India's smallest airline with just two narrowbodies in the air, and several parked at various airports around the country. India's directorate general of civil aviation (DGCA) revoked its AOC on 20 October after the airline failed to "satisfactorily" respond to a show cause notice.

The airline pointed out after the DGCA's move that its AOC has only been suspended and not cancelled, and that it still hopes to resume operations after resolving its problems.

But at around the same time, the DGCA also issued the winter schedule for Indian airlines and Kingfisher was not allocated any slots. That means it will not be able to resume services for at least six months even if it is able to do so.

Perhaps Mallya and Kingfisher were unlucky. For many years, he had pushed the Indian government to remove its foreign ownership restrictions. By the time they were removed two months ago, it was too late for him.

New Delhi's bail-out for Air India, which has been kept afloat despite its losses and debt levels, didn't help. The flag carrier kept its fares artificially low in 2011, forcing other airlines to follow suit or suffer low-load factors. That affected profitability all around.

Ironically, with Kingfisher removing capacity over the last year, fares have gone up by around 30%.



A320 family

A330 family

2006 6 18 -
2007 15 25 -
2008 27 35 3
2009 25 30 4
2010 25 32 5
2011 20 24 4

Source: Flightglobal Ascend database, fleet as of December each year


But Kingfisher made mistakes too. It should never have bought Air Deccan. It should have cancelled aircraft orders once it became clear that there was too much capacity heading into the Indian market, and more could have been done to restructure its operations and cut costs earlier. Kingfisher was not alone - Jet went through the same thing with its purchase of Air Sahara, only to pull back and focus on the full-service market over the last two years.

The difference, unfortunately is Mallya. In 2006, when asked about his penchant for micro-management, he told Airline Business: "If there is one wrong move in Kingfisher Airlines it could spell disaster. Once I am established and I have the reputation of having an absolutely fine airline, then I can put this on autopilot too. Until then, this is not something I take lightly."

Maybe the autopilot was engaged a little too soon. Maybe, Mallya focused on the wrong things. But the airline that exhorted its passengers to fly the good times has now been grounded, and the party appears to be over. Someone buy Mallya a Kingfisher.

Source: Air Transport Intelligence news