Airline industry

Where is Kingfisher Airline headed?

Its been sometime that I have blogged because of some personal reasons. Now I am back.

The best decision Vijay Mallya has made so far

Vijay Mallya has finally made a wise decision. He has decided to get rid of Kingfisher Red. As I have mentioned earlier, the biggest mistake that Vijay Mallya made was to buy Air Deccan. You cannot have a low cost airline and a premium airline run by the same company. Jet made the same mistake and so did Vijay Mallya. While branding, we have to give up something to get something. We cannot be everything to everybody.

Capt Gopinath has the urge to return to low-cost aviation

Capt Gopinath is known as the pioneer in low cost airline business in India but he did not make the low cost airline business model successful in India. It is low cost airlines such as Indigo and SpiceJet which have made the model successful. According to Gopinath, there were a number of reasons why Air Deccan failed. He first blames it on an airline cartel which is keeping the prices of air tickets at an artificially high level. Even if this was true, isn’t selling an airline ticket for Rs. 1 just absurd. Another reason he gives for Air Deccan’s failure is that Jet Airways started predatory pricing. First, I am not sure that Jet priced its ticket for Rs. 1. Second, did Gopinath expect that the competition would just sit back and let him do what he wanted. Actually, it was Air Deccan which used predatory pricing by pricing its tickets at Rs. 1. I think apart from its pricing, Air Deccan had another major problem which even he admits when he says, “The market was expanding rapidly. I was adding aircraft every month, as I wanted size, scale and reach . . .” So, what’s new? We have heard this story before. Subhiksha tried to do the same thing and landed itself in a mess. It is always the quest for size, scale and reach that has landed entreprenuers into trouble. Why? Just greed. They want to make a fast buck because the faster they increase size, scale and reach, the faster the valuation of their company goes up. They shift their focus from building a profitable business to increasing size, scale and reach. I just hope Gopinath does not do the same for his cargo business.

Just like Vijay Mallya, I also want to serve the country.

When Vir Sanghvi on his show the Tycoon had asked Vijay Mallya as to why he joined politics, Vijay Mallya responded by saying he wanted to serve his country. It seems that Vijay Mallya’s Kingfisher Airlines owes oil PSU HPCL Rs. 602 crores towards supply of ATF fuel. The government has asked HPCL to convene a special board meeting to invoke Kingfisher’s Rs. 250 crore guarantee. I am not sure why Vijay Mallya is enjoying so much credit. The article in Economic Times dated 26/3/2010 also does not mention anything about payment of interest. You guys are aware that to put things in perspective, I always calculate the daily interest that Vijay Mallya is saving. In this case it works out to Rs. 19.8 lakhs a day at 12% interest.

Vijay Mallya’s strike that never took off

As mentioned in my earlier blog, the proposed threat of a strike by the airlines was a bad idea from every point of view. I could not see any logic behind the strike. Airlines do not have great negotiating power. They didn’t hold any trump cards. I agree that they are in a difficult situation and resorted to this desperate act.

Who asked you to fly Vijay Mallaya?

Vijay Mallya has stated, “Sometimes it costs more to fly than not to fly.” Well, I think we never asked him to fly. He entered the airline business of his own free will and he can get out of it at his own free will. If he finds it more economical NOT to fly, he can stop flying and make as much as he wants. However, he can’t form a cartel and blackmail the people of the country. He has been given a licence by the government to run an airline and the same can or should be taken away if Vijay Mallya takes illegal action. He has done this before when he signed an agreement with Jet. Mallya has taken too many liberties just because he knows people in the government.

A lesson for Vijay Mallaya in capitalism

Vijay Mallaya, Chairman of Kingfisher Airline and UB group made a statement in relation to the proposed strike by the airlines on 18/8/2009 made a statement “We want the government to understand what happens when private carriers don’t exist.” I think Vijay Mallaya is losing it or is drunk on the good beer that his companies produce or he seriously doesn’t understand the meaning of capitalism that I have heard him talk about on TV.

Now Airlines want to be in travel business

It has been reported in Economic Times that Kingfisher, SpiceJet and Indigo want to launch a travel portal in order to save on commission. Somehow, it is difficult for me to understand the obsession of airlines to save on travel agent’s commission as if that is the primary reason for the troubles of airlines. It seems that all the airlines think that they will be all become profitable just by eliminating the travel agent’s and travel portal’s commission.

Vijay Mallaya should learn from Paramount

I had earlier written that Vijay Mallaya should learn from Paramount how to run an airline. Today, when Kingfisher is in trouble and Vijay Mallaya owes huge amounts to oil and hotel companies, Paramount Airlines is hiring 80 foreign pilots and 200 local pilots in the current year. Paramount needs pilots because it is adding 10 aircrafts to its existing fleet of six planes and increasing the number of flights from 1800 to 2500 per month by October 2009. It is also expanding slowly and steadily. Last month it launched flights in the eastern region.

Why is the government financing Kingfisher Airline?

Indian Oil Corporation (IOC) has invoked Rs. 50 crore guarantee of Kingfisher after a cheque issued by Kingfisher bounced. It was further reported that Kingfisher owes nearly Rs. 785 crores to the oil companies. I simply do not understand why Vijay Mallaya is getting such heavy credit from the government. The daily interest on Rs. 785 crores at just 12% works out to be Rs. 25 lakhs. Vijay Mallaya is saving this amount. He needs to sell his shares in the company ot sell any of his assets and pay the oil companies. When he owes so much of money, why did he go buy Gandhiji’s articles for Rs. 9 crores?