Mallya grounding Kingfisher Red not to cut debt; but to position as premium brand

Kingfisher Airlines on Thursday said that the decision to exit the low-cost segment was not to reduce debt but to position it as a premium brand.

“Much like the premiumisation in United Spirits, we are launching premium brands which are obviously a lot more expensive then medium brands. And, we are seeing the road,” Mr Vijay Mallya, Chairman, UB Group, told reporters on the sidelines of the annual general meeting of United Spirits here.

Thanks to buoyant SME and corporate sectors, there are people who will pay for quality and service, he said. “Maybe we don't want to be in the mass market,” he added.

Better yield than no frill

According to him, the airline has seen consistently better load factors and better yields in the full service than in the no-frills product.

“We have seen about a Rs 1,000 difference in yields, whereas a meal costs you Rs 150; so you're a net gainer across the network. We are increasing our economy class by about 10 per cent and that is additional revenue opportunity,” explained Mr Mallya.

capital-intensive

Aviation is a capital-intensive industry, it is the ability to service that debt that's more important, he said. “When the banks appraised the viability and business plan of Kingfisher Airlines, they gave us nine years to repay the debt, and we will repay the debt in nine years,” he added.

Kingfisher Airlines has over Rs 6,000-crore debt, and in a debt restructuring effort, bank loans over Rs 1,300 crore and funds from promoters of about Rs 745 crore were converted into share capital.

The interest rates on the recast loans were also lowered to 11 per cent and the period of payment was extended to nine years.

A consortium of banks, including State Bank of India and ICICI Bank, hold 23 per cent stake in the company now.

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