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The decision by Kingfisher Airlines to exit the low-fare segment being operated under the Kingfisher Red banner received the thumbs-down from the market. Also, notwithstanding announcements of intent to infuse capital, the perceived lack of a clear road-map to raise equity and pare debt seems to have increased the market’s worries about the company. The Kingfisher stock shed close to 9 per cent in the last two trading sessions, compared with the 1.1 per cent gain registered by the Sensex.
Counter-intuitive
Given the prevailing economic uncertainties, low cost carriers such as Indigo and SpiceJet catering to the price-conscious Indian customer are said to be handling the ongoing turbulence better. Also, erstwhile full-service carriers such as Jet Airways have announced plans to increase focus on the low fare segment. In this scenario, Kingfisher’s move to do away with Kingfisher Red is being seen as counter-intuitive and may have negatively surprised the markets. The company’s position that the move away from low-fare is prompted by higher yields and better load factors on its full service offerings seems to have found few takers. There are concerns that the move may have been driven by a tight cash flow position and may be a precursor to curtail operations.
With Kingfisher Red reportedly contributing to around 70 per cent of its current operations, the shift may see the company cede a good portion of its market share (currently 18.8 per cent) in the domestic skies. Also, given the proven price sensitive nature of the Indian airline market, which saw the full-service carriers recalibrate their offerings in favour of low-fares over the past two years, it remains to be seen whether Kingfisher’s reversal of strategy succeeds. The move, if it fails, could further strain the company’s already stretched financial position.
Fund raising concerns
While Kingfisher has plans to raise Rs 2,000 crore through a rights issue, the timeline for the same has not been decided upon. Till such time, the company’s heavy debt overhang of more than Rs. 6,000 crore will weigh down upon it. Also, it remains to be seen whether bankers who hold around 23 per cent through an earlier debt recast plan and have seen the value of their holding erode sharply, would be open to contribute in further capital raising.
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