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Analysis of Kingfisher’s Q1 Results

Kingfisher tail line-up
Continuing the series of Indian carrier financial analyses, today we take a look at Kingfisher.

Previous Analyses: SpiceJet

Following the trend of most Indian carriers, Kingfisher posted a drop in net income; facing a net pretax loss of Rs. 3.90 billion vs. a pretax loss of Rs. 2.64 billion in Q1 2011.

As compared to SpiceJet, Kingfisher did not see many operating improvements this quarter.

  • Revenue was a (relative) bright spot, at Rs. 1,881.64 Crore, up 14.7% YOY from Rs. 1,640.57 Crore
  • Passengers carried were up just 9% to 3.41 million, lagging behind the industry as a whole
  • Passenger yield was up 6% to Rs. 5,007
  • Absolute non fuel costs were up 10.7%, while absolute fuel costs jumped a whopping 44.3%, on capacity growth of 6%, a 3% increase in the number of departures and a 3% increase in total block hours.
  • Seat-kilometer revenues increased 9%, while seat-kilometer costs were up 16% year over year; seat-kilometer costs excluding fuel increased by 3%
  • Interest expenditures by Kingfisher on its debt were Rs. 305.8 Crore, down YOY but still representing a gigantic 16.2% of overall revenues
  • EBTIDA Profit (which measures operating results before taxes, interest, depreciation, and loan amortization) was Rs. 5 Crore; Rs. 44 Crore profit domestically, and Rs. 39 Crore loss internationally.
  • International: R/ASK up 25%, C/ASK up 17%
  • Domestic: R/ASK up 6%, C/ASK up 15.5%

Observations:

Kingfisher is currently operating at an unsustainable level of debt. When interest expenditures are 16% of revenues, your balance sheet has officially reached toxic levels.

But the net loss by Kingfisher should not necessarily be looked at as a referendum on the viability of the airline as a whole. As I mentioned above, interest payments were equal to almost 75% of the overall net loss. EBITDA profit indicates that Kingfisher’s airline operation is profitable, but the company is not at current debt levels. Perhaps a US-style bankruptcy reorganization and/or a capital infusion from its OneWorld partners could help this?

The international market for India seems to be stabilizing. During the 2008-2009 slowdown, and even into 2010; there was a fundamental over-capacity internationally. But Kingfisher saw almost 25% seat-kilometer revenue growth on a 7% increase in capacity; shaving 20% of the EBITDA results. Kingfisher looks to be increasing its marketshare slightly (passengers carried were up 13% from 290,000 to 320,000), though it still has a ways to go before catching up to market-share leaders Air India (I use the term leader very loosely here) and Jet Airways. As the airline integrates itself into the OneWorld alliance of carriers, additional growth should be seen on the international side; especially in the lucrative premium segment.

Domestically, Kingfisher suffered many of the same issues that plagued both Jet, and SpiceJet. Capacity growth outpaced the increases in demand, and with fuel trending higher during the quarter, that Kingfisher managed to make an EBITDA profit is a remarkable feat in and of itself. Part of the secret behind Kingfisher’s success was strict capacity discipline; ASKs increased 5% while RPKs grew almost 10%. This kept yields from falling off a cliff, as they ticked upwards 2% to Rs. 4,389.

One troubling factor is that seat-kilometer cost excluding fuel increased. In the high fuel environment that India currently faces, Kingfisher must maintain stringent discipline on non-fuel costs if it is to remain viable. They tried reducing wages, but the negative reaction from its employees stopped that plan of action.

Vinay Bhaskara

Twitter: @TheABVinay

Contact me at vinay@bangaloreaviation.com

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About Vinay Bhaskara

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