The recent oil crisis has left an indelible mark on airlines globally. According to data compiled by IATA, close to 24 airlines globally have either been declared bankrupt or have simply packed up operations since the beginning of the year. Airline losses globally are expected to touch $6.1 billion this year, wiping out last year’s profits of $5.6 billion completely. Passenger traffic growth has fallen to 3.8 per cent, the lowest since 2003.
In India, almost all airlines are pruning down their operations. Jet Airways has just decided to reduce its flights on the Mumbai-Shanghai-San Fransisco route from daily to five times a week, citing poor loads as a reason. Air India — leading the brigade with annual losses expected to cross Rs 3,000 crore — is planning to cut a range of flights. Many domestic carriers have also reduced frequencies and dropped routes.
That’s why I am particularly impressed with Kingfisher Airlines Chairman Vijay Mallya’s decision to go ahead with his plans to launch international operations, defying economic rationale and logic, especially in terms of timing. Sometime next month, Mallya’s Kingfisher will make its maiden flight out of Indian shores from Bangalore to London.
Here is a man willing to pay any price to see his long-cherished dream come true. Mallya’s huge gamble comes at a time when his own Kingfisher airlines is bleeding (apparently it’s chalking up a daily loss of Rs 5 crore) and Air Deccan — the airline he bought in 2007 — is keeping pace. Combined past losses of the two carriers are also impressive. You can only appreciate the true extent of his commitment if you hear what many in the aviation industry believe, which is that Mallya bought Deccan solely to acquire these international flying rights.
If he runs his company aground in the process, many in the industry argue he has little choice. His closest rival, Jet, has already stolen a march in setting an international footprint. This is the only growth market without the present price constraints imposed by domestic competition. A senior civil aviation ministry official argues that if Mallya can fill up the front end of his aircraft substantially, he can actually subsidise the rest of the operation from those revenues. He says that the overseas market may help Mallya “cushion some of the domestic shocks” and that this is “not entirely a losing proposition”. Whether this can be converted into a winning one will depend quite heavily on the choice of routes and competitors’ responses.
But perhaps even more important is the fact that Mallya’s airline has been preparing for this day since the middle of last year and if one prepares for something but doesn’t do it, the price to pay is even heavier. Some of his wide-bodied aircraft (A330s) are already here and can’t be kept idle (while he has managed to defer some deliveries, not all have been delayed or deferred). He’s also hired foreign pilots and crew, burning a neat hole in his pocket. So, while the timing may not be the best, the price of not acting may be higher still.
As Mallya prepares to commit what one senior Jet official described as “suicide” in the current environment, I for one cannot deny that I am quite happy at the prospect. More flights to London, the US and other destinations overseas mean lower fares for passengers. Competition is sure to drive down economy fares at least; Mallya is likely to price his business and first quite stiffly, if newspaper reports are anything to go by. Before the winter schedule, he’s hoping to launch flights to Singapore and Hong Kong (permission is yet to be got). One can safely assume that fares for all other routes will also — at least to start with — be quite competitive.
Not only will fares be competitive, the flights promise to be pretty comfortable. I was in the Kingfisher head office in Mumbai sometime in the second half of last year when Mallya thought he would manage to get a nod to fly abroad by getting the Cabinet to change the ridiculous rule that domestic airlines must fly for five years within India before they take their first step outside. I remember gasping as I listened to their plans for the kind of service they would introduce on board and wondering whether they would permit me to simply live on board one of their flights. The next day, a team of four or five executives was flying off to Belgium to choose the cutlery that would be used on board. As we all listened to the then-secret plan to have a marvellously- stocked stand-up bar and a chef on board, I remember thinking Mallya must have some oil wells hidden somewhere that we all don’t know about. Nothing else could explain the absolutely scant regard for trivial matters like costs.
In short, what I am saying is that we have more than one reason to applaud his audacious high risk-taking appetite. So, every time you look up and see a really large Kingfisher bird in the sky, salute Mallya’s brave, if slightly mad, step in your head and join me in drinking a Kingfisher beer to celebrate.