Kingfisher

Higher Passenger Traffic & Ticket Prices Help Co Maintain Market Share

 

BARRING A brief run-up in the September-October period last year, aviation stocks have not attracted much attention in the past two months. 

   However, following a consistent rise in passenger growth over the past three months, it appears that the sector may be back on investors' radar. With the aviation industry reporting a passenger growth of 30% on a sequential basis in the December 2009 quarter, aviation stocks looks poised to attract further investor interest. 

   The positive impact of the rising traffic was visible in the third quarter results of Kingfisher Airlines, the country's second biggest airline. The company recorded a domestic positive EBITDA of Rs 11 crore in the December 2009 quarter as against a loss of Rs 122 crore in the corresponding period last year. The positive EBIDTA can be largely attributed to the rising load factor coupled with proportionate rise in ticket prices which helped the airline clock its highest load factor in domestic operations. Kingfisher's load factor on the domestic circuit rose to 81% and the airline maintained its market share of 21%. 

   However, on an overall basis, the company showed a spurt in losses. The losses in the December 2009 quarter rose to Rs 419.96 crore against Rs 413 crore during the corresponding period a year ago. It reported a decline in its income from operations (ticket sales) at Rs 1,352.45 crore for the December 2009 quarter, compared to Rs 1,447.83 crore in the same period previous fiscal. This drop has to be viewed in the light of the fact that the company cut its fleet size by 19% in the last quarter. Also, its realisation (revenue per km passenger) fell to Rs 5 from Rs 6.25 in the corresponding quarter last year, even though it clocked a load factor of around 75%, on a global basis. 

   So, what is preventing the company from turning cash-positive despite the rising passenger numbers and various cost-cutting measures and a passenger growth of 30% in the December quarter?. There are two major reasons for this. First, the company's international business is taking time to stabilise. It started global operations a year ago which account for less than 10% of Kingfisher's overall revenues and has posted an EBIDTA loss of Rs 89 crore. Apparently, the company is steadily pumping money into this venture and has saddled itself with debt. 

   The airline had announced plans to raise around Rs 1,000 crore either through a GDR or rights issue with reports indicating that the exercise was aimed at easing its debt burden. At the end of FY09, the company had a debt of close to Rs 6,000 crore outstanding on its books. For this quarter, the company incurred a huge expenditure of Rs 80 crore in maintaining its grounded aircraft, which were redeployed. 

   The fourth quarter is likely to see a further improvement in the company's finances. While its revenues and load factor will get a boost from growth in passenger traffic and a rebound in the economy, profitability will be aided by various cost-cutting measures. Kingfisher is planning to cut its lease costs by 25% over the third quarter, personnel costs by more than 20% and engineering costs by 10-15%.