Kingfisher & SpiceJet: Focus on low-cost ops to drive profits

A shift in traveller preference towards low-fare carriers will play a crucial role in defining the focus of Indian airlines in the months ahead, said analysts. Even full-service private carriers such as Kingfisher Airlines, reeling under high fuel costs and mounting losses, may rely on its low-cost operations to tide over the challenging cost environment.

The Vijay Mallya-promoted carrier is reportedly planning to hive off its low-cost service Kingfisher Red into a separate entity. Kingfisher has a market share of above 19% and is the second largest airlines in the Indian skies. Though low-cost carriers give lesser revenue per km paid passenger, it helps airlines cut operational costs.

In the June quarter, Kingfisher Airlines' net loss widened to 263 crore from 187 crore a year ago primarily due to high fuel cost and a swing in market share towards low-cost travel. Its earnings before interest depreciation tax amortisation and rentals (EBIDTAR), which is a measure of operational performance of an airlines, declined to 13% from 20.5% in the previous year. However, load factor stood at 85%, better than the industry average of 78%.

Low-cost carrier SpiceJet, on the other hand, has a distinct advantage of catering to price-sensitive travellers. An asset-light model, where the entire fleet is leased, helps the company conserve cash and keep control debt, said analysts. Also, the company has single-type aircraft, which helps it maintain its aircraft efficiently.

Though rising fuel cost turned the company into losses in the first quarter, the airlines has gained nearly 2.2% in market share, which now stands at 13%.

In the coming quarters, SpiceJet plans to add 15 Q400 NextGen turboprop aircraft to its present fleet size of 26 aircraft. These aircraft are used for short haul and have a load factor of more than 75% and will help the carrier to penetrate in tier-II cities.