New Delhi: Kingfisher Airlines Wednesday justified its plans to close down its low-cost carrier in four months saying the operating costs involved were the same as in a full-service carrier and the revenues lesser.
Maintaining that there was more competition in the no- frill segment than the full-service segment in India, Kingfisher CEO Sanjay Aggarwal said the decision would help the airline company generate additional revenue after its exit from the low-cost service, where competition was more intense and a price war could hit the margins.
Seeking to quell concerns emanating from the decision to shut down low-cost airline Kingfisher Red, he said the move would rather generate incremental revenue for the company.
Kingisher's shares were battered sharply soon after its chairman and key promoter Vijay Mallya last week announced the plan to exit from the low-cost segment.
It's shares fell by over 20 percent in three days, but the company was seen trading higher by 1.5 percent at Rs 20.40 Wednesday in afternoon trade at the BSE. It had fallen to a 52-week low of Rs 18.85 on September 30.
Aggarwal said the operating costs of the "so-called low cost carriers" were similar on fuel, airport charges and other costs and any additional expenses incurred by the full-service carriers were "more than recovered through higher yields".
He maintained that the decision was taken after a detailed study over the last six months during the high oil price regime which found that Kingfisher's full service product had generated higher yields and load factors.
The study found that of the incremental yield, only 25 percent is spent on providing the extra services associated with a full service carrier and the remaining was the "net contribution to the bottom line."
First Published: Wednesday, October 05, 2011, 15:12