kingfisher 1

8/3/2019 Kingfisher 1

1/35

Kingfisher Airlines update

October 2008


2/35

2

Agenda

UB Group: The growth story (slide 3) Airline Industry Overview (slide 9)

Kingfisher Airlines Overview (slide 18)

KFA Financials (slide 25)

KFA Outlook (slide 31)

31st October 2008


3/35

UB Group: Growth Story

3


4/35

SUCCESS MANTRAS

Indias Leading branded consumer group

Has dominated domestic market

Accelerated organic growth

Acquisitions

Is Globally Competitive

Has set standards of governance and transparency

UB Groups growth story

31st October 20084


5/35

What next?

Bought Gilbey

Green lablelBUILT BRANDS

LIKE

KINGFISHER,

BAGPIPER,

BLACK DOG

Acquired 26% in

Deccan Aviation-

Announced merger

of KFA with

Deccan,; Acquired

further 3% stake in

Deccan Aviation to

increase the holding

to about 50%

2 0 0 3 20 0 5 20 0 7 20 0 2 20 0 7

Merged Hebert-

sons into MCD

Kept acquiring

smaller players in

beer and liquor

industry.

Acquired further

20% stake in

Deccan Aviation

through open offer

Brought in Scottish

New Castle

Market gave

thumbs up as

Margins doubled

to 18% because of

synergies

Consolidated Beer

business under

UBL and liquorbusiness under

USL

Acquired

Shaw Wallace

& Co Ltd

Acquired 100%

stake in Whyte

and Mackay,

worlds 4th largestscotch company

UB group has become the market leader in each core business it has ventured into

A n n o u n c e d

A l l ian ce w i th

J e t A i r w a y s

2 0 0 8

K F A m e r g e d i n

DAL and the

m e r g e d en t i t y

r e n a m e d a sKing f i sher

Air l ines

Lim i ted

No. 1 Beer inIndia

No. 1 Spirits inIndia

No. 1 Airline inIndia

UB Group

T I M E L I N E

31st October 2008


6/35

Multiple legal entities

Primarily volume focus

Growth driven by

market share acrosssegments

Spirits player

Focus on India

Focus on annual

performance

EBDITA 8.50%

3 Years ago

One legal entity

Primarily top-line andprofitability focus

Growth driven byincreased premium-

ness of the portfolio Integrated player

across spirits andwines

Global ambitions pragmaticallycalibrated

Accountability for 3year strategic plan

EBDITA 22%

*Source Economic Times

Now Strong EBITDA growth

Worlds No.3 distiller

17 Millionaire brands

McDowell No 1 family is the largest spirits brandin the world with sales of 27.6 million cases( FY2008)

McDowell No1 family becomes the largest FMCG

brand in terms of retail sales value* Mc Dowell No 1 Brandy Worlds largest selling

brandy

Bagpiper Whisky largest selling in the world

Pan-Indian presence - largest manufacturing/distribution set up

Leadership across flavors, geographies and pricepoints

Export unit targeting Indian communities livingabroad

United Spirits Limited

31st October 20086


7/35

United Breweries Limited

Sold in over 52 countries.

UBL is the largest beer company in India with a market share in excess of45%

Indias first global consumer brand: Kingfisher

Balanced portfolio of supporting brands

Manufacturing network across all major states

Established trade relationships

Shares common distribution system with Spirits company

31st October 20087


8/35

Aviation

Rated Asia Pacifics most admired airline brand

Voted Indias No. 1 airline in Customer Responsiveness in an independentsurvey

Voted Indias No. 1 airline in Customer Satisfaction in an independentsurvey

Recognized as one of Indias Most Respected Companies in 2006 and 2007 Business World

Voted Indias Favorite Airline. Indias only 5 star accredited airline

International ops commenced September 2008

Current Fleet size of 86 aircraft (50 Airbus NBs and 36 ATRs). MarketShare of 27.5%. Network coverage of 64 cities operating over 400 flights aday. Over 34 million guests flown since inception.

31st October 20088


9/35

Indian Airline Industry

Overview

9


10/35

$14bn+aviation industry is similar in size to Indian Railways ($18bn)

Creates substantial impact on other allied industries Tourism, Hospitality, Banking 4.5% of global GDP is attributed to the air transport component of civil aviation1

Impact on indirect industry is estimated at 1-1.5 times size of aviation industry2

Improved connectivity results in higher GDP growth $100 spent on air transport produces benefits worth $325 for the economy1

Improves economic productivity of passengers (estimated at 50% of ticket prices3)

Creates significant employment potential Direct ~ 100,000 Indirect ~ 6 times1

1. Naresh Chandra Committee Report2. Port Authority report on New York aviation market3. IATA report

The economy looks up when we fly

31st October 200810


11/35

A JL

A M D

A T Q

B B I

B D Q

B H JB H O

B H U

B LR

B O M

CC J

CC U

CJ B

CO K

D E L

D I B

D I U

D M UG A U

G O I

G W L

H J R

H Y D

ID R

IM F

IX A

IX B

IX C

IX E

IX J

IX L

IX M

IX R

IX S

IX U

IX Z

JA IJD H

JG A

JR HLK O

M A A

N A G

PA T

P B D

P N Q

P U T

R A J

R P R

S XR

T E Z

T IR

T R V

T R Z

U D R

V N S

VT Z

A G X

A JL

A M D

A T Q

B B I

BD Q

B EP

BH JBH O

BH U

B LR

B O M

CC J

CC U

CJ B

CO K

D E L

D H M

D IB

D I U

D M UG A U

G O I

G O PG W L

H B X

H J R

H Y D

ID R

IM F

IX A

IX B

IX C

IX D

IX E

IX G

IX I

IX J

IX L

IX M

IX P

IX R

IX S

IX U

IX Y

IX Z

JA IJD H

JG AJL R

JR H

K LH

K U U

LK O

M A A

N A G

P A T

PB D

P N Q

R A J

R JA

R P R

SH L

S LV

S T V

SX R

T CR

T E Z

T IR

T R V

T R Z

U D R

V G A

V N S

VT Z

Indias air service connectivity has room to grow:

129 new routes connecting 22 cities were added from 2000 to 2007

Domestic Routes in 2000 Domestic Routes in 2007

Source: OAG Schedules, Bombardier Aerospace, 2007

Huge Potential

31st October 200811


12/35

In the past few years, domesticindustry has grown at CAGR of 31%

Enabling the following macro economic conditionswould ensure continued growth:

Economy is expected to continue to grow at 8-9%;

Aviation business is directly impacted by same

Adequate investments in infrastructure are being made

in key airports to enable them to handle 2-3 times the

current passenger loads by 2010

USD 1.25 Bn. of investments in non-metro airport

development would drive growth in the market

Annual domestic passenger traffic (mn)

18.524

35

44

0

15

30

45

60

Mar-05 Mar-06 Mar-07 Mar-08

Indian Aviation Industry growth to exceed 25% CAGR

KPMG report states that Indias air traffic will exceed the projected 25.4% CAGR for 2008and expected to grow 2-3 times by 2012

31st October 200812


13/35

ATF prices are ~ 50% higher than international markets

(Estimated impact $ 1.5bn)

Tax incidence ~ 50% on base price

In contrast, the rest of the transportation industry has access to

fuel at subsidized rates ~ 29% subsidy on petrol and 47% on

diesel

Additional fuel consumption of ~10% due to airport congestion

(Estimated impact $0.5bn)

High airport handling charges

AAI is highly profitable (PBT margin of 40%; PBT at $ 400mn)

Route disbursal guidelines require airlines to fly in unattractive

sectors (~ 300 flights in NE; estimated impact for KFA is USD 23

million p.a.)

As a result airline companies are incurring heavy

losses while govt. and service providers are

significantly gaining at its expense

Central & State Govt. $1.5bn

(Excise duty, Custom Duty, Sales-tax, Entry tax)

Fuel companies $ 0.6bn+ (Margin on ATF)

AAI $ 0.4bn

Despite its economic significance, growing contribution to Indian economy and increasingly adverse fuel situation, theindustry has been subjected to significant disadvantages

Airline industry: India vs. International

31st October 200813


14/35

Country No of prominentplayers*

Market shareof Top-2 IndustryLoadFactor

Comparativemetro fare (USD) Fuel Price(USD/ltr)

Australia 2 95% 80% 155 - 548 1.02

Japan 2 93% 65% 286 - 310 1.07

Brazil 3 92% 72% 238 - 440 1.00

UK/I 5 60% 73% 179 - 952 1.12China 4 47% 75% 107 - 143 1.10

India 5 59% 65% 102 - 210 1.67

Industry consolidation would be driven through exit of fringe players and rational capacity addition linked to demand byexisting players in the near term. This would assist in driving-up load factors and realizations

Consolidation to pave way for rationalization

* All fares for key metro sectors across countries equated to DEL-BOM distance (1167Km). Fares for Aug 18 th from local airline websites; Fuel prices for Jun0831st October 2008

14


15/35

Impact of the first round of consolidation

Implications

Industry loses $500 M

9 carriers reduce to 3 players

Top 3 players control over80% market




ImplicationsImplications





Top 3 players control closeto 80% of the market

Jet Group, 32.6%

Indian / Air India,

18.1%

UB Group, 27.5%Go, 1.8%

Spice, 7.9%

Paramount, 1.7%MDLR, 0.2%

Indigo, 10.1%

As on Sep 2008

31st October 200815


16/35

Kingfisher Airlines and Jet Airways announced an agreement to form an alliance

of wide-ranging proportions that will help both carriers to significantly rationalize

and reduce costs by offering a unique high product quality with improved

standards of service to its consumers.

=

Jet Airways & Kingfisher Airlines working together

31st October 200816


17/35

UB group has a history of successfully managing highly regulated,capacity surplus industries and turnaround acquisitions

Spirits business in India is characterized by

High fragmentation

Over capacity

Market segmented by multiple price points

Industry had single digit margins and falling price points

McDowell & Company Ltd, the flagship spirits company of theUB group acquired a number of companies including itsimmediate competitor Shaw Wallace in 2005

Post this acquisition, UB has focused on realizing value both insales, and aggressive cost reduction

Achieved ~ 50% share of volumes in the segment United Spiritsoperates and 60% share of value

Latest EBITDA margin 22% (similar to major multinationalcompanies)

Growth across all categories and across all geographies in India

Acquired 100% of Whyte & Mackay Ltd., the fourth largestscotch manufacturer in the world, based out of Glasgow,Scotland

Today, United Spirits is the third largest distiller in the world,behind Diageo and Pernod Ricard

Current Indian aviation industry scenario is similar to spirits industry 5 years ago

31st October 200817


18/35

Kingfisher Airlines Overview

18


19/35

Unique high product quality with low cost

Best brands in the Airline Industry

KFA is the 2nd Buzziest Brand in the country

Deccan voted the Best Indian Budget Airline*

Best product in the Skies

Only airline in India with a 5 star rating (six in the world)

KF Ranked highest in cabin comfort & on-board service

Highly satisfied & loyal customer base

99% of KFA guests recommend the airline

DN loyalty index highest compared to other LCCs

Leading Industry though innovation

In-flight : Entertainment & gourmet cuisine

Ground service : Personalized valet service

Distribution : Mobile, home delivery, post office etc.

DN leading LCC cabin innovations: In-flight reading

31st October 200819


20/35

Business traveler/Premium traffic/SME traveler/Leisure traveler

Full service/frequency/Low fare

Focus on premium routes/low yield routes

The airline has the widest network in India, flying to all major business & leisure destinations in the countrycovering > 95% of the addressable passenger base

Uniquely flexible strategy to benefit from higher realizations on business routes and transition to low cost

if yield declines

Kingfisher Airlines Limited

Differentiated Network Coverage

31st October 200820


21/35

KFA fleet plan is based on A320 which remains a high value/high demand asset

Group has current Airbus fleet size of 50 and net addition of 10 aircraft till Mar 2011

There is a shortage of A320 in global markets; 166 orders of narrow bodies in the recently concluded air show

This provides the flexibility to contract in short-term while maintaining longer-term growth potential

No ATR additions in the current year

KFA has been on the industry forefront to reduce deployed capacity

Overall reduction of 21% flights

7 aircrafts rendered surplus as a result of the exercise

Pro-active actions by KFA are influencing other airlines to rationalize capacity

Spicejet, Indigo and Go have reduced capacity by more than 20%

Jet has cut ~10% capacity; Jetlite has cut capacity by ~ 15%

KFAs fleet plan has tremendous flexibility

31st October 200821


22/35

Proactive steps: Capacity addition

Potential route deployments planned for wide body aircraft

A 330

BLR LHR

BOM LHR BOM SIN

BOM HKG

Wide body Fleet status

5 A340s replaced by A330

No further wide body aircraft induction for the next 2 year

Conducted detailed assessment of route traffic potential basedon data sources like IATA Pax-IS, MIDT

Analyzed route wise competitive market share, product,schedule

Defined class-wise projections on pure O&D traffic and feedermarkets

Analyzed market ATVs from a point-of- sale perspective

Assessed the impact of Kingfisher market entry on routecapacity

Defined detailed projections of all operational and fixed costs atmultiple fuel price scenarios

Potential deployment opportunities

based on detailed route wise profitability

Approach to detailed Route wise

profitability assessment

31st October 200822


23/35

KF is leading the industry towards a structure where Vendors to Airline companiesmake only a reasonable return

CURRENT RETURNS PROPOSED

Fuel companies & stategovernments

Returns for fuel companies and tax revenues forgovt.- Rs 18-20/ ltr

Savings of Rs 9-10 / litre targeted throughsales tax and discounts of Rs 2/ ltr

Airline travel agents 4-5% of ATV from Airline companyStandard rate of Rs 125/ ticket fromcustomers (50% reduction)

Distribution providers (GDS)Rs 130/ booking

Rs 70 cr.

20% reduction

Catering companies - NIL - 20% reduction

Other opportunities:

Airport Authority of India

AAI operating profits at 40%

Current profits ~ Rs 400 cr. p.a.

Reduce current landing charges by 50%;representation by industry supported by civilaviation ministry

Above initiatives except AAI opportunity would lead to savings of over Rs 50-55 cr/ month

31st October 200823


24/35

Further reduction in non-fuel costs is being targeted

Targeted cost synergies expected have accrued/on-track (Ground handling, Airports,

Maintenance, Pilots, Flight Operations, Insurance)

Several other cost reduction measures initiated (reducing dependence on expat

engineers and pilots, hotel costs, discretionary training, uniforms etc.)

Headcount per aircraft targeted to be reduced from 104 to 94 by leveraging synergies

Non fuel costs targeted to be reduced by 7 - 10%

31st October 200824


25/35

What is the impact on the

KFA Financials?

25


26/35

26

The spiraling fuel costs have created an unprecedented and adverse impact on the operations

The average fuel price in the six month period April to September 2008 has increased by close to 60%

and this increase resulted in an impact of INR 640 crores on the Companys fuel bill. The average per

kiloliter price in this period (H1 FY09) was INR 61,400.

The Company in order to overcome these increasing costs was constrained to pass on a part of the

costs to the traveling customer in form of higher fuel surcharges resulting in increased pricing to the

customer.

The increase in fares coupled with the lean season (June to September) witnessed a drop in

passenger traffic and corresponding seat factor not just for the Company but also for the industry.

The period saw Kingfishers seat factor dropping in line with the industry by about 6%.

KFA Results: H1FY2009 Highlights

31st October 2008


27/35

27

In order to manage this challenging scenario, the Company has initiated various measures to manage

costs:

Network alignment on merger and continuous review of poor performing flights, has resulted in

a reduction in capacity to the extent of around 4% during this 6 month period with further

reductions planned.

The reduction of capacity was achieved more in the second quarter of this year i.e. July to

September 2008 where the reduction achieved was close to 15% as compared to Q2 FY08 i.e.

July to September 2007.

As a result of this exercise, the Company has returned 2 aircraft and is in discussions to return

an additional 8 aircraft. The impact of these returns will be seen in H2 FY09.

Deferred international roll-out plans apart from one flight operating between Bangalore and

London. Reduced deployment of wide-body aircraft in the near term.


31st October 2008


28/35

28

Reduction in fixed costs in the merged scenario

Operating costs Catering, Insurance, Engineering and Ground Handling

reduced through re-negotiations with various service providers

Employee Costs

Reduction of expat employees in particular high cost engineers and pilots

Higher attrition rate coupled with voluntary movement of employees in the

merged scenario (overall 650 employees). Improved cross utilization led to

no increase in manpower


31st October 2008


29/35

29


Operating Revenues of INR 27,203 millions Up 33% over 6 months FY08 (H1FY08)

Average Ticket Value per Passenger 4,936 Up 55% over 6 months FY08

Net Profit / (loss) after tax of INR (6,411) millions Losses reduced by 19% over 6 months FY08

Achieved Seat Factor of 62% Down 6% (points) over 6 months FY08

31st October 2008


30/35

30


31st October 2008

Company Operating Parameters

H1FY09

ASKMs Mio 7,745

RPKMs Mio 4,813

Passenger Load Factor % 62%

Total Guests Revenue Mio 27,172

Revenue per Guest 4,936

Traffic Paramters April - Sep 2008 (6

months)

Consolidated

Company P&L

H1FY09

INCOME

Income from Operations 27,203

Other Income 421

Total Income 27,624

Expenditure

Employee Remuneration & Benefits 4,262

Aircraft Fuel Expenses 17,100

Other Operating Expenses 12,143

Aircraft Lease Rentals 5,376

Depreciation 649

Interest Expense 2,460

Maintenenace Rent Reversed (5,262)

Total Expenditure 36,728

PROFIT / (LOSS) BEFORE TAX (9,104)

Provision for Taxation (2,693)

PROFIT / (LOSS) AFTER TAXATION (6,411)

In INR Millions April - Sep 2008 (6

months)

Consolidated


31/35

KFA Outlook

31


32/35

The softening of the fuel prices has resulted in an improvement in the Companys performance in

September 2008 (fuel prices reduced by 15.5%). Given the further drop in fuel prices, the Companyexpects a better performance in H2 FY09.

The recently announced alliance between Kingfisher Airlines and Jet Airways is expected to help bothcarriers to significantly rationalize and reduce costs by offering a unique high product quality withimproved standards of service to its consumers.

The two airlines will be able to derive maximum synergies by working together and thereby offer bestpossible fares for the benefit of the end users i.e. the travelling customer.

KFA - Outlook

31st October 200832


33/35

The scope of this alliance is expected to include the following on the operational and cost aspect:

Joint fuel management to reduce fuel expenses

Common ground handling of the highest quality

Common Global Distribution system platform

Cross utilization of crew on similar aircraft types and commonality of training as also of the technical resources, subjectto DGCA approval

Areas covered on the revenues and revenue related operational aspects are :

Code-shares on both domestic and international flights subject to DGCA approval

Interline/Special Prorate agreements to leverage the joint network deploying 189 aircraft offering 927 domestic and 82International flights daily

Joint Network rationalization and synergies

Cross selling of flight inventories

Reciprocity in Jet Privilege and King Club frequent flier programs

KFA - Outlook

31st October 200833


34/35

Further Consolidation would result in exit offringe players; rational capacity addition andviable pricing

Growth potential of aviation in the country isexpected to remain intact

Fuel prices are expected to stabilize to around$70-90 /barrel in next 6-12 months

KFA is the cost player in the industry with

best product offering

KFA offers a flexible network strategy which

provides it a distinct competitive advantage

KFA has prepared a pro-active plan to

overcome difficult fuel situation

Kingfisher Airlines would emerge a stronger airline in the next 6-12 months from the current situation

In Summary

31st October 200834


35/35

Thank you

kingfisher 1

Documents