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Vijay Mallya, managing director of Kingfisher Airlines, one of India's youngest carriers, is an Icarus-like figure.
Mallya has made no secret of his outsized ambitions to run India's number one airline in a few years' time. But some fear that like his mythical counterpart who, carried away by the thrill of flying, soared so high the sun melted his wax wings, Mr Mallya's exuberance may eventually be his undoing.
"Our vision is to be the biggest and the best in the Indian skies by 2010," Mr Mallya said recently at a Centre for Asia-Pacific Aviation conference in Kuala Lumpur, where Kingfisher was named the region's "Best New Airline of the Year".
Only six months old, Kingfisher Airlines, a subsidiary of the US$2.0bn United Breweries Group, has embarked on an aggressive expansion plan that includes a big order for 65 new aircraft. The purchase of 30 new Airbus A320s alone as part of the plan will set the company back US$1.9bn,
The carrier, which operates eight aircraft, has also launched an offer to buy its much bigger peer Air Sahara for a reported US$400m. Air Sahara is India's third-largest domestic carrier with a market share of 15 per cent.
To fund its new fleet, Kingfisher is planning a US$200m initial public offering (IPO) late next year. After that, it hopes to draw on the deep pockets of its parent and make use of UB Group's lenders.
If Mr Mallya's grand vision sounds too good to be true, analysts say that is because it probably is.
Air Sahara has said it wants to raise capital, but has repeatedly said its preferred option would be a private equity deal in which it relinquished a stake of no more than 20 per cent. Ernst & Young has estimated the company's value at between US$750m and US$1.0bn.
It is easy to see why King fisher would want to buy an established player like Air Sahara, which operates flights to Singapore, the US, and London, but less clear what Air Sahara would gain from selling out.
"I'd be surprised if they do a total sale," said Kapil Kaul, head of the Indian subcontinent and Middle East at the Centre for Asia-Pacific Aviation, a consultancy to the airlines industry.
Kingfisher, which has a 6.0 per cent market share, has a one-of-a-kind business model that is not supportable, say analysts.
Unlike the other airlines that have launched in India in the past two years, it brands itself as a full service, not a "no-frills", airline, but its prices are 10 to 15 per cent lower than the other long-standing full-price carriers. Ticket prices are higher, though, than at budget airlines Air Deccan and Spice Jet.
By trying to play both sides of the equation, it loses out on the heavy passenger volume enjoyed by low-cost carriers -- such as Spice Jet, which claims it has had an average seat occupancy of 93 per cent since its May launch -- as well as the higher margins earned at Indian Airlines and Jet Airways. Kingfisher's load factor is estimated at less than 60 per cent.
Jayesh Desai, head of mergers and acquisitions (M&A) at Ernst & Young, points out that airline economics in India are so skewed by exorbitant aviation fuel costs -- about 82 per cent higher than global levels -- that the country's airlines have little control over costs.
He said airlines in India cannot further reduce salaries, which already account for just over 10 per cent of a carrier's total costs, compared with 40 per cent around the world.
"Cutting costs comes at the benefit of the customer," said Mr Desai. "If prices are lowered on a sustainable basis, you need to have lower costs on a sustainable basis."
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FT Syndication Service
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