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Kingfisher Airlines update
October 2008
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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)
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UB Group: Growth Story
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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
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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
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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
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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
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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.
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Indian Airline Industry
Overview
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$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
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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
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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
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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
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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
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Impact of the first round of consolidation
Implications
Industry loses $500 M
9 carriers reduce to 3 players
Top 3 players control over80% market
Industry loses $500 M
9 carriers reduce to 3 players
Top 3 players control over80% market
ImplicationsImplications
Industry loses $500 M
9 carriers reduce to 3 players
Top 3 players control over80% market
9 carriers reduce to 3 players
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
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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
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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
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Kingfisher Airlines Overview
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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
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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
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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
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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
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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
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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%
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What is the impact on the
KFA Financials?
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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
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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.
KFA Results: H1FY2009 Highlights
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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
KFA Results: H1FY2009 Highlights
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KFA Results: H1FY2009 Highlights
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
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KFA Results: H1FY2009 Highlights
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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
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KFA Outlook
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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
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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
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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
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Thank you