Thu Mar 17, 2005 08:25 AM ET

By Rina Chandran

BOMBAY (Reuters) - Kingfisher Airlines, a budget Indian airline backed by the country`s biggest brewer, is hopeful of turning operating profits at the end of its first year through greater efficiencies in a fast-growing but competitive market.

The airline, which bears the name of India`s best-selling beer from the UB Group`s United Breweries Ltd., is awaiting delivery of its first aircraft from Airbus, and is scheduled to launch its inaugural domestic flight on May 9.

It is looking to tap India`s potentially large market for air travel, which is expected to grow at about 25-30 percent over the next five years as incomes rise.

``It`s such a miniscule market now, but there`s tremendous opportunity,`` Alex Wilcox, president and chief operating officer, Kingfisher Airlines, told Reuters in an interview.

``It`s a cut-throat business, but we`re not here to kill anyone, we just want our share of the market.``

The airline, which UB Group`s flamboyant head Vijay Mallya prefers to call a ``funliner``, will offer cheaper fares and only one class of seating, besides personal entertainment systems for all passengers, a feature not found on other domestic carriers.

The airline will cut costs by adding more seats and flying more hours through ``smarter scheduling,`` said Wilcox, a founding manager of America`s budget airline, JetBlue Airways.

Still, fixed costs are extremely high in India: landing fee is about 70 percent higher than the world average and fuel costs are nearly double, said Wilcox, who works at Kingfisher with six other former colleagues from JetBlue.

``Once the aircraft takes off, you`ve lost the opportunity to sell those seats, so it`s a perishable product,`` he said.

``But certain efficiencies will last our lifetime, like the single-class service, and we hope that fuel costs will get rationalised, but the key driver will be operating efficiently.``

Kingfisher has placed orders for 10 A-320 aircrafts and has the option to acquire another 20 A-320s for $1.8 billion. It has also bought three A-319s and leased four A-320s, all of which will sport the bright red and blue bird on the tail.

The UB Group has invested 1.6 billion rupees in the airline to date, up from an initial investment of 1.2 billion rupees. Kingfisher plans an initial public offering (IPO) in the next year or two to raise additional funds, said Wilcox.

Jet Airways Ltd., India`s biggest domestic carrier, made a strong debut on the Bombay stock exchange earlier this week, after its IPO raised $435 million.

There have also been reports of British entrepreneur Richard Branson looking to buy a stake in an Indian airline.

``We`ve spoken to him, and there`s definitely enormous interest from foreign investors,`` said Wilcox. ``We`re opportunistic, so we`re not ruling anything out.``

Jet has a 43 percent share of the domestic market and competes with state-owned Indian Airlines and privately-owned Air Sahara, besides newly-launched discount carrier Air Deccan. Others readying for launch are SpiceJet from Royal Airways Ltd. and a handful of other players.

``I am a big fan of Jet, they`ve set the bar very high, so we can`t get lazy, but they`re not invincible either,`` said Wilcox.

The going will not be easy for anyone, he added.

``There are many, many barriers to entry, and even if some of them do get off the ground, there will be casualties ... even in markets where costs are low, it`s a tough business,`` he said.

Besides, inadequate airport infrastructure and opaque regulatory processes are also obstacles, said Wilcox.

Backing from India`s biggest brewer helps, but there have been questions on extending a beer brand to an airline.

``Kingfisher is the biggest brand in the UB stable, so we wouldn`t do something harebrained, plus it is a lifestyle brand,`` said Wilcox.