Rise and Fall of Kingfisher Airlines


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A project report on how kingfisher airlines went from being the largest domestic airline to being locked out in the cold. Marketing management, Marketing mix, marketing strategy, productivity and efficiency, current ratio, and it failures

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Rise and Fall of Kingfisher Airlines

  1. 1. Asia Pacific Institute of Management 12th Dec 2013 Rise and Fall of Kingfisher Airlines A Project of Marketing Management 2 TV, Shreeharsha;Karmakar, Ankit; Pandey, Prabhakar; Shukla Mritunjay; R, Nithin; Mishra, Devendra
  2. 2. Abstract Kingfisher Airlines Ltd. is an Indian private airline group widely unpopular for its perennial loss ridden balance sheet and the eventual financial meltdown. Kingfisher Airlines started operations in May 2005 and soon grew to become the largest passenger carrier in the country. Financial mismanagement, over personal indulgence, lack of respect for the business and naïve ambition led to its sad demise. Kingfisher may have failed due to bad financials but was there a marketing failure? Are promotion and USP enough to sell air tickets? The project talks of how Kingfisher Airlines grew into the biggest player in Indian domestic airlines and how naïve ambition, poor market research and lack of clarity nailed the metal bird to the ground. This project proposes a few recommendations of alternatives from the marketing perspective that can be explored if in case the Airline is revived into operation. 2
  3. 3. Table of Contents 1. Introduction 4 2. Coming Together 5 3. Marketing Mix 6 4. Strategy 8 5. Falling Apart and the Factors Responsible 9 6. Exploring Alternatives 11 Conclusion 12 Bibliography 13 Appendix 14 3
  4. 4. Introduction Kingfisher Airlines was established in 2005 by the flamboyant liquor Baron Dr. Vijay Mallya. Vijay Mallaya was quoted to say that he wanted to break the shackles of conservative socialism and wanted to give the middle class a standard of living that is enjoyed in the west. Born to the illustrious Vittal Mallya, Vijay Mallaya inherited the ownership of the UB group when he was barely 30. Mallya consolidated the group’s businesses and streamlined them into a profit making enterprise. Kingfisher Airlines was an attempt of Vijay Mallya to provide an experience of leisure and luxury to the common man of India. Kingfisher Airlines started modestly and took off very soon to become a giant in the Indian Airline Industry. The Airline went through many stages of both organic and inorganic growth. Growing its assets and also piling its liabilities. The Airline never reported profits in its balance sheets after its listing in the Indian stock markets. This trend of loss making continued and saw the Airline touchdown. Mounting Debts, continues losses, hostile competition and lack of government aid together made sure that the Airline stood grounded forever. 4
  5. 5. 2. Coming Together Birth of Kingfisher Kingfisher Airlines Limited was setup in 2003 at a Registrar’s office with its registered office in the UB City Bangalore. The cheering and the beautiful ladies in red were only to come in 2005. Kingfisher Airlines started its operations on 9th May 2005 with a modest fleet of 4 Airbus A320-200s; the inaugural flight being from Mumbai to Delhi. Kingfisher Airlines closed the year with an income of INR 13.5 Billion but still suffered a loss of INR 3.4 Billion. The Early Days Brand Kingfisher was starting to come into piece. Models like Yana Gupta posed in Red which would remain to be an icon for years to come. In December 2006, Kingfisher announced that it would provide in flight entertainment. This was curtsey of a collaboration with the Z network’s Dish TV DTH service. By this time Kingfisher Airlines had a fleet size of 34. This was also the time when Vijay Mallya and his managers came up with the plan of acquiring Captain Gopinath’s low cost carrier called Deccan Airlines. Large Strides Since June 2007, things started looking up for Kingfisher Airlines. Kingfisher now possessed 41 Aircrafts and a schedule of 255 flights. By the end of 2007 and all the deliberations and hesitations, Kingfisher Airlines finally acquired Deccan Aviation on 19th Dec 2007. The income at the end of the year was recorded at INR 15.4 Billion and accounted to a surprisingly small loss of INR 1.8 Billion. With the onset of 2008, Kingfisher Airlines became the largest passenger airliner in India. With a fleet size of 77 aircrafts operating 412 domestic flights everyday Kingfisher had become a giant in the Indian Airline Industry. Kingfisher had now started offering 3 classes of travel: Kingfisher First – the premium business class, Kingfisher Class – Premium economy, and Kingfisher Red – the low cost service. Kingfisher Red was just a new name for Air Deccan. 2008 came to see another large step taken by Kingfisher Airlines. They started operating on International routes. This was facilitated by the courtesy of the merger with Deccan Airlines which was in the Airlines industry for over 5 years. By the end the FY2009, Kingfisher had made its name as the Five Star Airline of India and had been the only Airline to be rated as such. The revenue rose that year because of the combined revenue of Kingfisher and Air Deccan. It reported an income of INR 55 Billion, but the losses also had grown to INR 16 Billion. Many believe Acquiring Air Deccan was the first big mistake or in other words the beginning of the end for Kingfisher. 5
  6. 6. 3. Marketing Mix Product Core Air Transport Supplementary Food on Board Complementary Gifts In Flight Entertainment Augmented Online Booking Pick up and Drop Service Meal Choices Mobile Ticketing T01 Price Kingfisher Airlines provided all its additional services and still managed to price its tickets at a competitive price and not too far away from the industry standards. Pricing was done based on the class, date of travel, day of travel and frequent flyer program. Place Distribution channels, in this case are the ticketing channels were online ticketing, mobile ticketing, tour operators and travel agencies across the country. Apart from these channels, Kighfisher Airlines has its posh corporate offices across popular downtown locations in different cities of the country. Promotion Hoardings across popular places in big cities, Media and press releases, TV channel of NDTV Goodtimes, Brand ambassadors and Kingfisher calendar were all used to promote KFA. Kingfisher also sponsored sporting events and the line ‘Fly Kingfisher’ because symbolic of kingfisher ads. KFA sported its ‘5 star’ facilities across ads, provided special offers and held the ‘king club’ program for frequent flyers. People All employees sported the Red of Kingfisher. Ground staff, support staff, cock pit and flight crew were all highly motivated and posses advanced analytical and technical skills. Some of them were sent abroad for training and induction program. The front line staff possessed ‘empathy’ while dealing with the clients. Kingfisher Airlines believed that people was the most important P in their operations. 6
  7. 7. Process Kingfisher was a heavily system oriented process. The process started with the booking channels, confirmation, check in, boarding, baggage claim to cancellation and rescheduling of tickets. Kingfisher followed a processed that allowed them to charge very little on cancellations and it provided the clients with the option of rescheduling and editing the status of their reservation status. In flight entertainment, reading, amenities and complimentary gifts were all intended to make the flight as luxurious and comfortable as possible. Physical Evidence The aircraft itself was is a piece of physical evidence. The check in counters, run way ferries, in flight equipments are all part of the physical evidence. The booking offices, airport lounges, aircraft amenities and interiors all contribute to the physical evidence. Seating arrangement selection facility while booking tickets through online portals is a reference to physical evidence. 7
  8. 8. 4. Strategy Kingfisher started off by introducing premium flying experience in domestic travel in India for the first time. The events that occurred in Kingfisher’s journey are enlisted in the table below. Existing Product New Product 2. In Flight Entertainment 4. Increase Fleet and Destinations 6. International Operations 1. Premium Flyer 5. Three different Classes KF Existing Market 3. Deccan Airline Takeover New Market T02 The table shows how Kingfisher zigzagged across the Ansoff Matrix in always trying to do something bigger. The fall of Kingfisher is sometimes attributed to this attitude of always wanting to grow. 1. Premium Flyer – Kingfisher tried to start something new that was not famous or familiar in India. 2. In Flight Entertainment – KFA tried to improve the flying experience of its customers. 3. Deccan Airlines Takeover – Kingfisher tried to grow inorganically and made an attempt to enter low cost flyer market. 4. Increase Fleet and Destinations – To improve its quality of service and grow its market share. 5. Three Classes of KFA – Since KFA found itself in the middle of 2 different business models, it planned on operating different things differently and diversified itself. 6. International Operations – An attempt at product development, it wanted international operations by its name. More than making a market for itself internationally this was about setting this up as a feather in the cap. 8
  9. 9. 5. Falling Apart and the Factors Responsible Naïve Ambition The flamboyant confidence of Vijay Mallya led him into the airlines industry unarmed and unaware of the risks and mitigation plans. Coming from a liquor business that had a turnover profit of 20-30% he expected over night profits in a business where 3% profit was an accomplishment. This underestimation will be a hard learnt lesson. Continuous Losses and Mounting Debts Kingfisher’s bad spree continued into the years following the merger with Deccan Airlines. Analysts called the merger to be the first mistake of Mallya. The liabilities increased and so did the losses. The idea of launching Kingfisher Red was a complete flop. The share holders of Kingfisher had started losing their patience in Kingfisher, they had not receive a dime of dividends from the company. Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Current Assets (Cr INR) 5.83 8.66 32.34 91.75 251.49 518.91 81.64 426.5 538.28 716.36 574.56 Total Current Liabilities (Cr INR) Current Ratio = TCA/TCL 4.33 7.73 25.72 108.77 434.05 449.15 687.31 3814.63 3908.03 4483.46 6046.66 1.346 1.120 1.257 0.843 0.579 1.155 0.118 0.111 0.137 0.159 0.095 T03 It was in 2011, that Kingfisher first admitted they were having financial issues, soon it was realized that the company had not been able to pay its dues to the oil companies. Kingfisher maintained that it was because of the rise in the general prices of fuel and the company would stabilize once the oil prices stabilized at a range. The Jan of 2011 brought the bad news from SBI, the consortium leader had declared that Kingfisher had become an NPA. Kingfisher owed SBI an amount of INR 14.5 Billion. What followed was a series of job cuts and hunger strikes by its employees. Authorities at different banks and investors said that Mallya and his managers would always have an air of poised arrogance in them. They would look confident and confidently accept that they had no money 9
  10. 10. and we’re looking for investors. The big bosses had confidence in the passing of the FDI act and that they would be able to rope in a few names from abroad. Hostile Competition and Government’s role Airline industry is no doubt a very competitive industry, but for Kingfisher Airlines, their counterparts have been really intolerant and unyielding when it came to carrying Kingfisher flyers in case of cancellations and reschedules of Kingfisher flights. It is also widely rumored that bosses of certain airliners conspired to make Mallya unpopular among the Middle Eastern airliners. When it came to the government, there was an untold protective attitude towards Air India and a step motherly treatment towards the private players, more so in case of Kingfisher as it was backed by a stern boss who wouldn’t consider anything above his reach. Mallya banked heavily on passing of FDI but sadly for him the time taken by the cabinet to pass the FDI act was longer than the patience his investors had. Lockout and License Suspension Entering 2012, the bookings dropped to near zero numbers and Kingfisher had a hard time even paying off the insurance premiums for their aircrafts. By this time, Kingfisher Airlines employees including Pilots and ground staff had not received salaries for over 6 months; they had resorted to calling in hunger strikers and boycotts. Mallya and his managers would time and again hold meetings to promise and convince the staff about their salaries being paid off soon, but little else did they receive. By August 2012, Kingfisher Airlines had a dismal fleet size of 6 and a meager 25 destinations on its schedule. It had seen such bad days that they couldn’t pay Airport Landing charges in the airports of Delhi and Mumbai. October 2012 saw the official suspension of all Kingfisher Aircrafts. The operating license of Kingfisher Airlines was finally revoked in Feb of 2013. 10
  11. 11. 6. Exploring Alternatives Financial Bailouts The SBI being the leader of the consortium of banks that lend funds to Kingfisher holds a major stake in the Airline, by constructive meetings with SBI and other investors Kingfisher trusts, a deal could be struck to pump fresh capital from new investors. Suicide investors and investors who buy sick units can be prospected. An alternative considered by Mallya is getting his other business establishments to take over some of the debts from KFA. Analysts don’t really back this decision. Collaborations Vijay Mallya is a well connected man and Kingfisher is a very famous name in the world. Now that 100% FDI is allowed in the Airlines Industry, it shouldn’t be such an uphill task to find investors who would like to collaborate with KFA. Though collaborating with an ailing Airline means taking over debts, the brand Kingfisher is big enough to make it worthwhile. Reengineering The mistake of envisioning something ahead of its time was what lead Kingfisher to its downfall. Reengineering its marketing strategy to a market penetration strategy would help kingfisher make a comeback. Playing by the same rules that every other player plays is what Kingfisher needs right now. Segmentation and Targeting The major failure occurred when KFA lost track of who they want to serve. It is an absolute necessity to select the segment of the airline market they want to target and stop the juggling act. 11
  12. 12. Conclusion Kingfisher Airlines was started with the just idea of providing a luxurious flying experience to the growing middle class of India. In a country where air travel itself is considered a luxury, the idea of providing luxury air travel was a little ahead of its time. The initial losses were an indication of this, but the lack of patience and the urge to grow faster led to Kingfisher’s advent into low cost flying, this was a mistake. Changing products and the target market lead to more avenues to make loss. Entering international routes without proper consolidation of domestic market was yet another ambitious move that proved to bear losses. Mounting debts, lack of clarity and hostility from all corners of the ring pushed Kingfisher to the brink and eventually ended in a lock out. All is not lost, 100% FDI, government bailout plans and capital pumping from Mallya’s other businesses can still prove to save Kingfisher Airlines. If revived, Kingfisher Airlines can sustain if it does not lose focus on its core objective of providing luxury flying experience. 12
  13. 13. Bibliography 1. ‘Kingfisher Airlines – A Case Study’ By Chaahat Khattar, 2012. 2. Kingfisher Airlines BalanceSheet - Moneycontrol 3. ‘Rise and Fall of a Castle in the Air’ By K GiriPrakash, The Hindu, Feb 2012 4. ‘Kingfisher Airlines Case Study – Strategic Management’ By Gaurav Gupta, Feb 2013 5. ‘The real reasons behind Kingfisher’s fall’ Raghuvir Badrinath, Business Standard, June 2011. 13
  14. 14. Appendix Acronyms INR – Indian National Rupee KFA – Kingfisher Airlines DTH – Direct To Home NDTV – New Delhi Television NPA – Non Performing Assets SBI – State Bank of India FDI – Foreign Direct Investment Tables T01 – Benefits of the Product(service) of Kingfisher – Pg 5 T02 – Ansoff Matrix showing Kingfisher’s developments – Pg 7 T03 – Current ration analysis showing Kingfisher’s Assent Liability ration – Pg 8 14