Kingfisher Airlines made several strategic mistakes that led to its failure, including unrealistic market analysis, unrelated diversification into the airline industry, an ill-advised merger with Air Deccan, and maintaining a diversified fleet of aircraft with varying capacities. These strategic decisions demonstrated a lack of understanding of the market and industry. Additionally, high operating costs, delays in salary payments, and growing debt from unpaid fuel, airport, and service taxes exacerbated the company's financial troubles and ultimately caused its operations to be shut down in 2012.

1. Strategic Mistakes That Led
To The Failure Of Kingfisher
Airlines
APSM - 08
Probal Basu ( 15MMMMM01676 )
Col Sanjay Kochhar ( S15MMMMM01841 )
Debasis Ranjit Mitra ( S15MMMMM01843 )
Aditya Sar ( S15MMMMM01598 )
Sourav Kumar Giri ( S15MMMMM01591 )
Sambhu Das ( S15MMMMM01864 )
INDIAN INSTITUTE OF MANAGEMENT CALCUTTA

2. CONTENTS
v Industry Overview
§ Indian Aviation History
§ Market Challenges
§ Bottlenecks Faced by the Industry
§ Industry Structure
v Introduction to UB Group
v Introduction to Kingfisher Airlines
v Awards & Recognitions
v SWOT Analysis
v Industry Analysis Based on Porters Five Forces
v Identification of Crisis & Reasons for Failure
§ Operational Reasons for Failure
§ Main Financial Challenges
v Identificaiton & Analysis of Strategic Risks
§ Unrealistic Market Analysis
§ Unrelated Business Diversification
§ Merger with Air Deccan
§ Diversified Aircrafts
v Critical Mistakes in Decision Making & Strategy
v Conclusion

3. Since independence from 1953 the Govt of India created two state owned
national carriers – Air India and Indian Airlines (For domestic travel). Both
these airlines retained monopoly over civil aviation in India till 1992.Post
liberalization the Govt. responded to the new economic policy and allowed
operation of AIR TAXI services initially and then operation of scheduled air
services from 1994. Initial operators were Damania, EastWest, Jet, Sahara,
Modiluft and NEPC. The provision of new airlines creating additional
capacity helped address latent demand of the growing Indian population and
by March 1994, they accounted for 24% market share . But the only two
survivors of the first phase of liberalization were JET and SAHARA
The steady growth of economy after liberalization was at a compounded
annual growth rate of 6% and it increased the size of the economy and hence
demanded for both leisure and business travel. Thus in 2003 there were entry
of more private airlines but most preferred to take the Low cost operations
using the low fares.
India is the 9th largest aviation market in the world with a size of US$16
billion and is poised to be the 3rd biggest by 2020. Civil aviation is
experiencing a new era of expansion by factors like low cost carriers, modern
airports, foreign direct investments and cutting edge information technology
interventions and growing emphasis on regional connectivity.
Air Deccan was the first company to tap the middle class segment with its
low fares inspired by the “low cost “ airline model pioneered by Southwest
Airlines in the United States. Starting in August 2003 with turboprop aircraft
they connected small towns to large cities .Air Deccan soon expanded to
Airbus A320 and offered single class point to point service, no meals or water,
sold tickets only through the internet and its call center, had limited staff and
outsourced as many operations as possible .
Other players to follow Air Deccan were Spicejet and Indigo. The last to
enter the market was Kingfisher, Paramount and GoAir. Foreign equity up
to 100% allowed in airport development. FDI up to 49% allowed in domestic
airlines by foreign carriers
INDIAN AVIATION HISTORY

4. The aviation airline industry saw a steady growth in passenger demand but
were faced and threatened by several speed bumps. The infrastructure
required to cater this growing demand was not in place and Govt did little in
terms of opening new airports in smaller cities.
Airport landing and navigation charges at Indian airports were 50% higher
than international benchmarks and the highest in the world. Higher charges
also did not translate to superior infrastructure.
Increased air traffic resulted in congestion in air and on ground. Overnight
parking bays on the ground were scarce.
The main suppliers of Aviation Turbine Fuel (ATF) to airlines in India were
three public sector oil companies that dominated the Indian petroleum sector.
While the prices of most of their household products like kerosene, diesel,
petrol and cooking gas were controlled and subsidized, ATF was sold at
international market prices plus transportation and marketing cost. Most state
govts taxed ATF at a higher rate (as much as 34% ) as they saw aviation as a
luxury industry.
ATF prices in India were approximately 51% higher than international
benchmark.
To address this increasing cost of fuel the airlines from May 2006 started
adding fuel surcharge to the price of tickets.
By June 2008, the surcharge had risen to Rs 2250 for travel of less than 750
kms and Rs 2900 for more than 750 kms.
MARKET CHALLENGES
BOTTLENECKS FACED BY
THE INDUSTRY POST 2003

5. The aviation sector can be represented in terms of regulatory interfaces by the
following structure (arrows denote interfaces) :
INDUSTRY STRUCTURE

6. § Founded - 1857
§ Chairman - Dr. Vijay Mallya
§ Headquarters - Richmond Road, Bengaluru
§ Products
• Breweries, Alcoholic Beverage
• UB Global (Trading Company)
• Aviation
• Chemicals & Fertilizers
§ Subsidiaries
• United Breweries Ltd
• United Spirits Ltd
• Kingfisher Airlines
• Mangalore Chemicals & Fertilizers Ltd
• UB Global ( Trading Company )
• UBICS, Inc
INTRODUCTION TO UB
GROUP

7. VISION: “The Kingfisher Airlines family will consistently deliver a safe,
value based and enjoyable travel experience to all our guests.”
Kingfisher Airlines Limited was an airline group based in India, Mumbai.
Kingfisher Airlines, through its parent company United Breweries Group, had
a 50% stake in low-cost carrier Kingfisher Red. Until December 2011,
Kingfisher Airlines had the second largest share in India's domestic air travel
market. However, the airline had been facing financial issues for many
years, and due to a severe financial crisis faced by the airline at the beginning
of 2012, this share dropped to the lowest in the market in April 2012.
The airline had shut down its operations and locked out its employees for
several days when on 20 October 2012 the Directorate General of Civil
Aviation (DGCA) suspended its flight certificate. In February 2013, the
Indian Government announced the withdrawal of both domestic and
international flight entitlements allocated to the airline.
• Kingfisher Airlines has received numerous awards for innovation,
customer responsiveness and was voted the Best New Airline of the Year
within months of its launch.
• The airline was awarded NDTV Profit Business Leadership Award for
Aviation by NDTV.
• The company was given Economic Times Avaya Award 2006 for
Excellence in customer responsiveness by the highly acclaimed business
daily, Economic Times.
INTRODUCTION TO
KINGFISHER AIRLINES
AWARDS & RECOGNITIONS

8. • Business World rated the airline amongst India’s most respected
companies.
• Kingfisher Airlines was acknowledged as The Best Airline and India’s
Favorite Carrier in a survey conducted by IMB for The Times of India.
• The company was named as Best New Domestic Airline for Excellent
Services and Cuisine by Pacific Area Travel Writers Association
(PATWA) the biggest travel writers organization, representing members
from 70 countries across the globe, that conducts independent annual
surveys across various industries related with Travel and Tourism in order
to select the best in each category.
• Voted as Best New Airline of the Year by the Centre for Asia Pacific
Aviation (CAPA) Award in the Asia–Pacific and Middle East region.
• The airline was acknowledged as 'India's only 5 Star airline' and
Skytrax certified ‘6th airline in the world’.
• Kingfisher was rated as Asia Pacific's 'Top Airline Brand' in a survey
conducted by TNS on 'Asia Pacific's Top 1,000 Brands' for 2008.

9. SWOT ANALYSIS

10. INDUSTRY ANALYSIS
PORTERS FIVE FORCES
MODEL

11. 1. Maintenance, Landing and Navigation Cost : Kingfisher Airline’s
cost of maintenance than Jet was about 2% higher in 2011 and 3%
higher in 2012.
** MONEY CONTROL - ANNUAL REPORT - JET PAGE 29/ KSA 59
2. High Overhead Costs : In 2012, Kingfisher Airlines had 5,696 people
working for them vis-à-vis 13177 employees by Jet as on 31st
March
2012. The % was much higher than other airlines.
FY#2012 FY#2011 FY#2012 FY#2011
TOTAL#REVENUE 5,824,00.00# 649,560.00 1,706,704.00 1,470,606.00
EMPLOYEE#COST 66,950.00 67,600.00 159,949.00 133,969.00
% 11.50% 10.41% 9.37% 9.11%
Employee#Cost#Vs#
Revenue
JET : MONEY CONTROL Annual Report 2011-12/ Page 35, KFA :
Annual Report 2011-12 / Page 49.
OPERATIONAL REASONS
FOR FAILURE

12. 3. High Cost of VAS : KFA’s cost for value added services were much
more than other airlines. While they focused less on scheduling, connectivity,
cleanliness and low price, the basic needs of Indian Customers.

13. 1. Bank Dues :
2. Fuel Dues :
FUEL
EXPENSES
KINGFISHER JET AIRWAYS
YEAR 2012 2011 2012 2011
REVENUE 582,400.00 649,560.00 1,547,739.00 1,303,300.00
FUEL
EXPENSES
294,590.00 227,400.00 409,226.00 436,670.00
% 50.58% 35.01% 26.44% 33.50%
**SOURCE: ANNUAL REPORT: Page 63 Jet, Page 21, KFA
MAIN FINANCIAL
CHALLENGES

14. Also for Kingfisher Airlines fuel payments in 2012 was 31.78% of their total
expenditure and was 28.37% in 2011.
The biggest issue with India is that not only is our oil very expensive, the
Govt. also taxes ATF very heavily. In India, ATF forms anywhere between
40-50% of the cost, whereas it is 25-30% for airlines in the US, Europe, and
even S.E. Asia.
Most state govts taxed ATF at a higher rate (as much as 34%) as they saw
aviation as a luxury industry. ATF prices in India were approximately 51%
higher than international benchmark.
3. Delayed Salary : KFA delayed salaries in Aug 2011 and at a Point
when salaries to employees were due for more than 4-5 months(Oct’11-
Jan’12), Engineers refused to sign the ‘Tech Log’, which is mandatory
to certify that aircraft is fit to fly before every flight. When this was
brought to the attention of DGCA, they cancelled the KFA license.
4. Aircraft Rental Dues : Since 2008, KFA was unable to pay Aircraft
rentals on time. Due to that 16 out of 66 Aircrafts had to be grounded.
5. Airport Dues : AAI sent notice to KFA in Feb 2012 regarding
accumulated dues of 255.06 Crs. The airline was operating on cash &
carry for the last 6 months with daily payment amounting 0.8 cores.

15. 6. Service Tax Dues : On 9th
Dec 2011, Central Board of Excise and
Customs announced that they would take legal action against Kingfisher
for not paying service tax. On 10th
Jan 2012, KFA had service tax
arrears of 70 cores.
1. Unrealistic Market Analysis:
§ Failure to understand and comprehend potential opportunities.
Dr. Vijay Mallya, the well-known liquor baron’s lack of
understanding the airline business. “Luxury sells” is the biggest
mistake in understanding of Indian Aviation Airlines. Both
history and data of the industry proves that the consumers have
always been price conscious. The first mistake, is lack of
understanding of consumer requirement and basing a decision
that luxury sells in Airline Industry.
§ Post liberalization the growth witnessed in the industry has
predominately been the middle class segment as travelling
became more affordable. The mid size companies spreading
across regions, travelling in mid / economy class became very
important. Business/Frist class travel was only limited to CXO
levels of companies. Hence the positioning of the brand was in
sharp contrast with the market dynamics.
§ Mr. Mallya & UB Group, highly successful in the liquor business
could not comprehend in customer preferences within two
industries. Customers might buy expensive alcohol but not airline
tickets since the total cash flow is higher. Travelling is more of a
necessity than a luxury item.
STRATEGIC RISKS

16. 2. Unrelated Business Diversification :
§ Unrelated diversification involved entering into entirely new
industry that lacks any important similarities with the firm’s
existing industry or industries, and is often accomplished through
a merger or acquisition. We have tried to understand unrelated
business diversification through the fourth strategy in Ansoff’s
matrix i.e. diversification.
§ The matrix illustrates, in particular, that the element of risk
increases the further the strategy moves away from known
quantities - the existing product and the existing market. Thus,
product development (requiring, in effect, a new product) and
market extension (a new market) typically involve a greater risk
than `penetration' (existing product and existing market); and
diversification (new product and new market) generally carries
the greatest risk of all.
§ While Ansoff are usually followed with the same technical,
financial, and merchandising resources, which are used for the
original product line, diversification usually requires new skills,
new techniques, and new facilities. As a result it almost
invariably leads to physical and organizational changes in the
structure of the business which represent a distinct break with
past business experience.
§ The key to successful unrelated business diversification is
identifying an industry with strong profit potential where firm has
internal competencies that helps to gain competitive advantage.

17. Clearly in the case of Kingfisher airlines, UB Group was into
production and manufacturing of liquor. Neither they had prior
experience of running an airline nor they had expertise in
handling customer experiences. Hence, the idea to diversify into
Airline industry was nothing short of adventure.
3. Merger With Air Deccan :
§ To have access to low cost/ cheaper market segment.
§ To have access to International flying rights.
§ Now Kingfisher Airline faced a dichotomy of acquiring a low
cost airline and having established itself as a five star airline. The
sudden change in the business strategy created confusion in the
minds of the consumers. Airlines passengers having got used to
premium services offered by King Fisher Airlines such as in-
flight entertainment, gourmet cuisine, personalized assistance
during check-in, access to Kingfisher Lounge at the key airports,
complementary gifts were the value added services offered then.
Suddenly with acquisition of Air Deccan, there was introduction
of King Fisher Red in 2008, which added to customer’s dilemma.
From treatment of five star and value added services, it had
suddenly transformed to a no frill airline.
§ As per a Business Today article, it became the largest Indian
airline with 27.5% market share, and domestic travel increased by
30%, however it didn’t make profits. Despite the fact that its
main rival – Jet Airways – continuously showed profitable
quarters.
§ KFA showed growth in numbers while having lost the strategy.
With the merger, it lost its brand image of a premium business
class airline. It expanded with the speed of a jet without building
a base and resolving the post merger challenges. This set the
course for a bumpy ride.

18. 4. Diversified Aircrafts : Diversified Aircrafts with different
Capacities vis-à-vis standardized aircraft of other Airline companies.
INDIGO /
All
Economy
In
Service
Passenger
Airbus
A320-200
96 180
KFA Aircraft Total Orders Passengers
Airbus A319-100 3 - 144
Airbus A320-200 21 67 180
Airbus A321-200 8 151-199
Airbus A380-800 5
Airbus A380-800 5
ATR 42-500 2 48
ATR 72-500 25 66-72
TOTAL 64 -77

19. First Generation Companies
(Closed Promoter Groups)
In event of crisis, tendency of promoter to protect individual wealth & asset
CRITICAL MISTAKES IN
DECISION MAKING &
STRATEGY

22. Handling of crisis by First Generation companies (Closed promoter groups) in
comparison with more structured and professionally managed organizations.
In first generation companies, which are closed promoter groups whenever
there is a crisis, the tendency of the promoter is always to protect individual
wealth and asset.
The business decisions are the promoters as personal failures take more
personal and failure of business models and hence most of the times they tend
to ignore it.
Decision making process and handling of crisis by First Generation
companies (closed promoter group) in comparison with more structured
and professionally managed organizations.
Closed promoter group
(First generation companies)
Traditionally Structured and Professionally
managed companies
• Business decisions are more
personalized.
• Business decisions are more professional
and well thought through and structured.

23. • The promoter in consultation with
closed set of advisory takes all
strategic decisions.
• There is little experience in handling
crisis as the professionals have little
say in decision making and strategy
and they are taken more like
employees rather than stakeholders in
the process.
• Whenever there is a crisis, the
tendency of the promoter is to protect
individual wealth and assets first and
then the interest of the brand /
company and other stakeholders
come in.
• Since business decisions are more
personal in nature, hence failures are
seen to be taken as personal failures
and in most cases they tend to ignore
it and flow with the tide .
• All strategic decisions are taken after
research and analysis by top management
(seasoned professionals) and then put
forward to the board for approval
• Professionals have experience of
handling crisis through past assignments
and hence add value in finding out
solutions.
• Whenever there is crisis, senior
management is asked to own up
responsibility and figure out ways to
mitigate the risk , but the image of the
corporate / brand is supreme and hence
they are made liable to protect interest of
all stakeholders .
• Business decisions are more practical and
based on market feedback and any
success/failure is compensated with equal
reward or penalties.
The King Fisher Airline’s financial crisis refers to a series of events that led to
the crisis from where it was impossible to recover. The following two slides
will reveal data, which is Self-contradicting. The first slide shows % market
share and the second slide shows profit & loss for the following years.
Strategies that worked for the Airlines :
• Merger and acquisition of Air Deccan with the objective of gaining
market share and having access / license for international routes. The
objective was successful as by 2008 Kingfisher had the highest market
share.
• The management wanted to have a proposition for all segment of
customers, who they were successful post the merger.
Strategies that worked against the Airlines :
• Post acquisition the operational expenses went higher.

24. • Varied models of aircrafts led to higher maintenance cost, operational
cost and overhead cost.
• With the offering of three different classes of travel i.e. Kingfisher
First for Premium business class, Kingfisher Class for Premium
economy, Kingfisher Red for low cost.
• All these propositions diluted the image of the brand, which eventually
led to decline in market share .The operating losses increased every
year, and so did the debts.
While Kingfisher was successful in gaining market share post merger which is
clearly evident from data available in Exhibit 1 (market share), Exhibit 2
(P&L) points out to the failure in controlling costs , the rising debts and the
accumulated losses which went beyond control by the year 2011.
Success or failures of strategies depend to a larger extent on the strategic
intent also. While market share could be a great indicator of market
leadership, it could also be misleading if you cannot control costs and increase
profit margins. Hence market share at the cost of profitability is a futile
attempt and will eventually lead to business failures.
YEARS 2012 2011 2010 2009 2008 2007 2006 2005
INDIAN1
AIRLINES
17.90% 17.20% 17.20% 17.50% 22.70% 24.20% 21.00% 28.00%
JET1AIRWAYS 17.90% 14.00% 29.80% 34.00% 35.00%
AIR1SAHARA1
/1JET1NIGHT
7.50% 7.40% 8.10% 9.00% 12.00%
KING1FISHER 14.50% 1O.6% 8.00% 6.00%
AIR1DECCAN1
/1KF1RED
14.60% 18.60% 19.00% 11.00%
SPICE1JET 17.10% 16.10% 13.00% 12.40% 10.30% 8.10% 6.00% 5.00%
INDIGO 21.90% 20.00% 14.90% 13.90% 10.30% 5.00% B B
GO1AIR 7.50% 6.00% 5.50% 4.70% 4.70% 4.70% 2.00% B
OTHERS B B 1.00% 2.00% 1.20% 1.50% 1.00% 3.00%
TOTAL 100% 100.00% 100% 100% 100% 100.00% 100% 100%
MARKET1SHARE
29.30% 26.50% 26.10%
6.40% 14.20% 22.70% 23.90%

25. Mar$'13 Mar$'12 Mar$'11 Mar$'10 Mar$'09 Mar$'08 Jun$'07 Jun$'06 Mar$'05 Mar$'04
12$mths 12$mths 12$mths 12$mths 12$mths 9$mths 12$mths 15$mths 12$mths 12$mths
Total$
Income
683.46 5,823.91 6,314.96 4,734.62 5,868.07 1,569.90 2,142.31 1,345.06 320.28 67.36
Total$
Expenses
3,309.65 7,651.81 5,289.34 4,747.51 5,822.37 1,781.46 2,062.61 1,398.86 274.27 60.53
Reported$
Net$Profit
H4,301.12 H2,328.01 H1,027.40 H1,647.22 H1,608.83 H188.14 H419.58 H340.55 H16.79 0.56
EXHIBITH1
KFA
Mar$'13 Mar$'12 Mar$'11 Mar$'10 Mar$'09 Mar$'08 Jun$'07 Jun$'06 Mar$'05 Mar$'04
12$mths 12$mths 12$mths 12$mths 12$mths 9$mths 12$mths 15$mths 12$mths 12$mths
Total$
Income
16,991.48 17,509.71 15,477.39 13,033.09 10,688.39 12,014.90 9,448.34 7,373.39 6,060.47 4,379.57
Total$
Expenses
18,786.54 15,949.66 13,369.66 10,267.73 8,329.85 10,969.32 8,056.00 6,020.66 4,262.09 2,876.62
Reported$
Net$Profit
H3,667.85 H485.5 H1,236.10 9.69 H467.64 H402.34 H253.06 27.94 452.04 391.99
EXHIBITH2
JET
The failure of Kingfisher Airlines is a clear example of poor leadership and
management, which resulted in a company with high potential to sink due to
its inability to adapt its business with the external environment and change the
business culture to suit the demands.
Poor vision followed by wrong decisions led to the company collapsing. The
fact that they were ill equipped to manage this crisis resulted in its employees
and stakeholders paying dearly.
The reasons for the failure can be summed up as under:-
• Putting personal image/ preferences over the interest of organization and
all stakeholders.
• Failure to understand the Aviation industry and thinking that the success
of one can easily be replicated in the other.
CONCLUSION

26. • Failure to understand and estimate the changing trends, consumer
preferences and cost curtailing to improve profitability.
• Expanding beyond the core competencies and getting into denial of risk
when things start going wrong.
• Failure to communicate priorities in a clear, concise and compelling
manner.
The Kingfisher Airline case serves as a lesson for all future and current
players in the Aviation Industry and has exposed the loopholes existing in the
current system.
References :-
• India Today, Kingfisher in trouble: Vijay Mallya refuses to accept his business model
is to be blamed for crisis, 19 November 2011, Retrieved on 04 December 2011.
• "Kingfisher Airlines Fleet", Flykingfisher.com, 15 August 2010, Retrieved on 30
August 2010.
• "Kingfisher buys control of Air Deccan", Times of India, 1 June 2007, Retrieved on
20 August 2012.
• "Vijay Mallya grounds low-cost carrier Kingfisher Red", NDTV, 28 September 2011,
Retrieved on 28 September 2011.
• "Achievements and Awards", Flykingfisher.com, Retrieved 30 August 2010.
• "Kingfisher Fails to Renew License Causing Withdrawal of Flights", India Internal
Flights.com.
• Govt suspends Kingfisher Airlines' licence | Reuters, In.reuters.com. Retrieved on 23
December 2013.
• Kinghfisher Airline Financial, Money control .com