IMB 353 ABHOY K OJHA

KINGFISHER AIRLINES: MANAGING MULTIPLE STAKEHOLDERS

The entire airline industry in India came under close scrutiny after Kingfisher Airlines, already known to be in dee trouble with a !ariety of stakeholders, cancelled about "# flights, one day in $o!ember %&''( )any assengers had harrowing e* eriences of being stranded at odd locations, making alternate arrangements to tra!el, and rescheduling im ortant engagements owing to the tra!el disru tions( )ost of them, many !ery loyal customers of Kingfisher, were distressed with the cancellations, and were e!en more distraught when other airlines raised fares( )any of them contem lated switching their future tra!el rograms to other airlines( +e!eral others not directly affected by the sudden e!ents wondered whether they would e!er book flights with Kingfisher Airlines in the future( Owing to the furor these cancellations created, the ,irectorate -eneral of .i!il A!iation /,-.A0 sought e* lanations from the Kingfisher management( To re!ent the crisis from affecting the whole airline industry, the )inister of .i!il A!iation had to ste in to assure e!eryone that it was a crisis that would blow o!er, and e!en the 1rime )inister was forced to make a statement that the go!ernment would look for ways to hel the airline deal with its e*isting challenges( On $o!ember '#, %&'', 2i3ay )allya, .hairman and +an3ay Aggarwal, .hief 4*ecuti!e Office of Kingfisher Airlines addressed a ress conference at )umbai5s Hyatt 6egency to e* lain the sudden cancellation decisions of the airline( They attem ted to clarify that the cancellations were the result of a well7 lanned initiati!e and art of a long7term restructuring rocess, although it might ha!e come as a sur rise to outsiders( The .4O suggested that they had initially lanned to cancel flights for a short eriod of time so they did not feel the need to notify the ,-.A, but when they reali8ed their mistake they a ologi8ed for not kee ing the ,-.A in the loo ( i )ost analysts were reluctant to acce t the clarifications citing the fact that lea!e alone the ,-.A, assengers and other e*ternal stakeholders, e!en the crew, the ground7staff, and the ticketing e*ecuti!es of Kingfisher Airlines were taken by sur rise when the cancellations were announced( 9urther, the to e*ecuti!es tried to :uell some of the rumors, such as ;the cancellations were due to o!er '&& ilots ha!ing submitted their resignation letters<( Howe!er, by that time, it was well7 known that Kingfisher em loyees, including ilots, had their salary ayments delayed o!er the last few months and dissatisfaction among them had been simmering, so the rumors of the resignations lingered for some time( After the damage control e*ercise at the ress conference, )allya and Aggarwal had to think through their strategy to bring the airline back on track( They were aware that the airline had a !ery good re utation among its customers /although the e!ents that occurred may ha!e hurt it0 because of the high ser!ice :uality standards it had established and continued to maintain des ite its other roblems( Howe!er, they needed to assess whether the customers !alued all the differentiated ser!ices enough to ay higher rices to offset the costs associated with them, and whether the focus on customers had allowed the airline to take its eyes off the needs of the other stakeholders( They now needed to con!incingly re7engage with all the stakeholders /customers, em loyees, su liers, and larger society, including go!ernment agencies, and finally owners0 to assure them of the airline5s long7term !iability to ensure their continued su ort to re!i!e the organi8ation( There was a fear that e!en loyal customers might desert the airline for other o tions that were :uite abundant gi!en the state of o!erca acity in the industry, if Kingfisher Airlines ac:uired the re utation of an unreliable airline owing to its ongoing roblems( If that ha ened, it would be ne*t to im ossible to ull Kingfisher Airlines out its e*isting crisis(

AIRLINE INDUSTRY IN INDIA

A %&&= 1ricewaterhouse .oo ers re ort called ;.hanging ,ynamics> India5s Aeros ace Industry< for the .onfederation of Indian Industries had described the Indian a!iation sector, which included the airlines industry, as
Abhoy K O3ha re ared this case for class discussion( This case is not intended to ser!e as an endorsement, source of rimary data, or to show effecti!e or inefficient handling of decision or business rocesses(

Copyright 2012 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted in any form or by any means electronic mechanical photocopying recording or other!ise "including internet# !ithout the permission of Indian Institute of Management Bangalore.

Kingfisher Airlines> )anaging )ulti le +takeholders 1age 2 of 10

a high7growth segment of India5s economy( The domestic airlines industry had grown o!er fi!e times in terms of assenger !olumes since its nascent stage in the mid7'==&s( In '==?@'==A, the domestic assengers were about ''# lakhs /' lakh B &(' million0 in number( In %&'', the Indian domestic market was already the ninth largest and the fastest growing airlines market in the world( ii There were about C&C(C" lakh domestic assengers during January to ,ecember, %&''D relati!e to #%&(%' lakhs in the same eriod, a year earlier indicating a year7on7year growth of 'C(CE( Howe!er, a re ort ublished in ,ecember %&'' based on the financial audit conducted by the ,-.A indicated that financial roblems lagued all the airlines( It suggested the need for significant actions to remedy the situation( Fith the e*ce tion of Indi-o, which was still unlisted, all the domestic airlines were in the red( In the !ery same :uarter in which the industry e* erienced the fastest growth, Jet Airways, the industry leader, suffered a loss of ?'G crores, + iceJet %G& crore, and Kingfisher GC= crore iii /'H B about G? in %&''0( Air India, the go!ernment7 owned airline, was e!en worse off( According to the .hief 4*ecuti!e of .entre for Asia71acific A!iation, Ka il Kaul> The domestic airlines are ro3ected to re ort a combined loss of H%(# billion / ',%#& crore0 by end of this fiscal /%&''@'%0, with the state7run Air India alone accounting for H'(?#@% billion0 and other airlines to the tune of HC&&@?&& million( i! Although this arado*ical condition of the industry, in which growth in assenger !olumes was !ery high, but most airlines continued to make losses, had been known for some timeD it was generally seen as an interim situation( Analysts suggested that the airlines had in!ested in ca acity for the long term and the market was yet to catch u , and things would be IInormal55 once there was a match between ca acity and assenger !olumes( -lobally, the airline industry has been a !ery difficult business and some !ery famous airlines that looked in!incible at a time in the ast were not in o eration in %&''( There were !ery few airlines in the world that had been rofitable during the earlier decade, articularly in the last few years owing to the combination of the global downturn as well as rise in fuel rices( Howe!er, it was still an industry that had seen new entrants trying their luck( It a eared that it was easy for new airlines to enter the industry, but difficult for them to e*it and e!en more difficult for most of them to make a rofit( 4arlier, the u front ca ital in!estments used to be !ery high and acted as a barrier to entry, allowing incumbents some room to maneu!er( Fith a downturn in the global airline industry and the a!ailability of the o tion to lease aircraft at attracti!e rates, the ca ital costs had come down dramatically making entry significantly easier( 9i*ed costs including labor, air lanes and their maintenance and s ares, ser!ices infrastructure, air ort e:ui ment and handling ser!ices, and e!en fuel, to a large e*tent, formed a !ery high ro ortion of the o!erall costs( Howe!er, there were few ad!antages for incumbents o!er the new entrants on these arameters making entry into the industry easier than in the ast( The airline industry in India faced some uni:ue challenges that made matters worse( 9irstly, owing to go!ernment regulations, there was a need for airlines to fly on financially unattracti!e routes( Hence, airlines were forced to incur some losses they could otherwise ha!e a!oided if they were run on urely commercial grounds( ,uring good times, this may not ha!e been a ma3or roblem as the rofitable routes more than com ensated for the losses, but in bad times they were an a!oidable burden( In an inter!iew, $ikos Kardassis, .4O of Jet Airways attributed the oor state of the industry to another three factors> cut7throat fares, high fuel rices, and high ta*es !( He argued that Air India was res onsible for the cut7throat fares that started the rice com etition which forced all the airlines to lower rices( It may ha!e contributed to growth in assenger !olumes, but had hurt the finances of all the airlines( Air India was able to sustain the rice com etition because it did not e* erience the same commercial ressures from its owners, the go!ernment( The re eated go!ernment bailouts for Air India made it a challenge for ri!ate sector airlines, such as Jet Airways and Kingfisher Airlines, to achie!e commercial !iability in a com etiti!e market( Owing to go!ernment restrictions on the etroleum industry, the airlines needed to buy a!iation turbine fuel at !ery high rices( ,omestic oil com anies maintained the high rices to offset losses on their other roducts whose rices were controlled' ( Owing to the hango!er from the ast, the airlines were seen as catering to the rich( +o, the airlines market was ercei!ed as a ca ti!e rice7insensiti!e market without rice controls in which rices could be
'

The go!ernment was considering the o tion of allowing airlines to im ort a!iation fuel to ease this cost burden(

Kingfisher Airlines> )anaging )ulti le +takeholders 1age 3 of 10

maintained at le!els substanti!ely higher than global rices( In addition, using similar logic, the national and state go!ernments le!ied high ta*es on a!iation fuel as they needed to raise resources( These ta*es were not !iewed as un o ular as they did not affect the IIcommon55 citi8en( As a result of these two factors, airlines in India were burdened with !ery high in ut costs( 9urther, in the short run, the costs of enhancing domestic air ort infrastructure were being assed on to airlines, which only made matters worse( Exhibit 1 ro!ides data on the erformance of the domestic airlines on !arious arameters( A :uick analysis of the data suggested that the low7cost airlines had erformed significantly better than full7ser!ice airlines, des ite ha!ing to work in the same o erating en!ironment in India( The growth in the airlines industry in India had been skewed with the rate of growth in the low7cost segment being significantly higher than in the full7 ser!ice segment( 4stimates suggested that about ?#E of the domestic flyers o ted for low7cost airlines, and ,inesh Keskar, 1resident, Boeing India, estimated that the ro ortion would stabili8e at A&E in the future( 4* erts belie!ed that the low7cost airlines had about a "&E cost ad!antage er seat o!er a full7ser!ice airline which allowed them to lower rices to attract assengers without cutting into their margins( There are se!eral factors which allowed the airlines that had ado ted a low7cost model to kee their costs lower than the others( 9irstly, the low7cost airlines had fleets with one base model of a standardi8ed aircraft( +ince these aircraft could fly on all the routes, the number of aircraft re:uired was reduced( The maintenance schedules ke t the number of aircraft out of ser!ice at a bare minimum( On the other hand, the full7 ser!ice airlines had fleets which included ro eller owered aircrafts for short distance routes, smaller 3et owered aircraft for medium distance routes with low assenger !olumes, and large 3et owered aircraft for long distance routes with large assenger !olumes( As a result, with the e*isting le!els of acti!ity, the number of aircraft out of ser!ice and hence adding to the cost was higher to full7ser!ice airlines( 9urther, costs in s are arts and maintenance for the low7cost model was also lower as only one model of an aircraft had to be su orted relati!e to se!eral different models from different manufacturers by the full7ser!ice ro!iders( +econdly, significant cost ad!antages were gained from lower turnaround times at air orts which allowed a low7cost airline to fly an a!erage of '%@'" hours a day in com arison to about A hours flying time for a full7ser!ice airline( The :uick turnaround time was largely attributed to not ro!iding elaborate hot meals which reduced loadingJunloading time, and also resulted in reduction in time taken to clean the aircraft between flights when meals were not ser!ed( Another reason for the :uick turnaround was that the aircraft could be used for all the routes of the airline rather than some restricted routes for full7ser!ice airlines that flew different aircraft on different routes( The :uick turnaround also reduced some air ort charges that were based on the time an aircraft was at an air ort( +e!eral other factors also contributed to the low costs( +ince the low7 cost airlines did not offer hot meal ser!ices, they carried a lighter load of food and cutlery, etc(, and also a!oided a lot of hea!y e:ui ment re:uired to kee the food warm( The lighter load reduced fuel consum tion( 9urther, the low7cost airlines had more seats for the same model of the lane relati!e to the full7ser!ice airlines owing to which their fi*ed costs were s read o!er a larger number of assengers( !i .om aring different airlines on a ty ical aircraft, the low7cost airline could seat u to '=& assengers as com ared to about '#& by a full7ser!ice airline( 9inally, the ure low7cost model also re:uired lower le!els of staffing( The full7ser!ice airlines had about #&E more staff er lane com ared to a low7cost airline( !ii The difference in erformance of full7ser!ice airlines and low7cost airlines could be seen in the contrasting erformance of Kingfisher Airlines and Indi-o Airlines( In terms of market share, Kingfisher e* erienced a dro in $o!ember owing to sudden flight cancellations, but reco!ered in ,ecember when the busier routes were restored( There was no noticeable change in com laints, and its on7time erformance was the best across airlines, and cancellations were lower than the re!ious two months( Howe!er, its seat factor dro ed des ite the flights being restored robably because assengers had not returned to the airline at the same rate owing to lingering doubts about otential cancellations( On the other hand, Indi-o maintained its market share, des ite higher le!els of com laints, and relati!ely low on7time erformance /unlike the o ular erce tion %0 ( Howe!er, on an a!erage it had the lower le!els of cancellations during the eriod( )ost im ortantly, it im ro!ed its seat factor :uite significantly( In other words, des ite relati!ely better erformance than Indi-o on com laints and on7time erformance, Kingfisher5s
%

Amber ,ubey, ,irector /Aeros ace and ,efence0, K1)- was :uoted as saying, ;On7time erformance is no longer a lu*ury, it is a necessity( On7time ser!ice, too, is said to ha!e hel ed Indi-o become the second7biggest airline( 1eo le fly to be on time and for oint7to7 oint tra!el( Indi-o seems to ha!e got its fundamentals right(K Howe!er, the data seems to suggest that Indi-o5s on7time erformance was not as good as the erce tion(

Kingfisher Airlines> )anaging )ulti le +takeholders 1age of 10

market share and seat factor were lower than Indi-o( A high seat factor was the critical element, articularly for full7 ser!ice airlines, in ensuring rofitability( Ironically, Indi-o, a low7 cost airline, fared better than others on this arameter and achie!ed rofitability, while oor seat factor led to losses for the ma3or airlines, including Kingfisher( On an a!erage, Kingfisher5s o erati!e e* enses e*ceeded the o erating re!enues by about %&E while Indi-o5s o erating e* enses were about '?E less than o erating re!enues( !iii 6ishikesha T( Krishnan of the Indian Institute of )anagement Bangalore belie!es that there is no easy way out for the industry articularly the full7ser!ice airlines such as Kingfisher Airlines( They will ha!e to focus on o erational e*cellence to reduce costs and increase seat factor to ensure that they reco!er the costs and return to rofitability( According to him> The sur!i!ors and winners will be the ones that are successful in embracing o erational e*cellence and differentiating to the e*tent that customers !alue(i* Howe!er, lowering costs need not mean ro!iding low :uality( 6ahul Bhatia, )anaging ,irector, Indi-o was :uoted in $utloo% Business saying> ;To tell eo le today that low7cost is low7:uality is for the birds<( * He belie!es that high :uality ser!ice can be ro!ided at lower costs by understanding customer needs better and by reducing costs incurred on ser!ices that were not a reciated by the customer(

KINGFISHER AIRLINES
Kingfisher Airlines was established in %&&"( Its head office was located in )umbai while its registered office was in Bengaluru( It was owned by the Bengaluru7based Lnited Breweries /LB0 -rou ( It started commercial o erations as a full7ser!ice airline in %&&# with a fleet of four new Airbus A"%&7%&&s o erating a flight from )umbai to ,elhi( In %&&?, it ac:uired a %CE stake in Air ,eccan, a low7cost airline launched in %&&" by ,eccan A!iation which was managed by .a t( -(6( -o inath( Mater, Kingfisher5s stake in Air ,eccan was increased to #&E and the organi8ations were merged( Air ,eccan was renamed Kingfisher 6ed and remained largely a low7 cost arm of Kingfisher Airlines( Kingfisher Airlines started its international o erations in +e tember %&&A by connecting Bengaluru with Mondon( In %&'', Kingfisher Airlines ser!ed C" domestic destinations and A international destinations in A countries across Asia and 4uro e( *i In a !ery short s an of time, Kingfisher Airlines established itself as a high ser!ice7oriented airline and obtained se!eral rewards for its ser!ices and also recei!ed more awards for being India5s best airline( It was redominantly a full7ser!ice airline with a limited ser!ice arm in the form of Kingfisher 6ed( It offered three classes of tra!el on domestic routes and two classes of ser!ices on international routes( Fithin the country, Kingfisher 9irst, the remium class a!ailable on some domestic routes targeted business tra!elers by ro!iding lu*urious seats, am le leg s ace, and ersonali8ed ser!ices that were com arable, if not better than any other airline in the country( Kingfisher .lass, the standard class, was a!ailable on most of the routes o erated by the airline, and targeted the regular tra!eler, ro!ided smaller seats, less leg s ace and a lower le!el of ser!ice, but still com arable or better than any other domestic airline( Both these classes of tra!el were ro!ided by Kingfisher Airlines, which started as and remained the full7ser!ice arm of Kingfisher Airlines( Kingfisher 6ed, the no7frills class, targeted the rice7conscious tra!eler and was offered by Kingfisher 6ed( -radually, the routes on which this o tion was a!ailable declined as many of the routes were assigned to Kingfisher Airlines to offer Kingfisher .lass ser!ices( 9urther, some limited ser!ices were added to Kingfisher 6ed, robably to differentiate the airline from other low7cost airlines( On international routes, only Kingfisher 9irst and Kingfisher .lass o tions were a!ailable and ser!ices in both classes were com arable to the best in the industry( ,es ite its ra id e* ansion and its e*cellent ser!ice offerings to its customers, Kingfisher Airlines faced challenges in making a rofit( Fhile all airlines, articularly the full7ser!ice ro!iders suffered owing to the global trends and some uni:ue conditions in India, the crisis that Kingfisher e* erienced was worse than others, with the e*ce tion of Air India( The airline had ne!er made a rofit since it started o erations in %&&#, which in itself was not a significant issue as it often takes long for such a !enture to break e!en( Howe!er, the roblem was that there was no sign that the airline was mo!ing in the direction of financial !iability( By +e tember %&'', the accumulated losses were #=C& crores /' crore B '& million0(*ii Its debt of about A&&& crores from about '" different lenders had to be

Kingfisher Airlines> )anaging )ulti le +takeholders 1age 5 of 10

recast in $o!ember %&'& with them reducing interest rates and con!erting art of the interest burden into e:uity( " The same lenders refused to oblige again in $o!ember %&'' unless the romoters ut in fresh owners e:uity( G The cash stra ed airline was in the danger of u setting the rest of its stakeholders if it did not resol!e the crisis soon( The ,-.A, in its ,ecember %&'' re ort, e!en suggested that the airline be asked to shut o erations by re!oking its license because the financial roblems could affect the safety of the airline( *iii In short, the financial roblems had the otential of hurting the future of the organi8ation( According to e* erts, a ma3or reason for the inability of Kingfisher Airlines to become a successful organi8ation was that it had difficulties in ro!iding a coherent model of o erations that engaged with all the stakeholders consistently( According to Tony 9ernandes, .4O of AirAsia, +outh74ast Asia5s largest low7cost airline> They lack focus, ha!en5t stuck to one model /full carriersJlow cost0 before changing it and are trying to do too many things at the same time(*i! Fhen Kingfisher Airlines was launched, it was a single class airline ro!iding a reasonably high le!el of ser!ices com arable to that ro!ided by Kingfisher .lass( +ince the high aying business class assengers did not a reciate the single class airline, it introduced Kingfisher 9irst to attract them( This re:uired the lanes to be reconfigured to su ort the two classes and allow for a full7 ser!ice offering( Almost simultaneously, Air ,eccan was renamed Kingfisher 6ed and ositioned as the low7cost arm of Kingfisher Airlines( Howe!er, since the ser!ices were better than other low7cost airlines and also King .lub benefits were common, many Kingfisher .lass assengers mo!ed to Kingfisher 6ed when both flight o tions were a!ailable( A arently, this led to the later mo!e to e*it the low7cost s ace and focus only on the full7ser!ice offering, e*ce t for some few restricted routes( )ulti le changes in strategy had left all concerned confused and also the cost of transitions had used u more ca ital than a consistent hiloso hy would ha!e re:uired( +ome analysts belie!ed that gi!en the crowding of layers in the low7fare segment, Kingfisher5s mo!e to o erate a full7ser!ice airline was the correct decision( Arguing that the cost difference between low7cost airlines and full7 ser!ice airlines was not !ery significant, Kingfisher would gain from its ability to charge higher rices for its e*cellent ser!ices( *! Others thought that the decision to merge Kingfisher and Air ,eccan /and change the name to Kingfisher 6ed0 was a mistake( It would ha!e been ad!isable to kee the Air ,eccan brand for the low7cost segment and run it as a se arate customer facing organi8ation while merging the back ends to achie!e economies of scale in shared infrastructure and ser!ices( They argued that, based on the new brand ositioning, there was little difference between Kingfisher Airlines and Kingfisher 6ed as they looked the same and offered similar ser!ices without le!eraging the benefits of full ser!ice or low costs( They described the strategy as IIstuck in the middle(55 *!i Others critici8ed the focus on the to end of the market when the growth was in the no7frills end of the market( They suggested that there was limited sco e to grow based on only the to end of the market because the !olumes would continue to be low in the future( If Kingfisher created e*cess ca acity at the to end, it would ha!e to ro!ide discounts to im ro!e the seat factor, but then would fail reco!er its costs of ser!ices( Omkar -oswami, .hairman, .46- Ad!isory wrote> 9ancy seats, comely cabin crew and three course meals don5t work in India( To understand how airlines work, /2i3ay0 )allya needs to look at how Indi-o runs its business( But, he won5t( Because he thinks in terms of ultra7lu*urious e* erience, which can5t ay for itself(<*!ii Another article on Kingfisher suggested, ;Kingfisher is known for its world7class ser!ice standards, but that has come at a stee cost(< and meeting the high standards while controlling costs would be a big challenge( According to the article, ;A kitten used to badam milk will not drink skimmed milk(< *!iii

MANAGING THE TRANSITION: KEEPING ALL STAKEHOLDERS ENGAGED

Any organi8ation needs to kee fi!e sets of stakeholders engaged in order for it to be a resilient organi8ation that remains in good health in the long run( The to managers of Kingfisher Airlines needed to focus on a reco!ery

" G

Analysts belie!e that the go!ernment influenced ublic sector banks to ro!ide relief to the airline(

The go!ernment is considering a ro osal to increase the limit of foreign direct in!estment in airlines in India from %&E to G=E which might be of hel to Kingfisher(

Kingfisher Airlines> )anaging )ulti le +takeholders 1age ! of 10

rogram in order to /i0 meet the e* ectations of its customers so that they continued to atroni8e its roducts and ser!ices and also encourage others to do the same, /ii0 kee it worthwhile for the su liers of the necessary resources to continue to do business with the organi8ation, /iii0 meet the as iration of its em loyees so that they were moti!ated to contribute to the organi8ation and also hel attract and retain the necessary talent for future growth, and, /i!0 com ly with e* ectation of the societyJcommunity both in terms of legal com liance as well as a good cor orate citi8en, and finally /!0 satisfy the owners of the organi8ation by ro!iding them returns that meet their e* ectations,

"USTOMERS
Kingfisher Airlines was credited with transforming ser!ice le!els offered in the airline business in India by focusing on ser!ices such as good food, ersonal screens on domestic flights, and airline ushers who attended to customers as they arri!ed at the air ort( Its fre:uent flyer rogram called King .lub ro!ided ad!antages to customers that were !ery well7 a reciated( Its lounge facilities at !arious air orts established new standards in ser!ices not seen in India before( It had managed to create a !ery loyal customer base that would su ort it( Howe!er, when the airline cancelled hundreds of flights in $o!ember %&'' and then e*tended the cancellations to mid7,ecember, *i* it shook the confidence of this loyal grou ( According to the ,-.A re ort, the airline did not o erate '?# daily flights owing to non7a!ailability of aircraft during the winter schedule(K ** As one loyal customer at an air ort waiting for a Kingfisher flight re!ealed his an*iety> I mostly tra!el with Kingfisher, but after what ha ened in last few days, I am a bit worried( )y flight to )umbai is delayed by G& minutes, but I ho e it will take off( I ha!e a good e* erience with the airline, but last minute cancellation shouldn5t ha en as it causes a lot of incon!enience to assengers(**i It was rumored that the airline was considering uninstalling its in7flight entertainment system, which at one time was its uni:ue selling oint, as art of its cost 7cutting dri!e( **ii Fas Kingfisher re ared to take such drastic ste s to withdraw such well7a reciated ser!ices in order to sa!e costsN Fas it willing to test the loyalty of the only set of stakeholders that was still relati!ely satisfied to meet the e* ectations of other stakeholdersN

SUPPLIERS
Kingfisher was de endent on a host of resource su liers to ro!ide its ser!ices( It could not afford to not make it worthwhile for them to continue their association with the airline( Any disengagement by one or more su liers would sink the airline( As 1rati .hauduri, .hairman, +tate Bank of India /+BI0, a key ro!ider of financial resources to Kingfisher said> Kingfisher is a !alued com any, but an airline would need fuel, fleet and finance to run the show( Kingfisher should tell us how it lans to streamline its daily re:uirements( **iii
+BI was the leader of the consortium of '" banks that did not ro!ide further financial su ort at the end of %&'' because it did not make business sense for them unless the romoters infused fresh e:uity into the com any( **!
**i!

Kingfisher faced similar challenges with the com anies that su lied fuel as the airline was not able to ay its bills( Hindustan 1etroleum .or oration Mimited and Bharat 1etroleum .or oration had both not faced ayment issues( On occasion, they had refused to su ly fuel, or ut the airline on cash and carry basis for su ly, and e!en in!ol!ed the courts to resol!e dis utes( The story with the su liers of aircraft was no different( Kingfisher had been unable to ay the rentals on the aircraft it had leased( In one instance, the airline had to return aircraft to -4 .ommercial A!iation +er!ices on the directions of the Karnataka High .ourt( In another instance, ,2B A!iation 9inance Asia Mtd( had filed a case in a LK court owing to Kingfisher5s inability to ay its lease rentals( **!i 9earing ossible li:uidation of the airline, some of the leasing com anies were seeking re ossession of the aircraft that had been leased(**!ii
On similar lines, the Air ort Authority of India /AAI0 had ending dues of o!er re orted that checks issued by Kingfisher Airlines had bounced
**!iii

%&& crore from Kingfisher( It was

and the airline was asked to o erate on a cash

Kingfisher Airlines> )anaging )ulti le +takeholders 1age # of 10

basis after Kingfisher Airlines did not settle dues on a regular fortnightly basis and that their outstanding amounts e*ceeded the security de osit and bank guarantees with AAI( **i* The )umbai International Air ort Mimited had on an earlier occasion ut the airline on cash7and7carry mode and threatened to ut Kingfisher on the same mode unless it aid its dues( *** Analysts belie!ed that there were se!eral other small lesser known su liers that were e* eriencing similar roblems with that airline, but did not ha!e the clout to restructure their relationshi ( Howe!er, many were close to the stage of disengaging with Kingfisher to a!oid getting dee er into the red themsel!es( Fhat could Kingfisher do to im ro!e its relationshi with its su liersN .ould it afford to dis lease them any longerN 4!en if they continued dealing with Kingfisher because of lack of other o tions, would they walk the e*tra mile for Kingfisher after they had nurtured other relationshi sN

EMPLOYEES
Kingfisher Airline had staff strength of C,&&& and s ent about #A crores a month on salaries in %&''( Kingfisher Airlines had delayed salaries of its em loyees by a few days or weeks e!ery month since July %&''( Once the management had attributed the delay to a bank strike, but had resorted to delays in ayment of salaries regularly since then( It was also alleged that the ta*es deducted from the salaries of em loyees had not been de osited with the ta* authorities( ***i The salary delays had caused considerable stress among the em loyees as many had credit and 4)I ayments commitments that they could not meet( Howe!er, e!en as their satisfaction and morale was at its lowest, they had to face irate assengers because of the flight cancellations in $o!ember and ,ecember, %&''( There were suggestions that se!eral Kingfisher em loyees, including ilots, were looking for other 3obs ***ii and o!er '&& Kingfisher ilots had submitted their resignations(***iii The ,-.A re ort suggested that %G ilots had left the airline during $o!ember and ,ecember, %&''(***i! Fhat could Kingfisher Airlines do to im ro!e the morale of is em loyeesN .ould it afford to ha!e disgruntled customers facing em loyees at the time when, gi!en all the sense of unease about the airline, its ser!ices would be scrutini8ed more closely by discerning customersN Fould its actions influence the kind of talent it would attract and im act the :uality of ser!ice it could offer in the futureN

"OMMUNITY$SO"IETY
All organi8ations, including commercial organi8ations, function with the sanction of society( +ociety ro!ides the legal and normati!e framework within which an organi8ation functions( There were times when go!ernments were e* ected to hel organi8ations that were critical to society during times of crisis( In the ast, se!eral go!ernments across the world had ro!ided a !ariety of s ecial ri!ileges to airlines to kee them !iable( Kingfisher Airlines had asked the go!ernment to hel it sur!i!e by ensuring three7months of credit eriod from its su liers( The ci!il a!iation minister was :uoted as saying KThere is no bailout scheme or lan by the go!ernment

for any of the ri!ate airlines before me(K ***! ,es ite these ublic assertions, there was a feeling that the go!ernment might ut ressure on the ublic sector banks to make s ecial ro!isions for the airline, as was rumored to ha!e ha ened a year earlier( Hence, the All India Bank 4m loyees Association demonstrated to o ose any bailout of

the airline( ***!i In the re!ailing economic conte*t, there was !ery little acce tance for the idea of go!ernments su orting ri!ate enter rises, including ri!ate airlines( As Omkar -oswami ut it> The notion that airlines need to be IIsa!ed55 comes from an era when these were often go!ernment7 owned and IIflying the flag55 was e:uated with nationalism( That5s assO( Mike any other business, airlines need to fend for themsel!es( 6ahul Ba3a3 was right in asking whether the go!ernment would consider bailing out Ba3a3 Auto if it went bankru t( The answer is ;no<( +o too for airlines(***!ii At the same time, se!eral agencies of the go!ernment were unha y with Kingfisher Airlines and were :uite ready to disengage with Kingfisher, which would e!entually mean that the airlines would ha!e to shut down at least its domestic ser!ices( The ,-.A was :uite damning of the airline( It belie!ed that about one7third of Kingfisher5s fleet was grounded owing to lack of engines, com onents, and s are arts( They suggested that the airline was cannibali8ing com onents and arts from the grounded aircraft to kee the remaining aircraft flight worthy( They were concerned about the safety im lications for the assengers and others who might be affected( It e!en indicated

Kingfisher Airlines> )anaging )ulti le +takeholders 1age % of 10

that withdrawing Kingfisher5s license to fly was an o tion(***!iii The ser!ice ta* de artment had fro8en the bank account of Kingfisher for non7 ayment of dues(***i* Fhat could Kingfisher do to win back the su ort of the larger society and the go!ernment and its agencies so that they would ro!ide the fle*ibility and su ort needed by the airline to reco!erN Fas lobbying with the go!ernment still a !iable o tionN

O&NERS
+hareholders are the owners and ha!e a residual claim on the assets of a com any( The share rice reflects the confidence they ha!e on the future earnings of the com any( Puite clearly, during the crisis, the shareholders had lost a significant amount of confidence in the to management of the com any to restore Kingfisher to its full !alue creating otential( Kingfisher shares that had traded at about GA er share in A ril %&'' traded close to %& er share in $o!ember %&'' when the cancellations were announced( The shares of Kingfisher5s holding com any, LB -rou , that traded at about "'# er share earlier in the year was down to A% er share( *l Analysts were !ery critical of Kingfisher5s erformance on critical financial arameters such as margins and cash flow( It was well7known that the airlines5 costs were higher relati!e to its com etition, and the ratio of interest e* ense to net sales ratio was se!eral times higher than others( Its debt to e:uity ratio was a matter of concern, and as the crisis had re!ealed, Kingfisher :uite clearly had a roblem of oor cash flow(
*li

Fhat could the management of Kingfisher do to restore the confidence of its shareholdersN .ould it afford to kee shareholder concerns on the back burner for some time and let share rices fall further while it addressed the concerns of the other stakeholdersN .ould Kingfisher5s oor erformance cause the shareholders of the LB -rou to also desert the entire grou N

DE"ISION TIME
)allya and Aggarwal were well aware of the challenges that Kingfisher Airlines faced( They were con!ersant with the !arious analyses and sensiti!e to the criticisms of the airline, and also were attenti!e to the wide ranging ad!ice that was ro!ided to them both ublically and ri!ately( They needed to chalk out a rogram that defined a se:uence of ste s, with some contingency arrangements, to take the airline from the situation of crisis to a osition in which the com any had met the threshold le!el of satisfaction of all stakeholders to ensure their continued engagement and su ort( It could then roceed to take the com any to new heights(

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