KINGFISHER AIRLINES

A CASE STUDY

AUTHOR DETAILS:
NAME – PRAYAG SONI
CONTACT INFO. – 9414696024
EMAIL – prayag.maheshwari123@gmail.com
 ABSTRACT
Kingfisher Airlines Limited was owned by India's largest liquor businessman with a desire to
become an industry leader. The growing share of the aviation market, many destinations and
many awards had given the company a fascinating and innovative picture. Kingfisher
Airlines had been successful in achieving customer satisfaction by providing a better and
more comfortable flying experience for passengers. However, Kingfisher Airlines had made a
brief but lasting impression on Indian Aviation sector.
At the end of 2011, Kingfisher Airlines suffered a major financial crisis. Several private and
public sector banks gave loans to Kingfisher Airlines and UB Holdings due to the reputation
of their CMD. He was unable to repay the loans to many public sector banks, however, all the
private banks had recovered all their loans.
This paper describes the collapse of Kingfisher Airlines and the financial position of United
Breweries Holdings. Here, we attempt to understand the business of Kingfisher Airlines and
study the role of banks in loans and recovery efforts. In addition, I have tried to emphasize
the reasons behind the company's financial failure from the perspective of mistakes in
strategic decision making.
Keywords: Vijay Mallya, Aviation, Indian Airlines, Bankruptcy, Airlines.

INTRODUCTION
Kingfisher was one of the top airlines in India and now it is completely devastated, and in
market conditions, Kingfisher's other competitors are flying high.
The global aviation industry was in challenging phase in 2012 due to rising fuel prices,
turbulent financial markets and recession over the past 4 years. Kingfisher Airlines, known as
Vijay Mallya’s dream project, The King of Good Times, had seen its worst.
Kingfisher was initially launched as an economy with single class layout aircraft with high
quality food and entertainment options. Vijay Mallya's interesting role was that he knew how
to live a king's life, and with this idea he only focused on one thought that every traveller
would expect their flight resembling to a king in Kingfisher Airlines. A year after
establishing the airline, focus switched to a higher luxury class. Airlines had not been able to
achieve sustainability by changing the timing and concepts of its models and expected a
random expansion.
Misleading government policies caused serious failure in the entire domestic aviation market,
so ministers needed to take quick steps to address this and fix it. Kingfisher sought life
support for the enfeebling airline from government and the banking sector and focused on
managing its business funds using outside money.
Since 2005, the airline began operating again but the business had reported losses. In India,
since 2006, upcoming new airlines have added a lot of aircrafts, which are deployed in metro
areas, resulting in a costly war for all airlines. Even today, almost all airlines in India are
losing operational costs.
The situation had worsened since the company bought Air Deccan in 2007, causing the
airline to suffer financial problems for a long time. Kingfisher Airlines had been the second
largest domestic aviation market in India till December 2011.

HISTORY OF THE COMPANY

Kingfisher Airlines was founded in 2003 and was owned by United Breweries Group
headquartered in Bangalore. The airline entered the aviation industry when low-cost carriers
were impacting the market and providing air travel to every Indian.
Airline promoter, India's biggest liquor businessman Mr. Vijay Mallya is known for his
brilliance, quality and style. At the age of 28, he upheld the tradition of the family business.
His lavish luxury lifestyle gained him corporate fame at an early age. He used his popularity
to promote the United Breweries Groups brand and created the "King of All Time" slogan for
beer. He began with the Chairmanship of UB Group and his international dealings in buying
and selling off Berger Paints U.K. and squandering money on super cars, yachts and many
international properties shaped him to its brand icon.
On 9 May 2005, Kingfisher Airlines commenced commercial operations with four new
Airbus A320 - 200 aircraft that operated daily between Delhi and Mumbai. The company
aimed to provide world class amenities with the latest airplanes and apart from competing
with products the company also aimed to compete in service offerings with other competitors
like: serving hot food, comfortable seating, personal entertainment and treating its customers
as "guests". With such an approach, next the company started with 4 flights a day between
Delhi and Bangalore and increased the number of flights to 16 cities in 2005 by introducing
17 aircraft and increasing the number of flights per day to 104 from 2005-2007, the fastest
airplane induction ever that time.
By 2006, the airline had gained five-star status and was popular among business class
passengers. It also provided personal live in-flight entertainment in partnership with Dish TV
India Limited.
The airline began international operations on September 3, 2008, connecting Bangalore with
London. In 2008, the company became the only five-star airline in India and was known for
providing excellent services to its passengers. It retained its place for the next three years.
In 2009, Kingfisher received worldwide acclaim and was one of the seven airlines to receive
a SkyTrax 5-star rating. It became the largest airline of the second most populous country in
the world with a 26.7 percent share in the aviation market. Kingfisher Airlines used to
operate 250 flights a day at a point of time. In May 2009, Kingfisher Airlines held the largest
share of the aviation market among all airlines in India, with over one million passengers.
At that time, Kingfisher Airlines offered its passengers three classes of flights:
Kingfisher First: It was a type of business class in which service was mainly focused on
people who could afford premium services.
Kingfisher Class: The premium economy service for the middle-class people who were
more flexible with fares.
Kingfisher Red: A low-cost basic class, it was another name for Air Deccan and focuses on
price conscious middle-class people. In 2011, it received the best Indian Airline award again.
However, it reported a loss of Rs 1000 crore for consecutive 3 years.

COMMENCEMENT OF BAD TIME

Kingfisher Airlines was one of the top airlines in India and has been successful in achieving
customer satisfaction, but has failed to maintain it for a long time.
Due to the 2008 recession, rising fuel prices and KFA mandated to serve non-profit routes,
the way ahead was beset with difficulties for Kingfisher. Kingfisher Airlines, which had to
pay airport fees, fuel, employee salaries, loan repayments and service tax to various banks,
was caught in a perilous situation.
In September 2010, Sanjay Agarwal, former CEO of SpiceJet, joined Kingfisher Airlines.
Vijay Mallya became MD & Chairman of Kingfisher Airlines, and in September 2011,
Kingfisher Airlines decided to stop its low-cost arm, Kingfisher Red, but it was too late for
the sickening airline.
Kingfisher Airlines' 2011 annual report cited concerns about the company's existence,
indicating that airlines had not invested public money and it also had reduced TDS and
Provident Fund cooperation. Over time, the situation of the company had worsened, leading
to the cancellation of international flights and domestic flights, which is still unabated. On
April 25, 2012, its shares reached an all-time low of 13.
By the year 2012, It was under debt of Rs 7,000 crore, nearly half of its aircrafts were
grounded and several of its staff members went on strike. The airline had since then stopped
all its operations.
In view of these situations, the government refused to accept the Vijay Mallya's bailout
petition. DGCA terminated its flying license on December 20, 2012, and the airline had to
terminate its operations forever.

CAUSES BEHIND THE COLLAPSE

As of December 2011, KFA was considered to be one of the top 5 passenger airlines in India,
but had since then suffered from high losses, heavy debts and eventually shutdown in 2012
forever. From the information gathered, it showed that there were more business reasons than
marketing reasons behind the failure of the KFA.
The merger of KFA with Air Deccan and the launch of Kingfisher Red was the main
marketing reason for this decline.
Functional Reasons:
1. In 2012, KFA's operating, navigation and landing costs were 10.86% of total revenues
and 3% more than Jet Airways.
2. The cost of KFA employees was higher than that of the other airlines.
 3. The cost of KFA's value-added services (VAS) was high and they did not focus on the
basic needs of Indian customers like hygiene, connectivity, scheduling and low cost.
According to reports, the state of the aviation industry in India was in great distress and this
had adversely affected KFA. There were some major reasons for the poor plight of KFA and
the aviation industry in India:
Skyrocketing Fuel Prices:
Due to fuel demand and competition between various airlines, KFA was unable to pay its fuel
bills due to the continuous rise in jet fuel prices. In 2012, its fuel revenue accounted for
50.58% and 31.78% of them were fuel expenditure. As their fuel costs had increased by 70%,
many vendors had filed a petition in the Bangalore High Court against the KFA, including the
BPC (Bhartiya Petroleum Corporation), for not paying their fuel costs. The Government of
India had heavily imposed aviation turbine fuel. ATF in India was approx. 51% higher than
the international standard due to:
1. The rupee was fallen in international market.
2. High cost of landing fee and aviation taxes.
3. Price declined by Air India.
Wrong Decision Taken:
In 2007, KFA merged with Air Deccan, which charged low prices from its customers while
the Kingfisher was a high-ending carrier known for its luxury. Kingfisher thought since Air
Deccan was in market before it so it would boost the company's financial position and one
other reason was that KFA had no domestic experience of 5 years which was necessary to get
international license in aircraft and Air Deccan had that experience so that is why it was
acquired by KFA.
Kingfisher Red was introduced in 2008 after the merger took place with Air Deccan. This
business strategy had confused the its consumers as KFA travellers were accustomed to the
luxuries of cooking and lounge access. This merger tarnished the premium status and the
brand status of KFA.
Three years after the merger with Air Deccan, the company suffered a loss of $ 10 billion.
When Kingfisher knew they had made a big mistake by owning Air Deccan, it raised prices
of Kingfisher Red. Kingfisher Red was not a good choice at that time either, as it was
incurring losses and calling it "low-cost or standard carrier" caused confusion in
management. Mumbai's Income Tax Department froze KFI's bank accounts in December
2011 because of due of Rs 70 crore. The company borrowed more to pay off its debts.
Lenders reduced interest on repayment of loans and converted loan into equity. But this did
not help the company because the company later faced liquidity problems. This led to the
closure of Kingfisher Red in February 2012. Currently, KFA has a total loss of 70,7057.08
crore (US $1414 million) and a total loss of 6000 crore (US $1202 million).
Strategic Issues:
1. Vijay Mallya's biggest mistake was that he failed to make the right decisions. He
failed to understand the needs of the customers and made all the decisions based on
 the luxury sells. For him, the airline was to be considered luxury travel only, but in
India only a few selected classes were willing to pay extra.
2. The liquor tycoon Mallya could not distinguish between the two industries. Customers
may pay extra for alcohol but not for transportation because that is more a type of
necessity than luxury.
3. In 2008, Deccan Airlines was renamed as Kingfisher Red. So, Kingfisher operated
both Business and Economy Class airlines. It looked great though, but it was not
really. Mallya was in different businesses at the same time. He had hired officials for
his liquor business but the airlines, all was going by itself. The business was in need
of Mallya's attention.
4. KFA operated 366 domestic and 20 international flights during its lifespan. It also had
owned 67 aircraft. This led to the increase in aircraft lease rentals. In 2011, KFA's
aircraft lease rentals crossed Rs 984 crore and this resulted in grounding of 66
aircrafts.
5. There was a time when Kingfisher was unable to pay salaries to its employees in
2011. Salaries for 4 to 5 months were due. After this, the staff members refused to
sign a "tech log" stating that the aircraft was fit and ready to fly. The Directorate
General of Civil Aviation (DGCA) noticed this and revoked the license of KFA.
Economic Slowdown:
The 2008 recession was another external factor in Kingfisher's downfall. In 2008, the first
international route from Bangalore to London was opened. Due to the recession, airline fuel
prices had increased, landing charges at the international airport also increased, which had
greatly impacted Kingfisher Airlines.
Lack of Proper Management:
Frequently changing of the CEO more than once a year and the misuse of power by top-level
management, which Vijay Mallya had never taken seriously in day-to-day operations. Later,
on the birthday of his son, Siddharth Mallya he gifted airline to him. He was not mature
enough to handle such a large airline business because he had no prior experience, so
Kingfisher Airlines suffered a severe decline due to lack of proper management and
experience in the airline industry.
Bank Arrears:
According to a report compiled by "The Indian Express" in November 2015, Mallya is in loss
of Rs 9,091.40 crore which he borrowed from 17 banks. Most of his debt is with the State
Bank of India that is of Rs. 1600 crore. According to the above data, KFA owes Rs. 800 crore
each to Punjab National Bank and IDBI Bank. It also owes to other banks like Bank of India
(650 crores), Bank of Baroda (550 crores), Central Bank (410 crores), UCO Bank (320
crores), Corporation Bank (310 crores), United Bank of India 430 crores, among others, the
data showed.
 CONCLUSION
The Indian aviation business has seen appropriate growth and revolution, which will continue
for coming years. Most of the airlines come and go, while others take a strong position in this
business. Due to inappropriate tactical decisions and the misuse by the top-level management,
the great and ambitious Kingfisher Airlines project had drastically failed. Instead of taking
advantage of this great aviation project opportunity, Mallya focused on achieving glamorous
stature. The company had shifted its focus to the luxurious design, sumptuous food and
ambience, including its larger goals of settling in the international market but the basic
economic category had been overlooked by it. The strategy used by Vijay Mallya could not
be sustained for long, which had proved to be a big threat at a big scale to sustainability and
stabilization of the aviation sector. Mallya is currently the only board member to own the
brand.
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