Strategic Management

Term-IV

The FLIGHT and Fall

Presented by
of
Amir Hossain 2020069
Chinmoy Ranka 2020078
Gabriella D'Souza 2020081
Kashish Goel 2020089
Krutarth Patel 2020091
Nikhar Khandelwal 2020099

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 Table of Contents

Porter’s 5 Forces Analysis of Aviation Industry .............................................................................. 2

Introduction .......................................................................................................................................... 3
Background ........................................................................................................................................... 3
Vision & Mission .................................................................................................................................. 4
Kingfisher Offerings ............................................................................................................................ 5
Timeline of Failures ............................................................................................................................. 6
BCG Matrix ........................................................................................................................................... 7
SWOT Analysis .................................................................................................................................... 7
The Downfall of Kingfisher Airlines ................................................................................................. 8
Operational Failures ........................................................................................................................ 8
Strategic Failures .............................................................................................................................. 8
Unrealistic market analysis ......................................................................................................... 8
Unrelated Business Diversification (Explained using Ansoff Matrix) ................................. 9
Merger with Air Deccan ............................................................................................................ 10
Aircraft Diversification .............................................................................................................. 11
Strategies that worked for the Airlines ........................................................................................... 12
Other Challenges ................................................................................................................................ 12
Economic Slowdown ..................................................................................................................... 12
Lack of Proper Management ........................................................................................................ 12
Rise in Fuel Prices .......................................................................................................................... 12
Bank Dues ....................................................................................................................................... 13
Delayed Salary................................................................................................................................ 13
Aircraft Rental Dues ...................................................................................................................... 13
Airport Dues ................................................................................................................................... 13
Recommendations.............................................................................................................................. 14
References ........................................................................................................................................... 14

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Porter’s 5 Forces Analysis of Aviation Industry

The threat of New Entrant:

The threat of New Entrant during Kingfisher Airlines was moderate because the new airline
companies were coming up and it was still a new concept for the Indian market.

The Threat of Substitutes:

The threat of substitutes was very high because at that time people were preferring railways
over airways because of the high cost in the later segment.

Bargaining Power of Suppliers:

There were only 2 suppliers of aircraft at that time which makes this force a moderate one.

Bargaining Power of Buyers:

Switching cost was very low which resulted in the higher bargaining power of buyers.

Rivalry among existing players:

Many other airlines were giving neck-to-neck competition resulting in high rivalry.

On a 3-point scale, the aviation industry gets a total score of 7 out of 15 which shows that the
industry was a low profitable industry at the time of Kingfisher Airlines.

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Introduction

Kingfisher, one of India's most well-known airlines, is in disarray, while other Kingfisher
competitors are soaring high. The global aviation sector faced a difficult period in 2012 as a
result of unprecedented fuel price hikes over the previous four years, turbulent financial
markets, and economic downturn. Kingfisher Airlines, with single-class aircraft equipped
with high-quality food and entertainment systems.

Vijay Mallya believed in living life King size. He was solely concerned with the idea that every
air passenger in the Kingfisher Airlines would anticipate their voyage to be comparable to
that of a king. The focus switched to the high luxury class a year after the airline was
established. With changing times and concepts of its models, the airline was unable to
maintain stability and was anticipating random expansion.

Misguided government policies had resulted in a major market failure in Indian domestic
aviation, requiring ministers to intervene rapidly to correct the situation. Kingfisher, the
bankrupt airline, requested government and banking assistance and concentrated on
managing much of its company funds using borrowed cash. The busiest route has been in
operation since 2005 when the airline began operations, Kingfisher Airlines has been incurring
losses.

Since 2006, major emerging airlines in India have added a considerable number of aircraft,
which they have primarily deployed on metro routes, resulting in a pricing war among all
airlines. Almost every airline in India is still losing money. However, once the firm bought
Air Deccan in 2007, the situation deteriorated, causing the airline to suffer long-term financial
difficulties. Kingfisher Airlines, which had the second-largest market share in India's domestic
air travel industry until December 2011, was in dire financial straits.

Background

The United Breweries Group, located in Bengaluru, owned Kingfisher Airlines, which was
founded in the year 2003. It entered the aviation sector at a time when low-cost airlines had
spurred up the industry and made air travel accessible to all Indians. Mr. Vijay Mallya, India's
richest liquor magnate, was the airline's promoter and was recognized for his vibrancy,
quality, and flair. Starting as Chairman of the UB Group, his international blitz of purchasing
and selling Berger Paints U.K., as well as spending money on fast cars, boats, and numerous
overseas residences, transformed him into the company's brand symbol.

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Kingfisher Airlines began commercial operations on May 9, 2005, with four brand new Airbus
A320-200s that flew daily between Delhi and Mumbai. By 2006, the airlines had earned a five-
star rating and were well-liked by business class passengers. On September 3, 2008, the airline
began international operations between Bengaluru and London. The airline gained the
reputation of being India's only five-star air flight in 2008 and became recognized for
providing exceptional flight services to its passengers, a position it held for the following three
years.

In 2009, Kingfisher received several awards, including becoming one of just seven airlines to
get a 5-star rating from Skytrax. With a 26.7 percent share of the aviation market, it eventually
became the largest airline in the world's second-most populous country. By serving over 1
million passengers in May 2009, Kingfisher Airlines has the largest proportion of the Indian
aviation market among all airlines. In 2011, it was named the best Indian airline of the year
for the second time. It did, however, record a loss of Rs.1,000 crore for three years in a row.

Vision & Mission

Vision: “The Kingfisher Airline family will consistently deliver a safe, value-based and
enjoyable travel experience to all our guests”

Mission

• Be the most successful Full Service, True Value airline operating in India.
• Creating a following of ‘fans’ and not just loyalists.
• Drive ‘Addiction’ to Kingfisher not just loyalists.
• To be the Market Leader by 2010

Values

• Safety
• Service
• Happiness
• Teamwork
• Accountability

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Kingfisher Offerings

Services Description
1 Domestic Kingfisher First Focused on people who can afford premium services
Offered on Airbus A320 family aircraft, equipped with seats
with a 48-inch pitch and 126-degree recline.

2 Domestic Kingfisher Class Premium Economy service for the middle-class people who
were trendy and upwardly mobile

3 Domestic Kingfisher Red Low fare basic class which was another name for Air
Deccan and focused on the middle-class people who were
price-conscious

4 International Kingfisher First Featured full flat-bed seats with 180-degree recline, a pitch
of 78 inches, and a width of 20-24.54 inches.

5 International Kingfisher Class The international Kingfisher Class seats offered a pitch of 34
inches, a width of 18 inches, and recline of 25 degrees.

6 In-flight entertainment Kingfisher was the first Indian airline to have in-flight
entertainment (IFE) systems on every seat even on domestic
flights.

7 Loyalty program The frequent-flyer program of Kingfisher Airlines was

called the King Club in which members earned King
Miles every time they flew with Kingfisher

8 Cargo Kingfisher Xpress was a Door-to-Door cargo delivery

service launched in February 2010

9 Kingfisher Lounge Kingfisher Lounges were offered to Kingfisher

First passengers, along with King Club Silver and King Club
Gold members.

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Timeline of Failures

2007

Kingfisher Airlines merged with Air Deccan in 2007, which was a low-cost airline with
inexpensive prices. Kingfisher believed that it would improve the company's financial
position. Another reason was that Kingfisher lacked 5 years of domestic experience, and to
obtain an international license in aircraft, one must have 5 years of domestic experience.
Kingfisher Red was introduced in 2007, as a low-cost basic class. When Kingfisher realized,
they had made a huge mistake by buying Air Deccan, they raised the price of Kingfisher Red.
However, Red was not a suitable option at the time since it was losing money, which confused
management as to whether it should be classified as a low-cost or regular carrier.

2008

The path ahead was tough due to the economic downturn in 2008, rising fuel prices, and the
Kingfisher Airline’s statutory need to offer services on non-profitable routes. The cash-
strapped Kingfisher Airlines was stuck in a web of debt, owing for airport fees, fuel, and staff
salaries, as well as loan repayments to various banks and service tax.

2009

In 2009, Kingfisher received several awards throughout the world, including becoming one of
just seven airlines to get a 5-star rating from Skytrax. With a 26.7 percent share of the aviation
market, it eventually became the largest airline in the world's second-most populous country.
Kingfisher Airlines flew about 250 flights each day. Kingfisher Airlines has the largest
proportion of the Indian aviation market among all airlines.

2010

Sanjay Agarwal, the former CEO of SpiceJet, joined Kingfisher Airlines in September 2010,
and Vijay Mallya became the company's MD and Chairman.

2011

In September 2011, Kingfisher Airlines chose to close down Kingfisher Red, its low-cost
category to deal with the financial constraint, however, the survival motto came too late for
the struggling carrier. The IT Department of Mumbai froze Kingfisher Airline's bank accounts
due to a debt of Rs 70 crores. The total debt of Kingfisher Airlines was around Rs 7057.08
crores (USD 1414 million).

2012

Its dwindling shares hit an all-time low of 13 on April 25, 2012. The firm lost about Rs. 7,000
crores in 2012, with almost half of its planes grounded and several of its employees going on
strike. The airline came to a standstill when all of its operations were terminated. In light of
his position, Vijay Mallya requested a bailout from the government but was turned down. On
December 20, 2012, the DGCA suspended the airline's flying certificate, forcing it to cease
operations.

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BCG Matrix

The United Breweries Group owned by Vijay Mallya has its products Kingfisher beers and
alcoholic beverages in the start category. The growth was booming for these products and so
was the market share. At that time company thought of moving into the airline business. The
growth of the airline business at the start was high but the market share was low.

SWOT Analysis

Strengths:

• High Brand image

• First flight with a full fleet of services
• Route Rationalization
• UB Group backing for finances

Weaknesses:

• High price for service offered

• High attrition at the Top Brass
• Break-even claims made by Kingfisher Airlines are not feasible

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Opportunities:

• Unpenetrated domestic market

• Untapped Air Cargo market
• Expanding Tourism Industry
• Fleet Size Expansion

Threats:

• Existing low-cost operators

• Infrastructure issues
• Rising fuel prices
• Economic slowdown

The Downfall of Kingfisher Airlines

Operational Failures

1. Kingfisher Airlines had to bear very high Maintenance, Landing, and Navigation
Costs which was nearly 11% of the total revenue generated and 3% more than that of
Jet Airways.

2. Kingfisher Airlines was also leading in terms of employee cost, had the highest
employee cost amongst its competitors. Approximately 5700 employees were working
for Kingfisher Airlines which is a very high number when compared to other
companies.

3. Kingfisher Airlines from the beginning has put very less efforts into public services
such as cleanliness, connectivity, scheduling, and affordable prices. The Value-Added
Services of Kingfisher Airlines was very high.

Strategic Failures

Unrealistic market analysis

• Unable to forecast and make use of potential opportunities is one the main reasons for
downfall. It is quite evitable that customers are generally price-sensitive, so without
an understanding of customer preferences, it would lead to biasing of decisions.

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 • With passing of each year in the early 20th century, the travelling became more
affordable for the middle-class people. Since the middle-class people constitute the
majority of the population in the country, it is imperative for the airline operators to
sustain an economy class service for the greater good. The business class could be
afforded only by the people who enjoyed a top position in a firm.

• It was a contrasting situation that two business entities i.e. KFA and UB who were so
renowned when it comes to liquor, ventured into airline business where they failed to
cater to customer needs within both industries. Consumers might still go for expensive
alcohol since it is a luxury but passengers would never unnecessarily pay premium
for an airline service

Unrelated Business Diversification (Explained using Ansoff Matrix)

To begin with, unrelated diversification means venturing into an business that is dissimilar to
the existing industry or industries and is usually established by mergers and acquisitions. The
offering of three different classes of travel diluted the image of the brand.

We made an attempt to understand the unrelated business diversification through the fourth
strategy in Ansoff's matrix i.e. diversification.

Ansoff Matrix

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An Ansoff matrix depicts that products in similar categories require similar distribution of
resources whereas going for diversification would need investment in a entirely new portfolio
of requirements.

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.

In case of an unrelated business it is imperative for an industry to have strong profitability

and proven competencies that provides an edge to that firm. Unfortunately, UB Group was
into a different business altogether i.e. liquor manufacturing. Both the companies i.e. UB and
KFA lacked the skills and resources to make an airline industry function and cater to changing
customer requirements, hence, diversification was never a justified option.

Merger with Air Deccan

The strategy to merge with Air Deccan left the potential and loyal passengers in doubt.
Airlines passengers having got used to premium services offered by Kingfisher Airlines such
as in-flight entertainment, personalized assistance during check-in, access to Kingfisher
Lounge at the key airports, complimentary gifts wore the value-added services offered then.

KFA decided to introduce a low-cost economy airline (Kingfisher Red) following the merger
with deccan that added to the problem. From the treatment of five-star and value-added
services, it had suddenly transformed into no-frill airline solutions. The fact that Kingfisher
Airline was a premium class airline service and it ventured into a low-cost service made the
situation contrasting. From treatment as five-star and value-added services, it had suddenly
transformed into a no-frill airline.

As per a Business Today article, “It became the largest Indian airline 27.5% market share, and
domestic travel increased by 30%. However, it didn't make profit.” Kingfisher airlines
showed growth in numbers while having lost the strategy. With the merger, it lost its brand
image of a premium business class airline.

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Aircraft Diversification

Indigo/ All
Economy In service Passengers
Airbus A320-200 96 180

Kingfisher airlines
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
Airbus 72-500 25 66-72
Total 64 77

The people in charge of and answerable to the disaster management team had little know-
how and expertise on how to tackle an emergency as KFA enforced a Closed Promoter system.
These people were engaged more as an employee rather than a stakeholder in the company.
Hence, the downfall was a cumulative result of series of mismanagements that seemed quite
irrecoverable.

In 2009, income from operations declined by 13.6%, laid off 100 pilots due to increasing fuel
charges and recession. In 2010, despite losses, Kingfisher Airlines introduced flight to Europe.
It is in this year that kingfisher airlines approved the debt recast package. By 2011, Kingfisher
Airlines accumulated losses that amounted to 50% of its net worth. In 2012, reports more loss
ultimately cancels international flights and reduces domestic flights from 400 to 120.

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Strategies that worked for the Airlines

• Merger and acquisition of Air Deccan to gain market share and have access/license
for international routes. This objective was successful as by 2008 Kingfisher had the
highest market in the Indian aviation industry.

• The Kingfisher Airlines management wanted to penetrate all the segments of the
market including the economy class which they did with the introduction of
Kingfisher Red.

Other Challenges

Economic Slowdown
The economic slowdown in 2008 was a crucial episode that started the decline of the
Kingfisher airline industry. Coincidentally, the first international flight from Bengaluru to
London started in 2008 but unfortunately due to the recession and the rising fuel prices
increased the landing charges at the international airports did not benefit Kingfisher’s
operations.

Lack of Proper Management

The frequent change of CEO for more than once in a year and malfunctioning of top-level
management, which Mr. Vijay Mallya never took any serious intervention in day-to-day
operations

Rise in Fuel Prices

Since the 2008 recession, the fuel prices were soaring high, added on by the rising fierce
competition in the aviation industry which led to the continuous increase of jet fuel price.
Kingfisher Airlines was unable to clear out bills for the exiting dues which led to an increase
in 70% of the fuel expenses due to non-payment. Many vendors such as Bharat Petroleum
Corporation took the harsh way and filed a petition with Bangalore High Court.

Fuel Record Kingfisher Airlines

Year 2012 2011
Revenue 582400 649560
Expenses 294590 227400
Rev/Fuel Exp 50.58% 35.01%

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Bank Dues
Mr. Vijay Mallya reportedly took a loan of Rs. 9091.40 Crores from 17 banks. Here’s a glimpse
of the data for the loans taken from few major Indian banks.

BANK DUES
State Bank of India Punjab National Bank IDBI
Bank of India Bank of Baroda Central Bank
UCO Bank Corporation Bank United Bank of India

1600 800 800 650 550 410 320 310 430

LOAN

Delayed Salary
Kingfisher Airlines was not paying the salaries to its employees for about 4 to 5 months
starting from August 2011. Due to this reason the aircraft engineers were reluctant and denied
to approve the ‘Tech Log’ or fit to fly certificate that was imperative for the flight to take off
before every journey. As soon as this came to the notice of DGCA, it cancelled the license for
Kingfisher Airlines

Aircraft Rental Dues

Kingfisher Airlines decided to ground 16 out of the 66 aircraft due to which it was unable to
pay the aircraft rental dues in the time since the beginning of 2008.

Airport Dues
AAI reported airport dues and sent a notice to Kingfisher Airlines in February 2012

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Recommendations

Kingfisher Airlines did not have a clear brand perception between the low-cost and high-cost
carrier. If it was there then things wouldn’t be that bad.

They should have been more focussed on their star product which would have fetched them
more profits instead of unrelated diversification of airlines.

They should have employed a defined strategy for the airlines. There were continuous
changes in the management which shows the lack of improper implementation of the strategy.

There was no cost control during the operations of flights. Cost-cutting would have been done
by not providing free accessories such as earphones and other items on the flights.

References

1. https://soniajaspal.wordpress.com/2012/03/14/risk-management-failures-in-
kingfisher-airlines/

2. https://www.finnovationz.com/blog/the-fall-of-kingfisher

3. http://docshare04.docshare.tips/files/21092/210924834.pdf

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