PGDM Program 2020-2022

A Project Report on

Microeconomic Factors in The Crash of

Kingfisher Airlines

By

Section B Group 10

1. Suhail Ahmed Mulla – 20116

2. Tangirala Ashwini Sai Shankar – 20117
3. Tejasva Modi – 20118
4. Varun Deep Singhal – 20119
5. Muskan M – 20120

Submitted on October 12, 2020

Submitted to
Dr. Venkatraja B,
SDMIMD, Mysore
 TABLE OF CONTENTS

TITTLE PAGE NUMBER

1. Airline Industry of India 1

i. Current Scenario 2
2. Fly the Good Times” “The Kingfisher Airlines 3
i. Achievements of Kingfisher 3
3. SWOT Analysis 4
4. PEST Analysis 5
5. Factors involved in the fall of the Kingfisher Airlines 6
6. Kingfisher Airlines Was in Loss Since Inception. 8
7. Conclusion 10
8. References 11
 Airline Industry of India

Indian airline industry is one of the progressing industries globally which is due to
growing opportunities, economic progress, and infrastructure development in India.
Impactive improvement was seen in every upcoming year in both passenger and cargo
divisions. In 2017 it was found that India stands at 9 th position in terms of market size.
To progress with such a dynamic development, it is very important to have the private
players participation. Public private partnerships model is encouraged for the
development for aviation infrastructure.

Compounded
For the Financial annual Growth
Parameters Year 2020 Rate (CAGR) Growth Period
Indian Passenger 341.05 Million during FY 2016-FY
Traffic people 11.30% 2020
Domestic 274.5 Million
Passenger Traffic people 12.91% over FY 2016
International 66.54 Million during FY 2016-FY
Passenger Traffic people 5.01% 2020
2.7 Million tonnes
Freight Traffic to 3.33 Million during FY 2016-FY
grew Tonnes 5.32% 2020
Freight Traffic to reach 4.14
expected growth Million Tonnes 7.27% during FY 2023
Air Traffic 1.6 million to 2.59 during FY 2016-FY
Movement Grew million 9.56% 2020
Domestic Aircraft during FY 2016-FY
Movement 9.83% 2020
International
Aircraft during FY 2016-FY
Movement 3.57% 2020

The above table shows the growth of the aviation industry on various parameter

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 Market share of airlines across India
43%

12% 13%
11%
9%
5% 4% 5%
2% 1% 1%

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Indian aviation industry was in a tough situation in 2011 due to rise in fuel prices, and it
could not raise the fare prices due to tough competition. Aviation industry was looking
forward to governments intervention for relief.

Fake documentation by the pilots to obtain licenses was another issue. Strikes by staff to
get the pay hikes was a big chaos. Some major players like Air India stopped their
operation due to fuel deficiency. Air India’s losses went up to 15000 crores in 2010-11
from 7038 crore in 2009-10. Indigo airlines was performing well and was in profit.
Kingfisher, Jet Airways, Spice Jet were in loss of 3,735 crore in 2009-10, Rs 7,422 crore
in 2011-12, Rs 2,695 crore in 2012-13 respectively. Overall loss by the civil aviation
industry in India was project to be 2.4 billion dollars.

International Air Transport Association (IATA) suggested the government to provide

some autonomy to country’s aviation industry and free them from some restriction like
airfares scrutiny and diminishing taxes, especially on jet fuel.

Current scenario:

Because of Covid-19, daily there is a loss of 150 crore in the aviation sector of India.
We have 4,500 domestic and international flights operations daily. Central government
has halted the operations since 24 March 2020. 30% decline is displayed by aviation
industry. Losses are adding on. India stand at 5 th position in aviation market in the world
in terms of air travellers. Revenues are down by 40%.

The Federation of Indian Chambers of Commerce & Industry ( FICCI ) has come up
with some suggestions to tackle the crisis like payroll tax waver, excise duty reduction
on aviation turbine fuel (ATF), a financial package from the government. Airport
Authority of India revenue is also on the verge of reduction.
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“Fly the Good Times” “The Kingfisher Airlines”

Kingfisher Airlines Ltd was the biggest charter aviation firm in India. Started in 2003 by
United Breweries group located in Bangalore. Commercial passenger airline and private
helicopter and airplane were the main activities. Commercial operations were started in
2005 domestically. International Operations were stated in 2008. Low cost carrier Air
Deccan was their business unit which was acquired and it proved to be a bad move.
Kingfisher airlines was 5 star rated airlines by sky tax. And only 6 airlines in the world
had this rating and Kingfisher was one among them. Kingfisher was known for the
speciality services that were provided to customer for example, personal valet in
baggage handling, wide screen, audio and video in demand etc. Kingfisher first,
Kingfisher class, King club, Kingfisher express, Kingfisher lounge are the names of the
services provided by Kingfisher in various segments. Kingfisher airlines had built a
niche for itself.
Kingfisher Airlines was headed by a charismatic personality “The Vijay Mallya”. He
was a brand himself. And was able to add value to his business. Kingfisher Airlines was
in loss since its inception and was surrounded by high debts. It operated in loss making
routes and destinations. Finally, it had to close its operations and Mr Mallya fled to
London to save himself from creditors. This was the downfall of Vijay Mallya’s empire.
His debt is roughly estimated as 9000 crores.

Achievements of Kingfisher

Kingfisher had many honours for its name. Some of them are mentioned below
 Business Leadership Award for Aviation by NDTV profit
 The Brand Reporter rated it as India's Second Buzziest Brand 2008 
 Was rated as top brand in Asia and India’s favourite brand
 Brand Leadership Award.
 Avaya Award 2006 for Excellence.
 Plan man Media Rated Kingfisher Airlines amongst India's 25 Innovative
Companies in 2006.
 Skytrax Service Excellence 2005-2006 for a New Airline 
 Ranked Third in the survey on India's Most Successful Brand launch of
2005 under the Brand Derby Survey conducted by Business Standard.
 Listed in the top 100 most trusted brand in The Brand Trust Report.

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 SWOT ANALYSIS

STRENGTHS:

“Kingfisher” had achieved a good brand value. It had a niche market. It had achieved
the second highest market share. It was personalised and exceptional service provider.
It had very well trained and attractive employees. It had a very good magnitude of the
fleet.

WEAKNESS:

Kingfisher was not achieving good return on investment. It had less sales and high
investment. It was working at a high break-even point. The biggest competitor was Jet
Airways and Kingfishers load were less compared to it. Kingfisher Airlines lacked
financial discipline.

OPPORTUNITIES: Kingfisher airlines was in a growing industry i.e. Aviation

industry. Many international and domestic routes had to be explored. Kingfisher airlines
can focus more on cargo services.

THREATS
Well established International airlines firms stood as mountains for Kingfisher airlines.
Fluctuating fuel prices were acting as barriers for decision making. People are preferring
low cost carriers and forcing the airlines companies to cut the cost. When recession
occurs, the economic activities slows down and this will affect the airlines business.

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PEST Analysis

Political
We need to have a stable and strong Government which can focus on lot situation and
development opportunities which will lead to growth of business. We should maintain
good relations globally in terms of trade. We should have good safety standards and
establishments to protect the interest of our passengers.

Economic
Airlines are visualised as a luxury and in recession there will high operation costs due
to low demand and this may result in laying off the employees.

Social
We get to encounter different types of people and we must meet their requirement. We
should take care of catering, destinations, ease of travel etc to satisfy the customer. We
should make arrangement for different classes of the people like economic class, lower
middle class, upper middle class and elite class.

Technological
Technological advancements should be tracked and finding out the solution with the
help of technology to provide the services like online ticket booking, updated flight
information & handling of customer complaints etc

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 Factors Involved in The Fall of Kingfisher Airlines
Fall in Global Economy
The Great depression in 2008 occurred, leading to affect the large chunk of industries.
Revenues fell by 7%. Aviation industry was among the highly affected ones, it acts as a
major pillar of world economy. It supports 31.8 million jobs globally. Kingfisher
Airlines was already running into losses since inception. Economic crisis and the added
to the woes of Kingfisher Airlines.
Downfall in Demand
The economic crisis resulting in loss of jobs and fall in demand in industries among
which aviation industry is highly affected. Considering the demand graph, the demand
curve shift to the left. Air transportation is directly proportional to the business activities
and its revenues.
Downfall in Supply
Due to the ongoing crisis the aircraft manufacturers were also severely hit and they were
delaying or refusing to deliver the new aircrafts. As the firms were concerned about the
prices and clearance of the bills. Prices were increasing and demand was falling.

Diseconomies of Scale & Diseconomies of Scope:

United Breweries was a very large organization and was unable to focus on the new
businesses like Kingfisher Airlines. The outputs were not efficient enough as it was
expected to be. Management was unstable. Changing of CEO’s two times in a year.
Handing over the airlines to inexperienced people at later stages. Supplies were
reducing. These are the things that showcase the diseconomies of scale & diseconomies
of Scope.

Fluctuating Dollar
There was a steep rise in the dollar price in the year 2010, the dollar stood at 45.73
Indian rupees. And due to this the imports were becoming costlier and leading to higher
fuel prices.

Fuel expenditure
India is not having sufficient oil resources and for this we have to depend on imports.
And the fuel was at high rates due to many factors as mentioned above. Higher imports
will cause high fuel costs.

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 1.4

1.2

0.8

0.6

0.4

0.2

0
2005 2006 2007 2008 2009 2010 2011 2012 2013

Crude oil Gasoline automotive Diesel

Table Shows The Fuel Prices From 2005 To 2013

Rates On Y Axis Are In US Dollars / Liter

Fuel expenses of Kingfisher Airlines

Year 2012 2011

Revenue 582400 649560
Fuel expenses 294590 227400
% of revenue spent on fuel 50.58% 35.01%

From the above table we infer that amount spent for the fuel from the revenues in year
2012 in increased by 15.57%. This is not a good indicator.
Income statement of Kingfisher Airlines Private Limited in crores
Annual 2013 2012 2011
Sales 501 5493 6359
Other income 182 330 135
Total Income 683 5823 6495
Total 3548 7993 6703
Expenditure
EBIT -2864 -2169 -207
Interest 1436 1276 1312
Tax 0 -1118 -493
Net Profit -4301 -2328 -1027

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 Kingfisher Airlines Was in Loss Since Inception.
Generally, we are coming across many reasons for the loss in the Kingfisher
Airlines, which can be projected on different basis which are as follows

Government Policies:
According to experts There are 3 aspects with respect to government policies
where the care should be taken. Primarily we had undefined high taxes on
aviation turbine fuel, secondarily lack of proper infrastructure which includes the
runways and airports and parking area etc, thirdly the structure of duty on the
maintenance repair and overhaul industries which make this facility to be not
capable to perform

Operating In Non Profitable Routes:

Kingfisher airlines took very strong decisions of operating into the routes which
did not bring much profit to them. This progression backfired them. There was
huge competition from the existing players and the demand was for the low cost
carriers

Failed Exit:
In order to overcome the cash crisis, the board decided to come out of the
Kingfisher Red. Kingfisher Red was a segment of low cost. But this plan proved
to be late and did not work.

Merger With Air Deccan:

Merging with Air Deccan (later named as Kingfisher Red) was the worst ever
decision for Kingfisher Airlines. Air Deccan charged low fares whereas
Kingfisher Airlines tickets were highly charged. Kingfisher Airlines thought that
there was a high presence of Air deccan and getting the hold of it would help them
to rise in financial parameter. Merging with Air Deccan created a confusion
among customers because customers were used to the high standards that were
provide by Kingfisher Airlines and they were not sure that they would get the
same in Air Deccan too. After merging with air deccan Kingfisher airlines came
under loss of 10.2 billion in three and half years .

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 Debts:
Kingfisher got to know the mistake of acquiring Air Deccan and to rectify that,
the prices of Kingfisher Red was increased. But Kingfisher Red was also not
doing well and hence Kingfisher landed in huge debts. It had to bare the costs like
airport fee, maintenance charges, high employee costs etc.

Shut Down:
Kingfisher Airlines had to halt its operations on the directions of Directorate
General of Civil Aviation. This was because Kingfisher Airlines was unable to
pay the dues. It was bound to pay the fixed costs to resume the operations. It fixed
costs turns to become the sunk costs.

Seeking Support:
Kingfisher was looking out for financial help from Government and other lending
institutions to come out of the debt web. It was looking out for the bailout from
the government and the loans from the bank. Public sector bank sanctioned loans
but later due to continuous losses the company went bankrupt.

Exit the Market:

Finally, Kingfisher Airlines had to exit the market because of its inefficiency to
perform in the financial picture

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 Conclusion

Aviation industry is a growing industry. It is important for every firm in this

industry to keep a close account on the various factors that can create impact on
the business in present and as well as in future. The factors can be economical,
technical, political, social, geographical, historical etc. In other words, we can say
that the firms should be Holistic in nature in tackling the business challenges.
Coming to Kingfisher Airlines we can say that they could have done better and
shift their strategies to better positioning of their services which fulfil the latent
need and demands of customer. Fancy things look good but they do not last long.
External factors like the economic fall down, low demand and supply, can be
easily countered if the Kingfisher airlines had their fundamentals strong by
designing the business model which was more favorable to understand the
requirement of people and to what they are prone to.

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 References
1) file:///C:/Users/sohail/Downloads/2-6-277-630%20(2).pdf
2) https://www.statista.com/statistics/575207/air-carrier-india-domestic-market-share/
https://www.ibef.org/industry/indian-aviation.aspx#:~:text=The%20civil%20aviation
%20industry%20in,passenger*%20market%20by%202024%5E
3) http://www.businessworld.in/article/Aviation-Industry-Faced-Huge-Losses-In-2011/08-11-
2014-61552/
4) https://www.inventiva.co.in/stories/inventiva/150-crore-rupees-loss-daily-for-aviation-sector-
how-will-the-dream-of-coming-to-the-top-3-be-fulfilled/
5) https://www.business-standard.com/company/kf-airlines-27271/information/company-history
6) https://www.indiatoday.in/business/story/banks-allowed-to-utilise-mallya-s-movable-assets-to-
clear-debt-1633059-2020-01-01
7) https://www.liquisearch.com/kingfisher_airlines/awards_and_achievements
8) https://www.ukessays.com/essays/marketing/marketing-and-management-strategies-of-
kingfisher-airlines-marketing-essay.php
9) https://www.iea.org/data-and-statistics/charts/global-fuel-price-changes-2005-2018

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