The Rise and Fall of Kingfisher Airlines "We are committed to achieving our ambition of making Kingfisher Airlines, India's largest private airline both in capacity and market share. The Airline ushered in a new era of luxury in India's domestic aviation sector with its brand new aircraft with stylish red interiors, and smartly dressed crew and ground staff. Kingfisher was the first Indian airline to have in-flight entertainment (IFE) systems on every seat with guests being able to watch live TV in-flight" said Dr.Mallya At the launch of the airline1 The company mission also mentioned that the Kingfisher Airlines family will consistently deliver a safe, value-based and enjoyable travel experience to all our guests” was a statement made enthusiastically by Mr. Vijay Mallya2 at the time launch of the airline in 2005, which was acclaimed as a luxury airliner by many. Little would have he expected the kind of rough weather the airline was to face just a in three years, falling from a peak of highest market share 26% in 2009 to a low of 6.5% in 2011 and grounding of all the aircrafts and suspension of license in four years. It was difficult to believe that airline will be grounded for the very same reasons sons, safety and value based service3. Grounding of Kingfisher was not an isolated event. Several Airlines started after deregulation of the airline industry as a part of governments’ liberailsation policies under economic reforms initiated in 1991, had been grounded (see exhibit 1), raising doubts whether necessary care had been taken in opening the airline sector. After all starting an airline requires huge investment and closure of it does lead to wastage of precious national resources and high costs to the passenger and the country ________________________________________________________ @ Krishna Kumar 2015 Prepared by Prof. Krishna Kumar, Former Professor, IIM Lucknow and Prof. Rajkumar Kovid, IFIM, Bangaluru. The case material is inspired from a project work done by Priyamvada Singh, Krishna Jayadev, Maitree Mishra, Pushpendra Singh, Ramaiah Karumud PGP II participants of Indian Institute of Management Rohtak. 1 Background of the Company Established in 2003, Kingfisher Airlines Limited was an airline group based in India. It was promoted by the Bengaluru based United Breweries Group. Mr. Vijay Mallya, Chairman of the Group had considerable experience in managing one of the largest breweries businesses in India and had managed several acquisitions successfully (exhibit 2). The airline started commercial operations in 9 May 2005 with a fleet of four new Airbus A320-200s operating flights from Mumbai to Delhi4. It visualized starting its international operations soon. The company also owned two subsidiaries namely Northway Aviation and Vitae India Spirits. Northway Aviation was engaged in the business of financing pre-delivery payments and aircraft acquisition. By 2008 Kingfisher Airlines achieved the status of the only five star airline in the Indian skies5 and was known for providing world class in-flight services to its passengers. The Take Off The promoter of the airline was known for quality and style. At the age of 28 he took over the reins of his family business. His lavish lifestyle brought him in corporate limelight at an early age. He used his popularity to boost UB Groups brand and coined the “King of all times” slogan for his beer5a. His international foray of buying and selling Berger Paints U.K. and using the money on fast cars, yatchs and maintaining 40 odd international homes transformed him from Chairman UB Group to its brand icon. “My own lifestyle got intertwined with brand personality and so without really planning it that way I became almost my brand ambassador of and that’s just the way it’s kept on developing” he once said5b. The slogan helped him create a brand image of Kingfisher airlines right away. When Kingfisher Airlines began its operations, there was no other airline that came close to it in quality. The Indian Airline was nowhere to be quoted as a class-apart passenger carrier, so only Jet Airways was dominant players in the Indian aviation industry (exhibit 3). Other players did not matter as they were catering to low cost market. 2 Kingfisher hoped to provide superior experience in air travel and be ahead of competition in product and service offerings, with brand new aircrafts and 5-element product concept: high seat pitch, personalized entertainment, hot meals, home delivery of tickets and valet service, treating travelers not as passengers but “guests”6. With this approach, starting with 4 flights a day between Bangalore- Delhi, it grew to 104 flights a day connecting 16 cities by inducting 17 aircrafts in a single year and set a world record of fastest aircraft induction in 2005-067. By the year 2006, the Airlines became an airline synonym with five star air travel and was becoming famous among business travelers. In December 2006 Kingfisher announced that it would provide live in‐ flight entertainment which was first in its class by partnering with DTH pioneer Dish TV India Limited8. Kingfisher’s income for year ending on 30th June 2006 was INR 3.05 Billion but this amount couldn’t over shadow losses amounting to INR 3.4 Bn (exhibit 3). Aircrafts Aircrafts are one of the most important assets of any airliner. Choosing and inducting the same requires major decision making skills. Kingfisher Airlines started with an Airbus A‐320 aircraft and continued using aircrafts of the same line. Kingfisher did not acquire any aircraft of its own. All the aircrafts of Kingfisher Airline were dry leased9 one. In dry lease, the lessor (who actually owns the aircraft) gives the aircraft to the lessee (Kingfisher in this case) for a period of minimum two years without insurance, crew, ground staff, supporting equipment, maintenance, etc. The aircrafts charges thus become operational cost, which plays a crucial role in cash flow calculations. Also, since the company did not buy aircrafts, it could not command any bargaining power over Boeing or Airbus. Kingfisher’s Vision and Mission Vision and Mission of a company plays very important role in the functioning and performance of any company. Kingfisher described its mission and vision in the following way10. Vision: Value: Mission: The Kingfisher Safety, • Be the most successful Full Airline family will Service, Service, True Value airline 3 consistently deliver Happiness, operating in India a safe, value based Teamwork • Creating a following of ‘fans’ and enjoyable and and not just loyalists. travel experience to Accountability • Drive ‘Addiction’ to Kingfisher all our guests not just loyalists. • To be the Market Leader by 2010 In line with the above, to expand domestic routes and enter international routes, Kingfisher decided to increase its fleet and placed orders for many wide bodied A340-500s, A330s and A350s. It became the first carrier to sign up A380 type of Aircrafts in 200711. Although the airline experienced high traffic on metropolitan city routes like Bangalore Mumbai, New Delhi, Chennai and Kolkata, congested airport infrastructure in these state capitals limited its organic growth. Moreover, the competition was becoming intense in the Indian aviation industry12 with 5 carriers fighting one on one. IndiGo, SpiceJet or GoAir were not new entrants in the industry. They were almost as old as Kingfisher Airlines. However they had restructured themselves with time and had retained their LCC business model and had not introduced business class in their aircrafts in so many years of operations. Another problem that Kingfisher was facing was that it could not start international flights without having 5 years’ experience in domestic operation13. Jet Airways, owned by an NRI Mr. Naresh Goyal, did not have any such restriction and go straightaway go international as the government adopted open sky policy for airlines. Mr. Mallya was optimistic that the Ministry of Civil Aviation may waive this condition14. But growth could not wait for the same. By 2007 Kingfisher expanded its route network to 34 cities while doubling its frequency to 208 flights15. Besides it also introduced Kingfisher First to increase its yield16. The market share had increased to 13% in 2007 from 2% in 2005, while Jet Airways share had dropped from 45% to 22.7%.17. However, all the efforts of increasing market share were adding to company’s losses. The income for period ending 30th June 2007 increased to INR 16.2 Billion but losses also accumulated to INR 4.19 Billion. Things were pretty much on right and fast track and were almost going as per plans. Kingfisher had carried 17.5 Million passengers with a fleet of 4 41 aircrafts and a schedule of 255 flights18. With airport modernization in metro cities set to be completed between 2008 and 2010, and tough competition from a large number of new entrants and LCCs offering low fares, the carrier’s future growth depended on the ways it increased its market share. The company therefore was looking for inorganic growth to increase its market share. It was not unexpected because Mr. Mallya had successfully managed several acquisitions. The promoter of Jet Airways Mr. Naresh Goyal on the other hand had vast experience in Airlines business, but no experience in managing acquisitions. At that point there were two options available, both of low cost carriers: One, Sahara India and the other Air Deccan. Although Sahara India was established in 1991 and had 15 years standing in the field, but was fast losing market share (which had come down to a low 8%) and was also making loss19. Air Deccan was established in 2003 and grew fast capturing 22% market share by 200520. Air Deccan was working on somewhat different model providing extremely low fare based services.