Running Head: KING FISHER AIRLINES

Executive Summary

Kingfisher Airline entered the aviation industry with a great support from its parent company

loyal customers and its different approach and idea that changed the face of domestic travel.

Their premium experience and facilities that they provided on board set them apart and gave

them an edge against their competitors. But all these facilities came at a price. They

overinvested in the premium experience so much that they did not even reached their break-

even point and were working in loss ever since they started operating. They reported a loss of

$71.1 million in 2007 which rose to $735.4 million in 2013. The main reason was their

expenditures. In 2009, their total expenditure was $1,275.1 million to revenue of $906.0

million. This was same for the coming years as well. The expenses were far greater than the

revenue which resulted in net loss for the company. Although many of the airlines were

working in loss but Kingfisher was the only one which was increasing its losses ever year

while the other airlines were cutting down their expenses to cover their losses. In 2012, Jet

Airways was operating at a total loss of $ 226 million, Jet connect at a loss of $33 million,

Spice Jet at a loss of $109 million, Air India at a loss of $1400 million and Kingfisher at a

loss of $398 million. In 2013 all the companies except Jet Connect and Kingfisher lowered

their losses. In 2013, Jet Airways was operating at a total loss of $ 87 million, Jet connect at a

loss of $53 million, Spice Jet at a loss of $34 million, Air India at a loss of $800 million and

Kingfisher at a loss of $398 million. Hence, we can see that instead of lowering the losses

Kingfisher was accumulating more and more losses. There was a backlog in payment of

salaries to the employees which resulted in more strikes, hence loss of business and more

losses. Hence we see that the main approach of Kingfisher was incorrect. They were aiming

to expand further and further, hence increasing their expenses, while their revenue were not

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enough to compensate that. They should have waited to reach the breakeven point before

starting to expand their area.

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Introduction

Aviation Industry is one of the growing sectors in in world. Many new airlines are

coming in the industry but not all of them stay there for long. This case study is about

Kingfisher airlines. The Airlines is a part of one of the most successful business of the

country, United Breweries group and came out with the name of its bestselling beer,

Kingfisher. The airlines was launched with a big support from there beer customers and had

one of the biggest advantages of having such loyal customers from the start. But their lack of

research in decisions took the airline to the downfall and ultimately led to the closing of the

airline. This case study was taken because it is recent case that has happened and will give an

insight on what happened and how can it have been avoided.

Body of the paper

Kingfisher Airlines, part of United Breweries group, was established in 2003. The

parent company, United Breweries Group, holds three fourth share of the liquor market of the

country. The airline was named by the owner, Dr. Vijay Mallya, after his favorite best selling

beer (Kingfisher, 2014). They were the first to provide premium flying experience in

domestic travel in India.

The international operations of the airline started in May 2005 with four brand new air

buses on a domestic route. With that the airline became the first to commence operation with

new aircrafts. The airline had three classes of travelers, Kingfisher First, which were the

business class; Kingfisher Class, which were the economy class; and Kingfisher Red, which

was the low cost service provided by the airline (Kingfisher, 2014).

With the idea of luxury air travel where air travel was itself considered luxurious,

Kingfisher was holding the second largest market share of the air travel passenger

(Kingfisher Airline, n.d.). The airline soon expanded its fleet from 4 aircrafts to 67 and the

number of destinations to 412 during 2008-09 (Kingfisher, 2014).

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The airline advertised and followed the whole idea of luxury. They provided personal

valet on the airports for the passengers to help them with baggage handling and boarding.

There were refreshments and entertainments for the guests on the airport. There was audio

and visual entertainment on the plane for even the domestic flights. For the first class

passengers, there were alcoholic beverages, five course meal and even steam ironing service

(Kingfisher, 2014). For international flights, the services provided were even more luxurious.

For the first class, there was a chef on board; they can order food anytime during the flight.

There were in-seat massages available (Kingfisher, 2014).

The airline made a strong brand image in its starting years. All the top companies of

the country wanted their top executives to travel through Kingfisher. In 2008, the airline the

best customer service award. They were also rated by the Business World as India’s no. 1

airline in Customer satisfaction. In 2006 and 2007 the airline was voted among the countries

most respected companies (Kingfisher, 2014). By 2009, the company became the five star

airline of India, due to its consistent and quality service. In 2009, in a survey conducted by

Hindustan Times, the airline scored highest points beating all its competitors (Kingfisher,

2014).

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Air India

Jet Lite

Kingfisher Red

Go Air

Indigo

Spice Jet

Jet Airways

Kingfisher

736

745

746

752

761

773

786

794

Hindustan Times - MaRS Customer Satisfac-tion Survey

Score (out of 1000)

Fig 1: Customer survey Result

(Source: Hindustan Times – MaRS Customer Satisfaction survey, 2009)

Kingfisher Airline had a great start. They built a good brand image, had loyal

customers. But soon after the financial problems that it was experiencing came in open.

Astonished with its strong position in domestic travel and huge loyal customer Kingfisher

decided to expand internationally. They started their international operations in 2008

(Kingfisher Airline, n.d.). But their lack of judgment and less study and analysis on the

aviation industry, they incurred huge losses. When it was time to cut back on costs and

compete more effectively with low cost competition, Kingfisher bought new aircrafts to its

fleet and increased its investment. They expanded aggressively both in domestic and

international sector. They got advice to slow down their expansion even from the Ministry of

Civil Aviation officials too but they choose to expand more and more (Kingfisher, 2014).

Kingfisher airline’s competitors Jet airways and Indigo were showing growth on a

lower rate. They were keeping a track on the change in the aviation industry and choose to

grow slowly and show fewer profits as compared to Kingfisher which was showing

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continuous loss. Fig 2 shows the expenses, revenue and net income (loss) of the company

since operation (Kingfisher, 2014).

2013 2012 2011 2010 2009 2008 2007

85.7

995.81110.6

901.2 906.6

264.2 340.2

-735.4

-398

-175.7-281.6 -257.1

-32.2-71.7

417.9

15851370.6 1314.7 1275.1

Kingfisher Airlines Expenses, Revenue and Net Income (loss) in $mil

Revenue Net Income (Loss) Expenses

Fig 2: Expenses, Revenue and Net Income (Loss) of Kingfisher Airline in $mil

(Source: Kingfisher, 2014)

Kingfisher airlines merged with Air Deccan, a low cost airline which started in 2003

and was rebranded as Kingfisher Red (Kingfisher, 2014). In Kingfisher Red passengers had

to pay for everything and had to run for their seats. This caused the downfall of image for the

Kingfisher airline. Moreover, this merger caused Kingfisher a loss of $160 million

(Kingfisher Airline, n.d.).

Indian Aviation industry has never been an easy place to run planes. The costs were

very high due to high state taxes. The fuel costs were very high too. The main reason behind

the losses in the aviation industry was due to the under developed infrastructure. Out of the

total operating cost of the carrier 45% was due to fuel. Excessive taxes and increasing

investments makes India one of the costliest places to run airline (Kingfisher, 2014). Table 1

Shows the Net profit or losses that were faced by the airline companies in India during fiscal

year 2012 and 2013 (Center for Aviation, n.d.).

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Airline Net Income (Loss)

March 2012 in $mil

Net Income (Loss)

March 2013 in $mil

Indigo 23 105

Go Air (24) (15)

Spice Jet (109) (34)

Jet Konnect (33) (53)

Jet Airways (226) (87)

Kingfisher (398) (735)

Air India (1400) (800)

Table 1: Net Income (loss) in $mil during 2012 and 2013

Source: CAPA Center for Aviation

Even after its strong brand image and loyal customers Kingfisher failed to report

profit ever since they started their operation. By early 2012, the airline had accumulated a

total loss of around $1.1 billion (Kingfisher Airline, n.d.). The airline also owed $11 million

to the service tax department. Their accounts were frozen by the Income Tax department

twice till end of 2011(Kingfisher Airline, n.d.). Due to long nonpayment of salaries much of

the workforce they had were either on strike or had left the airline (Kingfisher, 2014).

Within a year the value of the share has fallen down by 80% and a net loss of $200

million was reported in fiscal year 2011 in the airlines company report (Karmali, 2011). Due

to non-payment of the loans the lessors even took possession of the airlines aircraft in 2011.

During November of the same year the airline was operating on only 13 aircrafts out of its

fleet of 64 aircraft (Airfinance Journal, 2012).

To save the airline, in the last moves, many flights were cancelled, which left many

passengers stranded. They also closed down Kingfisher Red (Kingfisher, 2014). But this was

very late. The losses that were accumulated were way greater. Finally, airline suspended its

operation in October 2012 and its license was revoked by the Ministry of Aviation in

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February 2013(Kingfisher Airline, n.d.). Fig 3 shows the number of domestic and

international flights that Kingfisher Airlines flew (Director General of Civil Aviation, n.d.).

The business was decreasing for the company as shown in the figure 3.

2012

2011

2010

2009

32,411

117,217

120,362

137,054

1,898

10,078

8,456

3,951

Flights flown by Kingfisher AirlineInternational Domestic

Fig 3: Number of Flights flown by Kingfisher Airline during 2009-12

(Source: Director General of Civil Aviation - http://dgca.nic.in/welcome.html)

Table 2 shows the decrease in the market share of Kingfisher airlines and the change

in the other airlines (Press Information Bureau, 2011; Press Information Bureau, 2012; Press

Information Bureau, 2013).

Airline 2011 2012 2013

Indigo 19.2% 27.0% 29.5%

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Air India 15.8% 18.2% 19.1%

Spice Jet 14.3% 17.8% 19.8%

Jet Airways 17.3% 19.4% 17.1%

Go Air 6.4% 7.0% 9.0%

Jet Lite 7.5% 7.2% 5.4%

Kingfisher 19.5% 3.4% 0.0%

Table 2: Change in Market Share of Different Airlines

(Source: Press Information Bureau, Government of India - pib.nic.in)

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Conclusion

Kingfisher Airline started their operation with a great start. They had a great advantage of

having loyal customers before they launched the airlines. But their lack of study and analysis

of the changing aviation industry along with their aggressive growth in domestic as well as in

international market caused their downfall. They continued to expand even before they came

to their break-even point (Kingfisher, 2014). This cause them to keep on accumulating losses

as shown in fig 2 and finally resulted in closing down of the airline. Instead of trying to

increase the profit the company way aiming at growing the airlines and that made the

accumulation of losses more. In table 1 we can see that as every other company successfully

decreased their losses Kingfisher airlines increased their losses by almost 200%. In Table 2

and Fig 3 shows the continuous decrease in the number of flights and the market share of

Kingfisher airline, which shows that their strategy of growing was incorrect and lacked study

of the industry.

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References

Airfinance Journal (June 2012). Kingfisher Faces new Challenges. Issue 252, pp. 158.

Retrieved from: http://web.a.ebscohost.com/ehost/detail/detail?sid=71745035-386a-

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Center for Aviation (n.d.). Retrieved from: http://centreforaviation.com/

Director General of Civil Aviation (n.d.). Retrieved from: http://dgca.nic.in/reports/stat-

ind.htm

Hindustan Times – MaRS Customer Satisfaction Survey (2009). Retrieved from:

http://www.marspvt.net/Marsproj/HT-MaRS-AirTravellerSurvey%20(HT).pdf

Karmali, N. (November 2011). Vijay Mallya Struggles to keep Kingfisher Airlines aloft.

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Kingfisher – King of good times forced to leave the sky castle (March 2014). MarketLine. Pp

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Kingfisher Airlines (n.d.). Retrieved on March 1, 2015 from Wikipedia from:

http://en.wikipedia.org/wiki/Kingfisher_Airlines

Press Information Bureau (2011). Retrieved from:

http://pib.nic.in/archieve/others/2011/feb/d2011022103.pdf

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Press Information Bureau (2012). Retrieved from: http://pib.nic.in/newsite/erelease.aspx?

relid=86258

Press Information Bureau (2013). Retrieved from:

http://pib.nic.in/archieve/others/2015/jan/d2015011901.pdf