A presentation into the reasons for the failure of Kingfisher Airlines.

1. A RESEARCH INTO THE REASONS FOR
THE FAILURE OF
KINGFISHER AIRLINES
Rohan.S.Telang
Ankita Agrawal

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Contents…
1. Indian Civil Aviation Industry
2. UB Group Introduction
3. Kingfisher Airlines
4. Reasons for failure:
• Operational Failures[3]
• Marketing and Branding Misses[4]
• Financial Challenges[6]
• Strategic Failures[4]
5. Conclusion

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Indian Civil Aviation Industry…
• 1953 – 1992: Air India and Indian Airlines(government owned and operated).
• Liberalisation: Damania, EastWest, Jet, Sahara, Modiluft and NEPC.
• March 1994, they accounted for 24% market share.
• Air Deccan introduced the “low cost “ airline model, in 2003.
• India is the 9th largest aviation market in the world with a size of US$16 billion
and is poised to be the 3rd biggest by 2020.
• Foreign equity up to 100% allowed in airport development.
• FDI up to 49% allowed in domestic airlines by foreign carriers.

4. Source: DGCA
Market Share: Indian Civil Aviation Industry…
Marketing Research 4

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Bottlenecks: Indian Civil Aviation Industry…
• Lack of infrastructure: Airports and allied services
• Airport landing and navigation charges at Indian airports were 50% higher than
international benchmarks and the highest in the world
• Bargaining power of suppliers: Only 3 ATF suppliers
• Unregulated ATF prices, sold at 51% higher than international market prices
plus transportation and marketing cost. State governments taxed ATF at a higher
rate (as much as 34% ) as they saw aviation as a luxury industry.
• To cover ATF prices, airlines started adding fuel surcharge to the price of
tickets. By June 2008, the surcharge had risen to Rs 2250 for travel of less than
750 kms and Rs 2900 for more than 750 kms.

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The UB Group…
Founded - 1857
Chairman - Dr. Vijay Mallya
Headquarters - UB City, Bengaluru
Products
Breweries, Alcoholic Beverage, Trading, Aviation, Chemicals & Fertilizers
Subsidiaries
• United Breweries Ltd
• United Spirits Ltd
• Kingfisher Airlines
• Mangalore Chemicals & Fertilizers Ltd
• UB Global ( Trading Company )
• UBICS, Inc

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Kingfisher Airlines…
VISION: “The Kingfisher Airlines family
will consistently deliver a safe, value based
and enjoyable travel experience to all our
guests.”
Chairman: Vijay Mallya
CEO: Sanjay Aggarwal
HQ: Mumbai

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Timeline: Kingfisher Airlines…
2005:
Started operations.
2006

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Kingfisher Airlines…
2006: To provide live
in‐flight entertainment
partnered with DTH
pioneer Dish TV India
Limited
2007: December 19th
2007 Kingfisher
Airlines acquired
entire 46% of Deccan
Aviation to start
international flights.
2007: Income
statement post
merger with
Deccan.

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Kingfisher Airlines…
2008:Kingfisher Airlines finally got permit to operate on international routes and
on September 2008 first flew overseas from Bangalore to London.
2009: The shareholders were waiting for the
dividends since four years but it continued
with losses.
2010: Kingfisher announces flights to
Europe despite losses. And indigo started
gaining market share.

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Kingfisher Airlines…
2011: The income for year ending 31st December 2011 stood at approx. INR 13.4
Billion which was lowest since 2007 and the losses increased sharply to INR 4.
4 Billion. They simply blamed rising fuel costs. Many pilots left the company for
rival airlines.
2012: October 2012,
operations ceased.

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Losses: Kingfisher Airlines…

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Reasons for Failure…

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Operational Failures…[3]
1. Maintenance, Landing and Navigation Cost : Kingfisher Airline’s cost of
maintenance than Jet Airways, was about 2% higher in 2011 and 3% higher in 2012.
Source: Money Control
Rs. In Lakhs

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Operational Failures…[3]
2. High Overhead Costs : In 2012, Kingfisher Airlines had 5,696 people working
for them vis-à-vis 13177 employees by Jet as on 31st March 2012. The % was much
higher than other airlines.
Rs. In Lakhs

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Operational Failures…[3]
3. High Cost of VAS : KFA’s cost for VAS were much more than other airlines,
while they focused less on scheduling, connectivity, cleanliness and low price, the
basic needs of Indian Customers.`[in premium as well as LCC services]

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Marketing and Branding Misses…[4]
1. Hierarchy of Needs: Fulfil lower order needs first

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Marketing and Branding Misses…[4]
2. Ignored points of parity: Basic expectations to be met first.
Source: IIMB Survey

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Marketing and Branding Misses…[4]
3. Kingfisher Brand Identity: [Kingfisher First: Premium], [Kingfisher Class:
Premium Economy], [Kingfisher Red: Low cost].

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Marketing and Branding Misses…[4]
3. Kingfisher Brand Identity: [Kingfisher First: Premium], [Kingfisher Class:
Premium Economy], [Kingfisher Red: Low cost].
Is Kingfisher Red confusing? Survey results on word association with Kingfisher.
Source: IIMB Survey

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Marketing and Branding Misses…[4]
4. Brand Loyalty in LCC: It has been found that consumers tend to stick to an
LCC if they perceive it to be reliable.
Source: IIMB SurveySurvey results on why people do not prefer Kingfisher Red.

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Financial Challenges…[6]
1. Bank Dues: 7000 Crores plus

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Financial Challenges…[6]
2. Fuel Dues:
Source: KFA/Jet Annual Report
Also for Kingfisher Airlines fuel payments in 2012 was 31.78% of their total
expenditure and was 28.37% in 2011.
Rs. In Lakhs

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Financial Challenges…[6]
2. Fuel Dues:

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Financial Challenges…[6]
3. Delayed Salary : KFA delayed salaries in Aug 2011 and there was a point when
salaries to employees were due for more than 4-5 months(Oct’11- Jan’12), Engineers
refused to sign the ‘Tech Log’, which is mandatory to certify that aircraft is fit to fly
before every flight. When this was brought to the attention of DGCA, they cancelled
the KFA license.
4. Aircraft Rental Dues : Since 2008, KFA was unable to pay aircraft rentals on
time. Due to that 16 out of 66 aircrafts had to be grounded.
5. Airport Dues : AAI sent notice to KFA in Feb 2012 regarding accumulated dues
of 255.06 Crs. The airline was operating on cash & carry for the last 6 months with
daily payment amounting 0.8 cores.
6. Service Tax Dues : On 9th Dec 2011, Central Board of Excise and Customs
announced that they would take legal action against Kingfisher for not paying
service tax. On 10th Jan 2012, KFA had service tax arrears of 70 cores.

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Strategic Failures…[4]
1. Unrealistic Market Analysis: “Luxury sells”, was a mistake.
2. Unrelated Business Diversification: Liquor to Airlines..? Inexperience.
3. Merger with Air Deccan:
• Higher operational costs post merger
• Hurry in internationalisation.
• Brand identity: Premium or Economy..?

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Strategic Failures…[4]
4. Diversified Aircrafts: Diversified Aircrafts with different Capacities vis-à-vis
standardized aircraft of other Airline companies.

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Strategic Failures…[4]
4. Diversified Aircrafts:
Effects

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Conclusion…
• Putting personal image/ preferences over the interest of organization and all
stakeholders.
• Failure to understand the aviation industry and thinking that the success of one
can easily be replicated in the other.
• Failure to understand and estimate the changing trends, consumer preferences
and cost curtailing to improve profitability.

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Conclusion…
• Expanding beyond the core competencies and getting into denial of risk when
things start going wrong.
• Failure to communicate priorities in a clear, concise and compelling manner.

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Thank You…