Case Study: Kingfisher Airlines: Are the

good times over?

Airlines : Journey so far.
Contents
JOURNEY TILL DATE.....................................................................................................................................3
Jo Sasta hai woh bikta hai................................................................................................................5
Competition.....................................................................................................................................5
In-flight interruption........................................................................................................................5
Acquisition of Air Deccan.................................................................................................................5
Fair fares..........................................................................................................................................6
High Fuel Costs................................................................................................................................6
IS FDI IN AVIATION A SAVIOUR FOR KINGFISHER?.......................................................................................6
FAILURE: A REALITY OR A BUSINESS GIMMICK............................................................................................8
CONCLUSION...............................................................................................................................................8
References:................................................................................................................................................10
Kingfisher Airlines: Too big to fail, too big to save, The Economic Times, 21 November 2011........10
FDI in Aviation: Foreign Airlines on wait and watchmode,Business Today....................................10
India's Incredibly Shrinking Kingfisher Airline, Forbes Issue, February 2012...................................10
Mallayas Kingfisher saga: A case of losing control or expert manipulation, Business Standard, 14
April 2012..................................................................................................................................................10
TEACHING NOTE........................................................................................................................................11
Case Objectives......................................................................................................................................11
Assignment Questions...........................................................................................................................11

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Case Study:
Kingfisher Airlines: Are the good times over?

This is a world class experience, all at an affordable price. We are not a low-cost carrier and we
do not intend to be one.

We have broken the shackles of conservative socialism. The growing middle classes want the
kind of standard of living you enjoy in the West. So what I am selling is lifestyle. -

Vijay Mallya

Kingfisher Airlines Limited is an airline group based in India. Its head office is in Andheri (East),
Mumbai and Registered Office in UB City, Bangalore. Kingfisher Airlines, through its parent
company United Breweries Group, has a 50% stake in low-cost carrier Kingfisher Red. It is Indias
fifth largest passenger airline that primarily provides national and international, short and long
haul, high-frequency, medium to high fare service. Kingfisher Airlines was established in 2003.
The airline started commercial operations in 9 May 2005 with a fleet of four new Airbus A320-
200s operating a flight from Mumbai to Delhi. It started its international operations on 3
September 2008

In May 2009, Kingfisher Airlines carried more than 1 million passengers; giving it the highest
market share among airlines in India.Kingfisher also won the Skytrax award for India's best
airline of the year 2011.

Kingfisher Airlines is also the sponsor of F1 racing outfit, Force India, which Vijay Mallya also
owns.

JOURNEY TILL DATE

Kingfisher Airlines (KFA) was launched in 2005 with much fanfare was termed as the first full
frills true value carrier and one word that people associated it with is Experience Dr Mallya
has lived a life in style and wanted his passengers to fly in style. He provided the means for that.
The company had identified over 300 touch points right from the first brand contact via travel
agent or its website to smartly dressed Kingfisher help at the airports to the entire in-flight
experience with Live TV and meal offering with about six different types of choices on the
menu. All this lead to its promise: Experience.

KFA today offers three unique classes of service -Kingfisher First, Kingfisher Class and Kingfisher
Red. Kingfisher First is the business class service of KFA focused on business class passengers

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who are willing to spend for premium services. Kingfisher Class is the aspirational premium
economy service of KFA focused on the growing middle-class that is trendy, savvy and upwardly
mobile. Kingfisher Red is the low fare service of KFA focused on the growing middle class who
are price conscious. KFA has carved a distinct position for itself by its flamboyant lifestyle image
and by offering a great flying experience with comfort seating, personalized entertainment and
services to its passengers

Market segmentation was right SEC A, SEC B in the age group of 25-45 years and married
young professionals with kids in the age group of 20-35 years with an annual income of more
than Rs. 7 lakh and were aspirants of flamboyance. An all women in-cabin crew,Flying Models
wore designer red short dresses. Advertising was at its peek. Deepika Padukone was hired as
the face of the brand. Kingfisher Airlines continued its run of the being the nations largest
passenger carrier and was having a healthy market share of 22.9% with 11 Million passengers
flying with Kingfisher.

During the year 2009 Kingfisher won numerous accolades from agencies around the globe and
continued being rated as Indias only Five Star Airline by Skytrax for three years in a row. It had
been 4 years since birth of Kingfisher Airlines and shareholders were still waiting to receive first
dividend from the company but company continued its run of losses and reported a marginally
increased losses of INR 16.4 Billion and gross income shrunk to INR 52.7 Billion for year ending
March 31st 2010.

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WHAT WENT WRONG?

KFA is more of a business failure than a marketing failure. The only marketing failure that can
be find out in the entire gamut of things was the takeover of Air Deccan and formation of
Kingfisher Red and thereby diluting the brand value, KFA stood for.

Jo Sasta hai woh bikta hai : Dr Mallya wanted to change the thought or wanted us
to believe that airlines were no more a means of going from place A to B.But the general
middle class and also upper class in India consider travelling as a means of transport
.There is a few selected class that wouldlike to pay extra for getting luxury while
travelling.
Competition: Aviation Industry is presently in the state of more supply and
lessDemand.Indigo,Spicejet, GO Air offered comfortable flights at the same time as
Kingfisher did. They were almost as old as Kingfisher Airlines but what new about them
was that they had restructured themselves with time but had always stayed on course
with it comes down to business model. There is still a big class of people who prefer to
travel by Indian Railways and therefore the strategy of Kingfisher was more suited for
the Business class customers .With the Launch of Kingfisher Red their entry into the Low
Cost Carrier (LCC) segment did not prove to be a success.
In-flight interruption: Unlike road or rail transport, where theres much of scenery
around to keep you busy, flights are usually boring. Much of the travel through flights
between metros is covered in less than two hours. In-flight entertainment or a movie is
started only after the seat-belt signs are off. And then theres interruption of meals being
served. Most passengers on domestic flights are not looking forward to in-flight
entertainment. Offering in-flight entertainment to keep one busy for two or more hours
was/is a smart move, but it adds up to infrastructural costs. A tie-up with DishTV for live
entertainment meant installation of more than 50 customised dishes on aircrafts.
Offering free headphones was also an added cost for the company.
Acquisition of Air Deccan: Kingfisher Airlines decided to introduce Kingfisher Red
and then it automatically entered into a price war against all other carriers especially
domestically. Airline business has extremely long gestation periods. For Kingfisher, Air
Deccan was a totally new business so it should have considered that Kingfisher Red will
take some years to completely reap benefits of being a low cost carrier but Kingfisher
believed that Air Deccan had been in the market much before Kingfisher Airlines so it
should bring Kingfisher Airlines financial statements into green very soon. The business
fliers which were earlier loyal to Kingfisher Airlines used all their frequent flier miles,
bought free tickets, gave the same to their families and did not return back. As soon as
Kingfisher realised that they had committed a mistake by changing model of Air Deccan,

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 it in a haphazard way increased prices of Kingfisher Red and brought the same on par
with other airlines. At this point of time Kingfisher Red had become a lost opportunity
and even the management was confused if it would call it a normal carrier or a low cost
one. Finally in February 2012 the brand Kingfisher Red was officially declared non-
functional, marked one of the biggest examples of failed consolidation and became a
land mark failure in terms of mergers and acquisitions.
Fair fares: While KFA truly offered a premium and luxury service it took pride in
calling itself a budget airlines. It refrained itself from calling itself an LCC (Low-cost-
carrier) as though its fares were higher than the LCCs, it kept its fares lower than Jet
Airways, Indian Airlines (now Air India) and the erstwhile Sahara.
High Fuel Costs: Amidst this all, Dr Mallya forgot that he was operating in a business
where fuel costs are variable and taxes are discretionary. Add to all this the costs of high-
blitz advertising, including the deal with Ms Padukone, putting up exclusive lounges at
airports, gourmet cuisine, tele-booking centres in Kingfisher First, aircraft costs,
acquisition costs of Air Deccan and what not. It was a clear case coming true of the
Indian proverb: Aamdani atthani, kharcha Rupaiya.

IS FDI IN AVIATION A SAVIOUR FOR KINGFISHER?

Presently, the aviation market of India is the ninth biggest aviation market in the whole world,
and has been growing fast with a rate of over 15% every year during recent years. The domestic
aviation market of India too has been growing rapidly, and is estimated by IATA (International Air
Transport Association) to emerge as the third biggest domestic aviation sector in the world by
the year 2020, after USA and China. Hence, on the whole, FDI in aviation in India, is going to be

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hugely popular and preferred by foreign aviation companies and investors, because of being
very profitable and secured.

After a long discussion from time to time, Government finalized 49% investment by foreign
companies in the aviation sector. The foreign carriers have so far not been allowed to directly
invest in Indian carriers for security reasons, although 49 percent FDI by non-airline players was
allowed. Soon after it was finalized in September 2012, the shares of all the airlines soared
high. Scrip of the cash-strapped Kingfisher Airlines touched its circuit limit of Rs.12.97 or an
increase of 19.98 percent and closed at the same level from a previous close of Rs. 10.81.

According to Vijay Mallaya, FDI in airlines would open up a wide range of opportunities for both
domestic as well as foreign carriers which wish to participate in the strong growth potential for
civil aviation in our country. He described it as a bold and fantastic move by the government.
The Indian civil aviation sector has been going through a tough operating environment as high
fuel and interest costs have hurt it. The government expects that the decision will help bring in
more funds to the airlines which have been cold shouldered by banks.

The decision is expected to help airlines like Kingfisher to regain capital and resume full services
which were affected due to its bad financial health. Other Indian carriers too require funds for
expansion and to gain market share.
Sharan Lillaney, aviation analyst at Angel Broking said that Spice Jet was a good buy for
international airlines as the airline had very little debt and was the fastest in the growing sector
which is low cost. So valuation of Spice Jet was going to be very attractive.

Kingfisher is very keen to attract foreign investors as it is the last hope for the company. (ADD
SBI LINE) In Kingfisher's case, they need to recast their debt and restore complete operations for
the international investors to develop interest.. The decision to bring in FDI in aviation got a
rather lukewarm response. While cash strapped Kingfisher airlines welcomed it and their morale
is up for now, several foreign players were more circumspect. But the big question who will
invest in Indian carriers with struggling finances? Sources at Kingfisher airlines said that talks
with either Qatar or Etihad airlines would now resume. Kingfisher reported losses of over Rs
2,000 crores. The investment through FDI would be automatic and they would have to get
clearance from the ministry and FIPB. Also according to 1937 aircraft rules the 3/4th of the
directors to be Indian and Chairman has to be Indian. India has to hold sustentative amount of
investment in that airline.

It is believed that by allowing FDI from foreign carriers, the government has opened up new
avenues for fund raising by domestic carriers who are currently finding it tough to raise money
from banks .According to Jitendra Bhargava, Ex ED, Air India, before taking a decision of injecting
money, the CFO of a foreign carrier will see whether the airline will get returns or not. With

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Kingfishers market share at 3.5%, they need to build that market share. India is a price sensitive
market; by keeping your fares very low, it would mean bloodbath in the Indian aviation market
again.

FAILURE: A REALITY OR A BUSINESS GIMMICK

The unanswered question is that Is Kingfisher seriously facing this situation or is just
manipulating the situation? It can be that grounding over 75 per cent of the airlines fleet,
rolling-back almost all international operations, not paying his employees salaries till sometime
back and delaying outstanding payments may be some of the pressure points that he may have
managed to create for the government to clear the FDI policy on aviation. But the question is,
why would he be doing this all by himself? The answer is simple. No other airline in India was in
real need of the FDI policy that would allow foreign airlines to pick up a stake in an Indian
carrier.

Jet Airways seems well funded, with Naresh Goyal in no mood to raise fresh equity as he sits
tight on a promoter holding of over 80 per cent in his airline. Indigo is well on track with its IPO
plans and a time-tested, profitable expansion plan. SpiceJets largest shareholder, Kalanithi
Maran is in no hurry to either cash-out or launch aggressive expansion plans given the airline is
making money. This leaves Kingfisher Airlinesthe only one that is not only bleeding but
requires a massive revamps and fund infusion. Having exhausted all fund raising options, roping
in a foreign airline is Mallyas only way out.

For those who think that the cash-strapped Kingfisher Airlines will have no takers, consider this:
KFA has a fleet comprising 12 owned aircraft, owns substantial prime slots on trunk routes like
Mumbai-Delhi and had a market-share of around 29 per cent prior to shrinking its operations.
Kingfisher has tactfully given up unprofitable slots in smaller cities or excess ports, and is
expected to find them vacant once it resumes full-fledged operations in its new avatar. Only
days before the IPL season, Mallya successfully managed to placate his agitated airline
employees by paying them their salaries. Within a span of one week, the DGCA was satisfied
with the airline's explanation on why its licence should not be cancelled, Mallya's leading
bankers came out in the open to say that KFA can be revived, and tax authorities un-froze his
account.

CONCLUSION

Kingfisher Airlines' billionaire chairman continues to own one of the world's most expensive
yachts, a luxury Kingfisher villa in Goa, and dozens of vintage cars worth millions, and a cricket
as well as a Formula One team. His $4 billion group comprising breweries, biotechnology and
real estate businesses continue to remain technically unaffected.

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Kingfisher Airlines in now continuing on its previously stated Holding Plan with a limited fleet
and simultaneously progressing on its aircraft reconfiguration plan to contain losses in this very
tough operating environment for the Indian aviation industry. The company has a focused fleet
re-induction plan and hopes to be back to full-scale operations in the next 12 months backed by
a recapitalization plan that the company is actively pursuing and confident of achieving.

So, it seems that can Mallaya stop dining with football and Formula One stars, shooting with
super models on exotic locations? Kingfisher airlines is still a mystery which will be clear in the
coming future. Is FDI going to be beneficial for the airlines or has the company adopted means
to force Government to implement FDI in Aviation? Time will be the best judge.

Exhibit 1:

Exhibit 2:

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References:

Rajiv Fernando, Surekha Pothraju, "Kingfisher Airlines - The 'Funliner' experience", 2006.
Ixigo.com, "Kingfisher Red airlines overview"
Mithileshwar Jha, Brand Management: The Kingfisher Airlines Saga, IIM-B
Management review
Dhaleta Surender Kumar, Kingfisher airlines is not a marketing failure.
Bhavik M. Panchasara, The King without fishes, Volume 3, Jan-April 2012,Baudhhik
Publications.
Kingfisher Airlines: Too big to fail, too big to save, The Economic Times, 21 November
2011.
FDI in Aviation: Foreign Airlines on wait and watchmode,Business Today.
India's Incredibly Shrinking Kingfisher Airline, Forbes Issue, February 2012.
Mallayas Kingfisher saga: A case of losing control or expert manipulation, Business
Standard, 14 April 2012.

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TEACHING NOTE:

Is it the bad time for the aviation Industry? Indias aviation stocks were down after oil marketing
companies increased fuel rates by more than 7 percent. Be it Jet Airways, Spice Jet or the most
talked about company Kingfisher Airlines all have been facing a downfall. KINGFISHER AIRLINES
is a major airline based in Mumbai, India. It is Indias fifth largest passenger airline that primarily
provides national and international, short and long haul, high-frequency, medium to high fare
service. Kingfisher Airlines was established in 2003 and owned by the Bangalore based United
Breweries Group. The airline started commercial operations in 9 May 2005 with a fleet of four
new Airbus A320-200s operating a flight from Mumbai to Delhi. It started its international
operations on 3 September 2008 by connecting Bangalore with London. The company talked
about providing Experience of a lifetime to their passengers. Today, the experience is turning
out to be a nightmare for both Dr Vijay Mallya and the passengers, with flights being grounded,
pilots, cabin crew and ground staff on a mass exodus due to non-payment of salaries for
months. While Dr Mallya is in talks with all banks, government and foreign airlines to resurrect
the sinking airlines, there are questions being raised if KFA was a marketing disaster or the good
times over for the company.

The case discusses about the journey of Kingfisher airlines and the reasons behind the downfall
the company has been going through in the current times.

Case Objectives:

To get an insight on the current position of the aviation Industry

To know about the reasons for the downfall of much talked about Kingfisher Airlines.
Discussing about FDI in aviation and how Kingfisher can benefit if there are foreign
players entering our aviation Industry
Taking a different perspective that Kingfisher might be manipulating things and all the
downfall can be a part of a well crafted strategy.

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Questions which need to be discussed :

1. Mr. Vijay Mallaya in a recent interview said We've not asked the government to dip into
the taxpayers' coffers to bail out Kingfisher. We've never done that; we will never do
that. What according to you are the reasons for such bold statements in such a critical
scenario for Kingfisher?
2. Apart from Competition, high fuel prices, role of Government what can be the other
factors that led to the downfall of Kingfisher airlines.
3. Government has allowed 49% FDI in the aviation sector but the foreign airlines are in a
wait and watch mode. Will this step by the government help to revive the sunken
sector?
4. According to you, what is the future of Kingfisher airlines: will it survive or die a natural
death?
5. State Bank of India (SBI) officials would meet the founders of Kingfisher Airlines as there
is an outstanding debt of $1.4 billion. Is this a strategic move by the company or a real
scenario?

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