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Kingfisher Airlines:
From Top to Bottom Organizational Behaviour Term Paper
Chetan Bhawsar INDIAN INSTITUTE OF MANAGEMENT ROHTAK
Group 10
PGP04103 Anjali Burad
PGP04107 Balaji R.
PGP04108 Bommala Ujjwal
PGP04109 Chetan Bhawsar
PGP04110 Devender Yadav
PGP04111 Ramya G.
Kingfisher Airlines: From top to bottom
Introduction Aviation industry is one of the industries which is observed as high revenue generator and at the same time
it involves a huge risk. As the industry spread its wings and flying high in generating the revenue it
attracted many players to venture into the industry. Among those lies the Kingfisher Airlines which was
started by Vijay Mallya, the liquor tycoon. Kingfisher Airlines was established in 2003, commercial
operations in May 2005 and international operations in September 2008. In these 10 years it has seen many
phases and drastic changes in the industry. In 2011, Kingfisher Airlines cancelled 35 flights for the first
time and the chairman and managing director of Kingfisher Airlines disclosed that the Company has
incurred substantial losses and its net worth has been eroded. In this paper, we will discuss how aviation
industry in India is prevailing and under what circumstances Vijay Mallya entered aviation industry, its
inter-organisational relationships with Air Deccan and also the relationships with the employees,
customers, suppliers and shareholders.
Indian Aviation Industry Indian Aviation Industry is one of the fastest growing airline industries in the world. In December 1912,
the history of Indian Aviation Industry started with its first domestic air route between Karachi and Delhi
in collaboration with the UK based Imperial Airways as an extension of London-Karachi flight of the
Imperial Airways. Later Tata Sons Ltd., the first Indian airline service, started regular airmail service
between Karachi and Madras. Nine air transport companies were carrying both air cargo and passengers in
the Indian Territory during the period of independence. In 1948, the Indian Government and Air India set
up a joint sector company, Air India International to further intensify the Aviation Industry of India.
Indian Airlines (IA) brought the domestic civil aviation sector under the purview of Indian Government as
part of nationalization in 1953. Later till the mid 1990's government-owned airlines dominated Indian
aviation industry. But when the government adopted the Open-sky policy in 1990 and other liberalization
policies the Indian Aviation Indian made underwent a rapid and dramatic transformation. By the year 2000
numerous private airlines have entered into the aviation/airline business in succession and still many more
were about to enter into the arena.
The classification of Indian aviation sector can be broadly divided as follows:
Scheduled air transport service which involves domestic and international passenger airline
services.
Non-scheduled air transport service which consists of charter operated flights and air taxi
operators.
Air cargo service which involves air transportation of cargo and mail.
Aviation industry as a whole generates 56.6 million jobs and revenues more than 2.2 trillion US$ for
global gross domestic product (GDP) of which Indian airline industry contributes 1.4million direct jobs
and 7 million indirect jobs. There are about 1091 registered aircrafts and a total of 132 airports in the
country, which include 14 international airports, 7 custom airports, 83 domestic airports and 28 civil
enclaves are managed by The Airport Authority of India (AAI).
India is currently the 9th largest aviation market handling 121 million domestic and 41 million
international passengers. Today, we have more than 85 international airlines operate to India and 5 Indian
carriers connect over 40 countries.
The traffic of air passenger in India is increasing on a tremendous speed. Currently, India’s airport
infrastructure is undergoing modernisation with the induction of highly sophisticated and most advanced
facilities and infrastructure which includes setting up of new Greenfield airports and installation of
security, air traffic navigation systems and surveillance. Among the existing air carriers, IndiGo lead in
terms of market share with 29.7 per cent of the total market share, followed by Jet Airways-Jet Lite
combine at 25.3 per cent of market share. Next place is taken by Air India Domestic which holds 19.2 per
cent followed by Spice Jet at 17.5 per cent and finally Go Air at 8.3 per cent for the financial year of 2012-
13.
From April 2000 to July 2013, the aviation industry (including air freight) in India has attracted foreign
direct investment (FDI) worth US$ 456.84 million as per the data released by Department of Industrial
Policy and Promotion (DIPP).
Kingfisher Airlines Background Kingfisher Airlines was set up in May 2005 by the flamboyant liquor baron Vijay Mallya. It started
operations with its major base in Bengaluru and secondary base in Delhi and Mumbai. Originally it was
conceived as a low cost model, but Mallya was quick to morph it into a full-fledged classy carrier keeping
more in line with Mallya’s style. From the very beginning, Kingfisher went head on to pose competition to
the 12 year old market leader-Jet Airways, Kingfisher quickly expanded its fleet and served 34
destinations. It had raked in INR 13.5 billion by year 2007. In 2010, Kingfisher ordered 50 wide bodied
aircrafts (including the A380 & A350) for a well-planned international expansion. Up until December
2011, KFA managed to retain its ‘5 star’ airline tag and it held the 2nd largest share in the domestic market
of India.
Kingfisher Crisis as and when it happened
ONSET 2007: Things were going pretty much as planned. KFA had already carried 17.5 million passengers in its
diverse fleet of 41 aircrafts, on 255 scheduled flights. But the losses had stacked to a huge amount of more
than INR 4 billion.
KFA decided to buy 46% share of Air Deccan, which worked on a totally opposite business model of
providing extremely low fare services. Through this reverse merger Kingfisher Airlines became Air
Deccan and after the entire acquisition was complete, with the help all necessary approvals from SEBI in
place, Mr. Mallya quickly changed the airline's name back to Kingfisher Airlines in 2008.
2008: KFA was growing at a fast rate and was annually carrying 10.9 million people with a fleet of 77-
aircrafts, and 412 daily domestic flights. This year, they got their international license and flew overseas
for the first time from Bangalore to London.
Financial statements for the year ending March’2009 were supposed to be consolidated statements of both
KFA and Air Deccan, hence the revenue increased manifolds to $55 billion, but so did the losses which
reached a staggering $16 billion.
2009: KFA continued its run of being India’s largest airline with a healthy market share of 22.9% with
around 11 million passengers travelling in the last fiscal year. After anticipating a dip in the travel
segment, KFA reduced its fleet to 68 aircrafts from 77 and cut down to 366 destinations. Kingfisher also
decided to lay off nearly 100 pilots and hiked fuel surcharges. But overseas operations were increased
significantly to 12 flights daily. KFA also won numerous awards and accolades and was rated as India’s
only “5-Star Airline” by Skytrax, for three years in a row. It had also been 4 years since its birth and
shareholders were still waiting to receive their first dividend but the company continued to run in losses
and reported a loss which stood at around INR17 billion and the revenue shrunk to INR 52.7 billion as per
the financial statement of March’ 2010.
WORSENING 2010: The clouds over KFA grew darker with Jet Airways re-establishing its #1 position in the market with
a 25.5% market share, leaving KFA at 19.8%. By this time, IndiGo had also started establishing its grasp
over the Low cost segment and was rapidly gaining market share. KFA’s domestic flights remained same
at 366 but international operations were increased to 28 flights per day. In spite of increase in the number
of flights, KFA failed to increase its market unlike its other competitors and this should have been taken as
a warning alarm but company let it go unnoticed. The airline reported that they had lowered their losses to
INR 10.2 billion. But however, this claim was later proved to be invalid. In September, Sanjay Aggarwal,
former CEO of SpiceJet, was appointed as CEO. Mr. Mallya also announced that staff would be further
pruned. In November, Kingfisher Airlines Board approved debt recast package and KFA’s debt stood at
over Rs 6,000 crore.
2011: For the first time, KFA announced that is was having some serious cash flow troubles and it blamed
it on the rising fuel costs and taxes. But since KFA was not paying its dues to oil companies, this claim
seemed wrong, Oil companies now refused to supply Aviation Turbine Fuel on credit basis. Delayed
salaries caused dozens of pilots and hundreds of crew to leave KFA for other airlines. Finance companies
estimated that KFA needed $159 million in equity in order to restructure their debt. But KFA’s top brass
believed that the situation was under control, but it eventually slipped out of their hands. Income fell to the
new low INR 13.4 billion, but losses also doubled to INR 469 Crore for the September 2011 quarter. Mr
Mallya decided to exit the low cost business towards the end of September. On November 20th, Mr
Vayalar Ravi, Minister of Civil Aviation, said that the Centre had no plans for any package to salvage the
airlines. In December, Mumbai International Airport Pvt. Ltd. froze 11 KFA accounts for non-payment of
INR 70 Crore dues, which were later de-frozen part-payment of the service tax dues.
2012: The most turbulent time for KFA had arrived. By January, the largest creditor of cash-strapped
KFA- State Bank of India- had declared it as a Non-Performing Asset. KFA owed SBI a staggering INR 15
billion. Revenue dept. also threatened to take KFA to the court over alleged service tax evasion, saying the
company has not deposited taxes it collected from travellers. Mr. Mallya, the man himself, declared that
the company was in dire need of funds in order to remain operational. Things were now out of hands of the
management as the company declared around 2000 job cuts along with longer work hours. KFA became
the headline as it grounded most of its flights and declared that it is operating mere 28 aircrafts with a
curtailed schedule of 175 daily flights. On March 15th, KFA announced curtailing of its international
operations. And in the same month, IATA (International Air Transport Association) suspended KFA from
their clearing house asking travel agents to immediately stop booking tickets on the private airline's behalf
for failure in settling dues since February. Job cuts and strikes by angry unpaid employees made news.
Arrears due to airports accumulated. In September, the State Bank of India-led lenders consortium turned
down a request for Rs.200-crore working loan by Kingfisher, and asked SBI Capitals to chalk out a fresh
revival plan for the cash-strapped airline in the next 2-3 weeks. Meanwhile, on October 2nd the carrier
declared a partial lockout following a strike by a section of its employees, which was revived following
banks agreeing to release Rs.60 crore locked in an escrow account to pay employees’ salaries.
On 20 October 2012, Kingfisher's licence was suspended by the Directorate General of Civil Aviation after
it failed to address the Indian regulator's concerns about its operations.
Finally, On 25 Feb 2013, its international flying rights and domestic slots were scrapped by the Indian
aviation authorities
Merger with Air Deccan
In the first quarter of 2007, Vijay Mallya shared his desire to aquire stake in domestic no-frills carrier Air
Deccan. This desire was driven by Accenture Consulting’s recommendation for merger. Air Deccan was
the county’s largest low fare airline and was running around 350 flights per day and had a large fleet of
Airbus A320 and ATRs. At that time, Kingfisher airline had accumulated loss of around Rs 1200 Crore
and Deccan Airways had losses of around Rs 800 crores. In the first full year of joint operations, Vijay
Mallya anticipated a total cost savings of Rs 300 Crores on costs.
Apart from the large fleet of airlines, Air Deccan had its own hangar
in Chennai which was a useful tool for Aircraft maintenance. In an
interview, Mallya said “There are opportunities for line maintenance
or a maintenance, repair and overhaul (MRO) facility, The group will
have 41 Airbus aircraft flying and there is a compelling need for an
MRO. The Global companies would be interested in partnering us.”
The Kingfisher-Air Deccan group became the largest domestic
airline with a fleet of 71 aircraft and will straddle all segments of air
travel from low fares to premium fares and offer the maximum of
537 daily flights, covering the single largest network in the country
connecting 69 cities.
This was a strategic benefit for Kingfisher Airlines as well. There
was a minimum 5 year requirement from the Union Cabinet of India
to allow an Airline to start flying internationally. Kingfisher airline came into existence mere 2 year ago,
Air Deccan was in operations for 5 year and this can be utilized as a window of opportunity to enter into
international skies.
Consultancy reports aside, Kingfisher and Deccan were, prima facie, as different as chalk and cheese, or,
as Capt. G.R. Gopinath, founder and erstwhile Chairman of the upstart airline, and Vice Chairman
designate of the merged one, once famously put it: “We’re from Mars and he (Mallya) is from Venus.”
The two airlines have different business models and cater to totally different passenger segments. A flight
from Bangalore to Delhi cost Rs 12,000 before Air Deccan came into operation. The arrival of Deccan led
to this falling to Rs 2,500. As Low Cost Carriers like SpiceJet, Indigo and others sprouted and followed
Air Deccan, even full service airlines were forced to cut fares to stay in the business. Result being
domestic air travel really took off, and the number of passengers flying within the country jumped from
29.2 million in 2003 to 90.44 million in 2006.
On 19 December 2007, it was announced that Air Deccan would merge with Kingfisher Airlines. The
merger became effective April 2008, with Vijay Mallya becoming the Chairman and CEO of the new
company, while G. R. Gopinath became the Vice-Chairman. Kingfisher Airlines' parent company United
Breweries Group had a 26 percent stake in Air Deccan's parent company, Deccan Aviation. The total fleet
of 71 Airbus A320 family and the ATR aircrafts operated 537 flights to 69 Indian cities taking advantage
of synergy benefits arising from a common fleet of aircraft that improved financial prospects for both the
carriers. Kingfisher Airlines continued to give high quality service to the corporate and business travel
segment while Air Deccan would focus on serving the low-fare segment. In October 2007, after the
acquisition by Kingfisher Airlines, Air Deccan was renamed as "Simplifly Deccan" with its new tagline
being "The choice is simple". Its old logo was replaced by the Kingfisher logo and even the fonts were
adopted from kingfisher. The old yellow and blue colors of Air Deccan were replaced by Kingfisher
Airlines' red and white, supposedly to give the same premium look and feel to Deccan passengers as well.
Some Changes were also made in the flight schedule of Simplifly Deccan airlines to better align with that
of Kingfisher Airlines. According to agencies, the re-branding was expected to cost Rs 15 crore
(approximately $3.8m). After the merger, Air Deccan switched to the Sabre reservation system used by
Kingfisher Airlines, thereby replacing the previous solution provided by Radixx. In August 2008, the
airline announced further changes in its branding to Kingfisher Red and said that it will begin operating
under Kingfisher's IATA code IT.
Later in september 2011 Vijay Mallya announced after the company's annual general meeting in Bangalore
that he was discontinuing the low-cost service. Kingfisher Red would cease to exist over the next four
months. Its 15 single cabin, no-frills aircraft would be converted into a mix of business and full-service
economy class seats to become part of the airline's fullservice fleet. The then CEO of Kingfisher Airlines,
Sanjay Aggarwal commented, “A detailed study over the last six months during the high oil price regime
has clearly demonstrated that Kingfisher's full-service product generated higher yields and load factors.
This is consistent with our assessment that the business travel segment is more sustainable than the
extremely price sensitive low-fare segment.”
Keeping Stakeholders in sync
Any organization needs to keep the five major stakeholder in sync to meet organization goals. Kingfisher
airlines needed to launch a recovery program to meet the customer expectations, Keep the business of
suppliers profitable, meet employee’s aspiration and keep them motivated, comply with the
society/community norms. and make sure the business is profitable for the owners/shareholders.
Customers In the good days, Kingfisher Airlines was regarded as the most customer friendly airlines in India. The
service of kingfisher including the excellent quality of food, in flight entertainment service, and cabin crew
assistance was regarded as the best. It also ran a frequent flyer program called the King club which had
many enrolments.. The lounge facilities also had unmatched quality. The customer base was highly loyal.
All this reputation went into dust, when the airline cancelled dozens of flights in November 2011 and the
cancellations was carried on till mid-December. According to the DGCA report, the airline did not operate
175 daily flights owing to non-availability of aircraft during the winter schedule.
Suppliers Kingfisher needed a host of resources from different suppliers to keep its flights operational. Largest
public bank at India, SBI, was a major source of the funding that Kingfisher needed to scale up its
operations. by the end of 2011, SBI withdrew from further financial support as the business no longer
seemed profitable to them.
Fuel companies like the Hindustan Petrol corporation limited and Bharat Petroleum corporation limited
had also faced payment issues but they maintained strict policies, refused to supply fuel at several
occasions and involved courts for settlement of payments.
The Aircraft producers were also unhappy. In one instance, following the order of the High court in
Karnataka, Kinfisher had to return an aircraft to GE Commercial aviation services. In another instance,
they faced litigation at UK court against DVB Aviation finance asia Ltd for non payment of lease rentals.
Further, Airport authority of India had pending dues of over Rs 200 crores. The Mumbai International
Airport Limited had on an earlier occasion put the airline on cash-and-carry mode and threatened to put
Kingfisher on the same mode unless it paid its dues.
Employees In 2011, Kingfisher used to spend around Rs 58 crores per month on its 6000 employees. But since July
2011, Kingfisher had been delaying the salaries by a few week or a few months. Even the taxes deducted
from the the employees salaries were not deposited with the Income tax authorities. This inconsistency in
payments created a large unrest amongst the employees which led to several flight cancellations in
november-december 2011. According to DGCA report, 24 pilots resigned from KFA during November-
December 2011.
Community Organizations function with the consent of society. There have been instances all over the world when
governments have helped organizations that are critical to society. Kingfisher Airlines had asked the
government to help it survive by ensuring three-months of credit period from its suppliers. But the
government was in no mood to provide assistance. The civil aviation minister said "There is no bailout
scheme or plan by the government for any of the private airlines before me." During the same time, other
government agencies were unhappy with Kingfisher Airlines and wanted to disengage with Kingfisher,
which would eventually mean that the airlines would have to shut down at least its domestic services. The
DGCA believed that about one-third of Kingfisher’s fleet was grounded due to lack of engines,
components, and spare parts. The airline was using components and parts from the unused aircraft to keep
the remaining aircraft in operation. They were worried about the safety implications for the passengers.
DGCA also suggested withdrawal of Kingfisher’s License to fly. The service tax department had frozen
Kingfisher’s bank accounts for non-payment of dues
Shareholders The share price is a reflection of
confidence of the shareholders in the
profitability of the company,
Kingfisher share price were being
traded at Rs 50 in 2008-2009 and
after the air deccan deal they went
upto Rs 62. but later when it started
accumulating losses, the stock price
went down to Rs. 20 in 2011, and
now they are being traded at Rs 4.
Analysts were very critical of
Kingfisher’s performance on some
critical financial parameters like
operating margins and cash flow. It
was already well-known that
Kingfisher airlines’ costs were higher
relative to its competition, and also
the ratio of interest expense to total revenue was several times higher than others. Its debt to equity ratio
was a creating concern, and most importantly had a problem of poor cash flow.
References 1. http://www.hindu.com/2007/05/08/stories/2007050805701600.htm
2. http://articles.economictimes.indiatimes.com/2007-12-18/news/28414449_1_kingfisher-airlines-
kingfisher-deccan-deccan-aviation
3. Jeff Glekin, Gloats about India's Icarus. Vijay Mallya misses the point, Wednesday, November 16,
2011 3:42PM IST http://in.reuters.com/article/2011/11/16/idINIndia-
60558820111116?type=economicNews
4. Saurabh Sinha, Kingfisher Airlines safety an issue: DGCA, TNN | January 5, 2012, 01.18AM IST
http://timesofindia.indiatimes.com/business/india-business/Kingfisher-Airlines-safety-an-issue-
DGCA/articleshow/11368768.cms
5. Ram Prasad Sahu, Kingfisher Airlines: Survival hinges on improving yields, rights offer
Mumbai November 17, 2011, 0:36 IST http://www.business-
standard.com/india/news/kingfisher-airlines-survival-hingesimproving-yields-rights-offer/455732/
6. DGCA Data for 2009–10
7. Cover Story, Business World, December 5, 2011
8. Pricewaterhouse coopers Changing Dynamics- India’s Aerospace Industry 2011 report
9. Kingfisher Annual Report 2012