“Kingfisher Airlines performance post 2005 and reasons behind it”

Introduction: Kingfisher Airlines is a private airline group based in Bangalore, India.

Kingfisher Airlines was established in 2003. It is owned by flamboyant beer baron Vijay

Mallya of United Breweries Group. The airline started commercial operations in 9th May,

2005 with a fleet of four new Airbus A320-200s operating a flight from Mumbai to Delhi. It

started its international operations on 3rd

September 2008 by connecting Bengaluru with

London. The airline has been facing financial issues for many years. Till December 2011;

Kingfisher Airlines had the second largest share in India's domestic air travel market.

Kingfisher Airlines is one of the only seven airlines awarded 5- star rating by Skytrax along

with Cathay Pacific, Qatar Airways, Asiana Airlines, Malaysia Airlines, Singapore Airlines,

and Hainan Airlines. Kingfisher operates 250 daily flights with regional and long-haul

international services. In May 2009, Kingfisher Airlines carried more than 1 million

passengers, giving it the highest market share among airlines in India. Kingfisher also owns

the Skytrax award for India's best airline of the year 2011. However due to the severe financial

crisis faced by the airline, it has the fifth largest market share currently and now the company

has no funds to pay the salaries to the employees and its facing several other issues like fuel

dues; aircraft lease rental dues, service tax dues and bank arrears. This topic outlines the

performance and financial turmoil of the Kingfisher in details.

Performance graph of company after its inception:

2006: Kingfisher airlines was soon becoming an airline synonyms and creating wonders with

its 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 using DTH. Also the airlines went in some serious talks with Air Deccan which was

supposedly working on a totally different and virtually an opposite business model providing

low fare based services. The income for period ending 30th

June, 2007 increased to INR 4.1

Billion but losses also accumulated to INR 4.19 Billion.

2007: Things were pretty much on right track and going as per plans. Kingfisher had carried

17.5 million passengers with a fleet of 41 aircrafts and schedule of 255 flights. Ironically the

situation today is such that Kingfisher is fighting to even fly mere 10% of those flights. Finally

by the year end on 19th

December 2007, Kingfisher Airlines acquired entire 46% of Deccan

Aviation in Air Deccan. The period ending 31st March 2008 generated gross income of INR

15.4 Billion and losses dramatically were reduced to INR 1.8 Billion but this does not include

the aftermath of merger of Deccan. Since it was a very streamlined and well planned year by

kingfisher, this year proved to be the best year right from inception to till today.

2008: Kingfisher airlines finally became the larger passenger airliner of world’s second most

population nation. Now kingfisher was carrying 10.9 Million passengers annually with a fleet

of 77 aircrafts operating 412 domestic flights daily. Also this year was quite historic as it

finally got permit to operate on international routes and on September 2008 Kingfisher flew for

the first time overseas from Bangalore to London. Kingfisher started 3 classes of travel to

passengers from Kingfisher first: Premium business class, Kingfisher Class: premium economy or the

basic economy to Kingfisher Red: low fare basic class or in other words called Air Deccan. Financial

statements for year ending 31st March, 2009 were actually supposed to be consolidated

statements of both Kingfisher Airlines and Air Deccan hence now the income increased many

folds to INR 55 Billion but so did the losses which increased to INR 16 Billion.

2009: Kingfisher continued its run of being the nation largest passenger carrier and was having

a healthy market share of 22.9% with 11 million passengers flying with kingfisher in last fiscal

year. The fleet although got reduced to 68 aircrafts from 77 aircrafts and domestic flights per

year got reduced to 366 but international operations increased significantly to 12 flights daily.

During the year Kingfisher won numerous accolades from agencies around the globe and

continued being rated as India’s 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

marginally increased losses of INR 16.4 Billion and gross income shrunk to INR 52.7 Billion

for year ending 31st March, 2010.

2010: The dark clouds over Kingfisher were getting darker and dense with no ray of sunshine.

Jet Airway surpassed kingfisher airlines and become country’s largest passenger carrier as it

reported the market share of 25.5% whereas for Kingfisher it came down to 19.8% down by

almost 3% from last year. One player Indi-Go was getting noticed as 90% of its seat was filled

and getting market share rapidly. Kingfisher domestic daily operation was same 366 flights but

its international operations increased to 28 flights daily. Despite of increase in flights,

Kingfisher fails to capture market unlike its competitors, company reported a gross income of

INR 64.9 Billion and losses of INR 10.2 Billion for the year ending 31st March, 2011.

2011: Kingfisher for the very first time declared in year 2011 that it is having some serious

cash flow problems. It simply blamed the same rising to fuel costs. Now the thing that noticed

Is that when kingfisher is not paying dues of oil companies how the fuel cost would hit its cash

flow so badly? Dozens of pilots left kingfisher for rival airlines during 2011.Creditors warned

that if it would fail to raise almost USD 159 Million in equity then they will not be able to

restructure its debt. But kingfisher’s top brass believed that they will continue being the way

they have till now but problems were bound to get really out of hands. The income for year

ending 31st December, 2011 stood at approx. 13.4 Billion which was lowest since 2007 and the

losses increased sharply to INR 4.4 Billion.(Both income and losses are just for one quarter)

2012: The most turbulent year of all for Kingfisher is here. The New Year celebration were

just not over yet when on 5th

January, 2012 SBI (largest creditor of cash strapped Kingfisher)

declared that Kingfisher Airlines as a non performing assest.SBI exposure to Kingfisher is

staggering over INR 14.5 billion. Things were out of hand of the management and it declared

2000 jobs cut along with longer work hours. For the very first time Mr. Mallya declared that

airlines was in dire needs of funds in order to maintain its operation. As on 18th

February 2012,

Kingfisher grounded most of its aircrafts and declared that it is operating merely 28 crafts with

curtailed schedule of 175 flights daily. Now kingfisher’s all accounts stand frozen by banking

agencies and export import houses due to non-payment of dues and on 3rd

February 2012, also

the International Air Transport Association (IATA) clearing house suspended Kingfisher

Airlines; the airlines participation to Oneworld has been put on hold.

What went wrong? Financially crisis of Kingfisher Airlines was due to following reasons:

1. Huge interest in out go due to heavy investment in purchase of aircrafts 2. Highly

competitive industry 3. High fuel prices 4. Overspending of funds/Expenses 5. Business model

was not effective 6. Deregulation act 7. Recession- lose passengers (High operation cost due to

low demand) 8. Management not changing plans, price and demands as per time asking for.

Suggestions: The Indian aviation industry is growing up at a rate of 24% per year

so there are lots of opportunities to be discovered and cooked up using numerous

mantras like: large number of domestic untapped routes, dispose income in middle

class has increases, foreign investment, better flexible management, fuel efficient

planes for shorter distance, improve revenue per passenger and avoid aggressive

expansion of fleet.