Kingfisher Airlines Case Study

The Rise and Fall of Kingfisher Airlines

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Kingfisher Airlines:
A Case Study


Typed & Narrated By:
Prashant Ratnani 17131024

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About the Company
 Kingfisher Airlines Limited was n airline company based in Bangalore,
India. It was owned and operated by its parent company United
Breweries Limited. It had 50% stake in Kingfisher Airlines overall.
 Kingfisher Airlines was founded in the year 2003 and it commenced
its first operations in May 2005 with a first flight from Bangalore to
New Delhi and Bangalore to Mumbai.
 It had its agreement with French Aircraft manufacturer “AIRBUS”
and majority of its fleet comprised of the Airbus A320 and Airbus
A330.
 Its major operating hub was Bangalore International Airport and its
secondary hubs were Mumbai Airport and New Delhi Airport.
 Kingfisher Airlines had two of its subsidiaries which were mainly
Kingfisher Xpress and Kingfisher Red. The company had a slogan “Fly
the Good Times”.
 Before the termination of its operations in 2012, Mr.Sanjay Aggarwal
was the Chief Executive Officer of the company and Mr.Vijay Mallya
was the Managing Director of the company and also the Chairmen of
the Kingfisher Airlines Board.
 Before discontinuing its operations in 2012 Kingfisher Airlines saw a
Revenue of Rs.25,983 Crores and a Net Income of Rs.8,765 Crores.
 Until December 2011, Kingfisher Airlines had the 2
nd
largest market
share in India’s domestic air travel market. However, the airline ran
into continuous losses since its inception.
 Kingfisher Airlines had high debt which it mainly borrowed from 17
major Public Sector banks in India and it finally closed its operations
in the year 2012.

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 In January 2006, during the World Economic Forum meet in Davos,
Switzerland the managing director Mr. Vijay Mallya announced that
the airline intends to go public with an IPO to raise Rs.1200 Crores
for the airlines expansion.
 Kingfisher Airlines also announced in later 2006 that they will be
acquiring Air Sahara, which was a heavily debt ridden airlines and
was going under huge losses.
 In 2006 the Civil Aviation authority of India announced that 25% of
the travelers travelling through airways prefer Kingfisher Airlines and
it was valued as India’s 2
nd
best airline in 2007 after acquiring Air
Deccan.
 In 2007 when Kingfisher Airlines wanted to start international air
travel service their license got rejected on the condition that it
should be at least a 4 year old airline. So, in 2007 Kingfisher Airlines
acquired Air Deccan.
 After acquiring Air Deccan in 2007 Kingfisher Airline’s Debt had
increased a lot from Rs.1000 Crores of existing debt to Rs.3000
Crores of additional debt and the company still wasn’t profitable.
 On 3
rd
September 2008 Kingfisher airlines took off its first
international flight from Bangalore to London with 150 passengers.
 After acquiring Air Deccan, Kingfisher Airlines changed the name of
the airline to Kingfisher Red and diversified it into a low cost budget
airline.
 Kingfisher Airlines offered the same benefits that people were
getting in the high cost Kingfisher Xpress than Kingfisher Red so
passengers decided to shift from High cost to low cost budget career.
 Kingfisher Airlines in 2011 reported a heavy loss of more than 2000
Crores and many of its employees were not paid salaries on time
because of which their aviation license got cancelled in the year
2012 and airline stopped its operations.

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Failure of Kingfisher Airlines
 Ever since the airline commenced its operations in 2005, it has
reported losses in huge numbers.
 The matter got much worst when Kingfisher Airlines acquired Air
Deccan in 2007, as Air Deccan was a very struggling airline and was
on the verge of Bankruptcy.
 The initial change of name from Air Deccan to Kingfisher Red made
its name popular in the marketplace but the investors unhappy as
they decided to shift from high cost premium airline to low cost
budget airline which even widened their losses.
 Through Kingfisher Red the airline reported a loss of Rs.1000 Crores.
 On 28
th
September 2011, Mr.Vijay Mallya announced that the
company would soon stop the operations of Kingfisher Red as it did
not believe in low-cost operations any longer.
 The company overall incurred substantial losses and its net worth
has been eroded. However, after having an improvement in the
economic sentiment in 2011 the airline announced a plan to recast
its entire debt and converting promoter’s debt into equity share
capital.
 Kingfisher Airlines lenders later stated that they considered the
company viable and fit to operate in the market place.
 On 15
th
November 2011 the airline reported poor financial results,
indicating that the airline was drowning in high debt and burning
money like anything.
 Mr.Vijay Mallya indicated that the government reduces the fuel
prices and other taxes levied on the aviation sector and also legalize
Foreign Direct Investment (FDI) through which foreign airline
companies can come to India and commence its operations.

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 Ethiad Airlines which was the National Career of Abu Dhabi wanted
to invest in Kingfisher Airlines in order enter Indian aviation industry
and also to help in the growth of debt ridden Kingfisher Airlines.
 By early 2012 the airline accumulated losses of over Rs.7000 Crores
with half of its fleet grounded and several members of its staff going
on strike.
 On 20
th
October 2012, Kingfisher Airlines flying license was
suspended by the directorate general of civil aviation after it failed
to address the basic Indian aviation regulatory norms and concerns
about its operations.
 Kingfisher Airlines in total had taken loans worth of Rs.6600 Crores
from 17 Public sector banks and it failed to pay back the loans taken
from them.
 Kingfisher Airlines indebtness still appears in the Balance Sheet of all
the top performing country’s state owned banks in the form of Non
Performing Assets (NPA’s).
 Kingfisher Airlines is no longer a traded stock in the Indian Stock
Market and the company is still struggling in the Bankruptcy court of
India fighting for its survival.

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What should the Airline have
done instead?
 When Kingfisher Airlines had started its operations back in 2005 they
should have strived to make the airline profitable since the first year
of its operations.
 Instead of buying Air Deccan they should have waited for 2 more
years and added more flights to the domestic Indian market and
should have focused on the profitability part of the airline. Reason
being that if any airline wants to start international routes then there
is high competition and huge amounts of capital investments.
 Since Kingfisher Airlines was already under huge losses it should not
have started international flights and focused on increasing more of
domestic travel flights.
 Its Acquisition of Air Deccan in the year 2007 made it much worst for
the airline to survive in the market as Air Deccan was a heavily debt
ridden airline and it added more debt to the balance sheet of
Kingfisher Airlines.
 Kingfisher Airlines should not have defaulted its payments to the
Indian airports for the non repayment of Airport fees and duties in
order to sustain its operations till the end and they should have paid
more money to the investment in the operations and the
management of the company in order to make it more profitable.
 After Buying Air Deccan they should not have converted it into a low
cost budget airline and instead should have converted it into a high
cost premium airline with top class amenities and more benefit to its
passengers.

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 According to the top management experts if any company comes up
with top class benefits at high charges offers and all of a sudden if
they offer the same service at a very low cost then its profitability
becomes a major concern as the demand remains same but money
inflow decreases.
 Kingfisher Airlines should have focused more on the cost benefit
framework where in the service offered to the customer is fit for the
amount of price they are paying in for.
 If Kingfisher Red was a budget airline and Kingfisher Xpress was a
premium airline then they should have offered fewer benefits for
Red customers and more benefits for Xpress customers as they are
charging high amount in service cost.
 The Government should have taken an early step in introducing
Foreign Direct Investment (FDI) in the Indian aviation industry so
that it could complete its merger with Ethiad Airways, which would
have helped Kingfisher Airlines to a great extent.
 The Business of Airlines has been one of the most risky businesses in
the world as it requires huge amounts in capital investments with
long term future returns and a high risk of operation.
 Kingfisher Airlines was a clear case of poor business model and poor
business financial management and it would have been corrected if
the airline would have paid more attention in the profitability of the
company than the expansion of the company.
 Kingfisher Airlines case highlights a major area of business fallback
and business missfunctioning and poor controlling.