Kingfisher Airlines Failure

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

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

3. Marketing Research 3 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

5. Marketing Research 5 Bottlenecks: Indian Civil Aviation Industry… Lack of infrastructure: Airports and allied s ervices 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 .

6. Marketing Research 6 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

7. Marketing Research 7 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

8. Marketing Research 8 Timeline: Kingfisher Airlines… 2005: Started operations. 2006

9. Marketing Research 9 Kingfisher Airlines… 2006: To provide live in‐flight entertainment partnered with DTH pioneer Dish TV India Limited   2007: December 19 th 2007 Kingfisher Airlines acquired entire 46% of Deccan Aviation to start international flights. 2007: Income statement post merger with Deccan.

10. Marketing Research 10 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.

11. Marketing Research 11 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: O ctober 2012, operations ceased.

12. Marketing Research 12 Losses: Kingfisher Airlines…

13. Marketing Research 13 Reasons for Failure…

14. Marketing Research 14 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

15. Marketing Research 15 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

16. Marketing Research 16 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]

17. Marketing Research 17 Marketing and Branding Misses …[4] 1. Hierarchy of Needs: Fulfil lower order needs first

18. Marketing Research 18 Marketing and Branding Misses…[4] 2. Ignored points of parity: Basic expectations to be met first. Source: IIMB Survey

19. Marketing Research 19 Marketing and Branding Misses…[4] 3. Kingfisher Brand Identity: [ Kingfisher First: Premium], [Kingfisher Class: Premium Economy], [Kingfisher Red: Low cost].

20. Marketing Research 20 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

21. Marketing Research 21 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 Survey Survey results on why people do not prefer Kingfisher Red.

22. Marketing Research 22 Financial Challenges…[6] 1. Bank Dues: 7000 Crores plus

23. Marketing Research 23 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

24. Marketing Research 24 Financial Challenges…[6] 2 . Fuel Dues :

25. Marketing Research 25 Financial Challenges…[6] 3. Delayed Salary : KFA delayed salaries in Aug 2011 and there was a p oint 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.

26. Marketing Research 26 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..?

27. Marketing Research 27 Strategic Failures…[4] 4. Diversified Aircrafts: Diversified Aircrafts with different Capacities vis-à-vis standardized aircraft of other Airline companies.

28. Marketing Research 28 Strategic Failures…[4] 4. Diversified Aircrafts: Effects

29. Marketing Research 29 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 .

30. Marketing Research 30 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.

31. Marketing Research 31 Thank You…