KINGFISHER AIRLINES

MANAGING MULTIPLE STAKEHOLDERS

INTRODUCTION : AIRLINES INDUSTRY IN INDIADomestic airlines industry had grown over five times in terms of passenger volumes since 1990s

In 1997-98 , Indian domestic passengers were 115 lakhs

In 2011 the passenger volume increased to 606.63 lakhs indicating a year on year growth of 16.6%

In fin audit report conducted by DGCA in Dec 2011, it was revealed that Financial problems plagued all the airlines except unlisted Indigo airlines.

Losses suffered by Jet Airways 714 crores, Spice jet 240 crores, kingfisher 469 crores($1=Rs 47 in 2011 ) , Air india $1.75 to 200. Combined los $2.5 Billion (1250 crores)

Reason could be global downturn as well as rise in fuel prices, very high capital investments, very few new entrants trying their luck. Easy for new Airlines to enter, but difficult to exit and more difficult to make profits

CHALLENGES FACED BY AIRLINES INDUSTRY IN INDIA

Govt regulations for airlines to fly on financially unattractive routes

Poor state of industry due to cut throat competition, high fuel prices and high taxes

Repeated bail out for Air india made it a challenge for private sector airlines to achieve commercial viability in a competitive market

Cost of domestic airport infra structure born by airlines

INTRODUCTION: KINGFISHER AIRLINESChairman – Vijay Mallya

Chief Executive officer- Sanjay Aggarwal

Established in 2003

Head office – Mumbai

Registered office – Bengaluru

Owned by United Breweries Group

Started full service in 2005 with a fleet of four new Airbus A-320-200 operating from Mumbai to Delhi

In 2007 Acquired 26% stake In Air Deccan and later increased to 50 % and org merged, renamed as Kingfisher red as low cost arm of kingfisher airlines

2008 KF commenced international operations connecting Bengaluru with London.

2011 KF airlines served 63 domestic destinations aand 8 international destinations in 8 countries across Asia and Europe.

Became India's best Airlines won many awards

• Offered three classes of travel on domestic route and two classes of service on international routes.

• King fisher first- Premium class

• Kingfisher class- standard class

• Kingfisher red - the no frill class

• Rapid expansion and excellent service offerings to its customers it Started facing challenges in making profits

• It never made profits since it started operations in 2005

• There was no sign that the airline was moving in the direction of financial viability

• By Sep 2011 the accumulated losses were 5960 crores. Its debt of about 8000 crores from about 13 different lenders who refused to lend in Nov 2011.

Some analyst believe that the decision to merge kingfisher and Air

Deccan was a mistake. Kingfisher airlines and kingfisher red offered

similar services without leveraging the benefits of full service or low

costs.

In Nov 2011, KF cancelled 35 flights.

DGCA sought explanation from Kingfisher management

Nov 15, 2011 Vijay Mallya chairman and Sanjay Agarwal CEO addressed a

press conference

Clarified that the cancellation were the result of a well planned initiatives

and part of a long term restructuring process. However it could not

convince customers, even employees , crew, pilots were taken into

surprise.

STAKE HOLDERS - CUSTOMERS

• Best services ( food, entertainment etc.)

• King club

• Lounges at airports.

• Very loyal customers.

• Flight cancellations and other cost cutting led to

discontent

• The question was whether the company was willing to

risk its only set of satisfied stakeholders.

SUPPLIERS• Many suppliers without whom the company would sink.

• SBI was the leader of the consortium of 13 banks that did not

provide further financial support at the end of 2011.

• The story with the suppliers of aircraft was no different. (GE

commercial aviation services )

• Fuel suppliers started dealing on cash basis due to delayed

payments.

• AAI – Pending dues of 200cr.(CHEQUES BOUNCED)

• What could Kingfisher do to improve its relationship with its

suppliers? Could it afford to displease them any longer?

EMPLOYEES

• Kingfisher Airline had staff strength of 6,000 in 2011.

• Delayed salaries every month since July 2011.

• The DGCA report suggested that 24 pilots had left the airline in

NOV – DEC 2011.

• Employees had to face irate customers due to the

cancellations.

• What could Kingfisher Airlines do to improve the morale of is

employees?

• Would its actions influence the kind of talent it would attract

and impact the quality of service it could offer in the future?

SOCIETY

• Several agencies of the government were unhappy with

Kingfisher Airlines.

• Kingfisher Airlines had asked the government to help it

survive by ensuring three-months of credit period from its

suppliers.

• Government tried to put pressure on the public banks but

the All India Bank Employees Association demonstrated

to oppose any bailout of the airline.

• The DGCA was quite damning of the airline. It even

indicated that withdrawing Kingfisher’s license to fly was

an option.

• The service tax department had frozen the bank account

of Kingfisher for non-payment of dues.

• What could Kingfisher do to win back the support of the

larger society and the government and its agencies so

that they would provide the flexibility and support needed

by the airline to recover?

OWNERS • Kingfisher shares that had traded at about 48 per share

in April 2011 traded close to 20 per share in November

2011

• The shares of Kingfisher’s holding company, UB

Group, that traded at about 315 per share earlier in the

year was down to 82 per share.

• What could the management of Kingfisher do to

restore the confidence of its shareholders?

• Could it afford to keep shareholder concerns on the

back burner for some time and let share prices fall

further while it addressed the concerns of the other

stakeholders?

PORTER’S 6 FORCES

THREATS FROM COMPETITORS:

Poor state of the industry can be attributed to another three factors:

-cut-throat fares

-high fuel prices

-high taxes.

Cut-throat fares that started the price competition which forced all the airlines to lower prices.

Contributed to growth in passenger volumes, but had hurt the finances of all the airlines.

The repeated government bailouts for Air India made it a challenge for private sector airlines.

THREATS FROM NEW ENTRANTS:

Threat from new entrants is medium to low.

People may have a relative high preference on major brand base on safety and convenience concerns

Capital requirements are high.

The major players in the Indian aviation industry form an obstacle to foreign airlines.

Indian flyers prefer to have an Indian experience on the flight.

THREATS OF SUBSTITUTES:

• Introduction of high speed trains, high tech buses and

other means of transport.

• There is no switching cost.

• People can take other transportations other than

airplane if they travel domestically, or their business is

not in a rush, it may spend longer time but less money.

BARGAINING POWER OF SUPPLIERS:

• Two main suppliers in airline industry are

-fuel suppliers and

-aircraft suppliers.

• They have high bargaining power, since there is limited number of suppliers; companies have to use fuel and there is no substitute currently.

• Also, companies will choose a trustworthy supplier, which means the scope of suppliers will be narrowed down to fewer choices

BARGAINING POWER OF CUSTOMERS:

• The bargaining power of the customers is low since kingfisher

is designed to meet the total comfort and value for money.

• Kingfisher Airlines was credited with transforming service

levels.

• Its lounge facilities at various airports established new

standards in services not seen in India before. It had managed

to create a very loyal customer base that would support it.

GOVERNMENT POLICIES:

• Owing to government regulations, there was a need for

airlines to fly on financially unattractive routes.

• Airlines were forced to incur some losses they could

otherwise have avoided if they were run on purely

commercial grounds.

• Government restrictions on the petroleum industry, the

airlines needed to buy aviation turbine fuel at very high

prices.

LEARNINGS

Service businesses should not operate in such a touch and go manner.

They where extremely confident of their to find fixes on the fly.

Temporary JUGAAD

Its better to take a ego hit in time rather than to run the business bleeding.

Should have steadily phased down to few dozens of services

LEARNINGS

Aircraft inflight entertainment system was the USP at one time, but it added to a huge cost which was NOT affordable.

Full service flights should have cut down to only affordable routes.

Not to loose focus.. Stick on one thing, do it right and then move to another

They tried many things all at once which they couldn't cope with financially

FOCUS ON SINGLE SET OF STAKEHOLDERS

The company focused only on the costumers and

kept neglecting other 4 stakeholders, which

eventually led to bankruptcy.