Finance
Viraj Shah PGDM 2012-14 NMIMS Hyderabad Fly Kingfisher - From the King Of Good Times, To The King Of DEBTS
3. According to the Indian Aviation law an airline can fly on international routes only after the completion of 5 years in industry as Dr. Vijay Mallya wanted to expand his airline business beyond the national borders of India, which encouraged him to acquire Air Deccan, as it was already 5 years old. However it only flew to eight destinations aboard, which were price sensitive with a high level of competition. So this investment did not prove to be fruitful to Dr. Mallya.
One of the most capital intensive industries in present time is the aviation industry, though it being capital intensive, aviation industry in India has grown many a times than any other industry in India. The “Open Sky Policy” framed by the government has allowed a lot of international players to enter the aviation industry in India, resulting towards a boom in the industry . In a capital intensive industry like this, a company has to maintain a huge cash reserve and needs to manage its resources to pay out the debts, salaries to its staff and charges to the Airport Authority of India (AAI) and other countries where it conducts its operations. An improper management of the resources makes the airline bankrupt and therefore it can’t pay their bills, resulting in grounding of their operations. There are many reasons for the downfall of Kingfisher Airlines (KFA). 1. From the time of its inception, year by year it has faced losses, and after acquiring Air Deccan, losses accounted to a tune of one thousand crores for three years in a row. By first quarter of 2012, Kingfisher had accumulated a loss of Rs. 7000 crore. and also because of the strike of its staff, Kingfisher didn’t have any other option but to ground many of their operations, domestic as well as international. As a result, it lost market share and lost its number two ranking position amongst the various Indian Airlines . 2. The Aviation Turbine Fuel (ATF) prices were at an all-time high, because of the high service tax levied by the government , the Indian rupee depreciating against the US dollar and the increasing crude oil prices, causing the airlines to pay more for the same amount of fuel, thereby increasing the cash burden on the airlines. At the same time, the Government also increased the service tax on flight tickets, and therefore increasing the ticket prices, making it costlier for the passengers to travel, and thus affecting the airlines customer base.
4. The way both the airlines were managed by the company was another reason for its downfall. Kingfisher and Kingfisher Red, both the brands were put forward as one. This created a lot of confusion in the customer’s mind. Further, most of the Kingfisher operations were transferred to Kingfisher Red, so the upper class willing to travel in Kingfisher would board a Kingfisher Red flight, resulting in distrust and a feeling of being deceived by the airline. According to an article published online in moneycontrol.com, Dr. Mallya was advised by European brand consultants to disintegrate the two airlines, like his arch rival Jet Airlines did, so as to have two different classes of airlines serving different class of passengers##. But the idea didn’t see the light of the day. This proved to have dire consequences resulting in complete mismanagement. 5. The fifth reason for Kingfisher’s downfall was the increasing presence of private players in the aviation industry. There were carriers like Indigo, Go Air, Spice Jet, and Jet Konnect; which were providing the flying experience at much lower rates. They were called Low Cost Carriers (LCC), and their tickets were affordable by the middle class, and hence they could fulfill their dreams of flying in an aircraft. While Kingfisher still kept on charging high prices, resulting in loss of revenue as well as market share. The Present Situation Kingfisher is not able to operate properly on daily basis, and there are frequent instances of flights cancellations. The Aviation ministry ordered the airline to sell its tickets over the counters at the airport. Tickets were also not to be sold by any travel portals or travel agents, till the management comes out with an effective plan of action.
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