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Kingfisher Airline – Crash Landing*

CASE STUDY, STRATEGIC MANAGEMENT
ET Cases - GSMC, 15 Pages

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Kingfisher Airline – Crash Landing

 

“We expect Kingfisher Airline to be profitable in the very first year of operations given its strategic approach to control costs, deployment of technology and outsourcing.”

-- Vijay Mallya, Chairman and MD, Kingfisher Airline1

 

At Kingfisher, a flight was not a journey between two airports but an experience of a lifetime. Kingfisher Airline (KFA) launched in 2005 with a truly differentiated  experience better than any other airline in every aspect, may it be the food, service or in-flight entertainment. Every product touch-point was designed to ensure a superior service experience and each seat in its aircraft had a TV screen just like the international air carriers.2 In 2007, just after two years of its launch, it achieved a market share of over 10% and at one point of time, it had the potential of becoming the leading domestic airline.3 However, unfortunately today it is included in the list of few defunct airlines, like MDLR Airlines and Paramount Airways of India. KFA topped the list of companies with highest negative net worth as on March 31st 2013.4 Facing a series of winding up petitions from a host of creditors, the airline was grounded since October 2012, and reported a loss of INR8.224 billion for the third quarter, ending December 31st 2013. Vijay Mallya’s assurance of restarting the airline seemed to be running thin, as key officials of KFA had exited. The question was what would explain the story of passion gone wrong or the collapse of KFA.5 ...........................

 



  • 1“Kingfisher Airlines takes off ”, http://www.flykingfisher.com/media-center/in-the-news/kingfisher-airlines-takes-delivery-of-its-fiRs.tbrand-new-airbus-a320-aircraft.aspx (accessed date: February 8th 2014)
  • 2 Rahul Balyan, “Leadership lessons from Kingfisher Airline fiasco”, http://www.rahulbalyan.com/2012/10/leadeRs.hip-lessons-fromkingfisher-airline-fiasco/, October 27th 2012 (accessed date: February 12th 2014)
  • 3 “Kingfisher airlines strategy”, http://hrmaterial1.blogspot.in/2009/07/kingfisher-airlines-strategy.html (accessed date: February 10th 2014)
  • 4 “Top Five Companies with Negative Net Worth”, http://www.dsij.in/article-details/articleid/7770/top-5-companies-with-negativenet-worth.aspx, June 28th 2012 (accessed date: February 10th 2014)
  • 5 PR Sanjai, “Kingfisher Airlines CEO Sanjay Aggarwal quits”, http://www.livemint.com/Companies/veQqJdz2Vh3dCNB0drNiDP/Kingfisher-Airlines-CEO-Sanjay-Aggarwal-resigns.html, February 17th 2014 (accessed date: February 20th 2014)

Teaching Note Preview

Kingfisher Airline – Crash Landing

 

Synopsis

United Breweries Group established KFA in 2003. It began its domestic operations on May 9th 2005, with a fleet of four new Airbus A320-200s. KFA, which, redefined air travel in India entered into breakthrough agreement with Indian Airlines making it the first public-private partnership in the aviation sector. Later, it joined hands with Dish TV to bring for the very first time in the Indian skies live TV entertainment and also formed an alliance with ‘Jet Airways’ to provide improved standards of service.In 2007, KFA decided to acquire low cost ‘‘Air Deccan’’ despite of clear mismatch between two brands. UB Holdings which closely held KFA, held about 50% stake in Deccan aviation. KFA thus got international flying rights through a reverse merger. Subsequently ‘‘Air Deccan’’ was rebranded and called ‘‘Kingfisher Red’’. The airline offered three classes of travel to passengers: ‘Kingfisher First’, ‘Kingfisher Class’ and ‘‘Kingfisher Red’’. KFA commenced its international operations by connecting Bengaluru with London on September 3rd 2008, when the airline industry was severely hit with sudden sprint in fuel prices and global slowdown. Kingfisher has been the first Indian carrier to become a member elect of the big airline alliances ‘Oneworld’ in 2010.

KFA faced a serious financial turbulence in 2010, due to mounting debt and a shortfall in expected revenue. KFA defaulted in payment of lease rentals, employee’s salary and other dues. The airline, which had not made profit since its inception, went through debt restructuring in November 2010, in the form of a bailout package from  lenders. KFA completed restructuring of INR80 billion debt, as all 18 lenders agreed to cut interest rates and convert part of loans to equity. Banks owned 23.21% of the company equity and were reluctant to further expand their exposure................

Pedagogical Objectives

The present case is appropriate for the course on Strategic Management and can be used to achieve the following objectives.

  • • To understand the suitability of a business model for an airline company in India
  • • To learn about the appropriateness of value proposition in Indian Airline Industry
  • • To know the necessity of the profit proposition for an airline company
  • • To comprehend and compare low cost airline and full service premium airline
  • • To apprehend the relevance of people proposition for an airline company

 

Assignment Questions

  • I. Was the Business Model of KFA Coherent, Consistent and Sustainable? Substantiate your opinion with relevant reasons.
  • II. How would you evaluate the value proposition of KFA?
  • III. What was wrong with the profit proposition of KFA?
  • IV. ...................

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Abstract

Kingfisher Airlines (KFA) was launched as an all-economy, single-class configuration aircrafts with food and entertainment systems. The airline shifted its focus to luxury and launched its premium service 'Kingfisher First'. It acquired low cost 'Air Deccan' and tried to pursue two different business models; premium and low cost. It continued its expansion plans unabated. However, it defaulted in payment of lease rentals, fuel charges, airport fee, employee's salary and interest on borrowings. KFA was saddled with huge debt of over INR75 billion and was caught in a treacherous web of many governance problems which led to crash landing of KFA.



Pedagogical Objectives
The present case is appropriate for the course on Strategic Management and can be used to achieve the following objectives:

  • To understand the suitability of a business model for an airline company in India
  • To learn about the appropriateness of value proposition in Indian Airline Industry
  • To know the necessity of the profit proposition for an airline company
  • To comprehend and compare low cost airline and full service premium airline
  • To apprehend the relevance of people proposition for an airline company

Case Positioning and Setting
Human Resource - Strategic Human Resource Management


* GSMC 2016, IIM Raipur

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- Teaching Note (**ONLY for Academicians)
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