8/9/2019 CS II Project - Kingfisher Airlines Failure - Strategy Analysis

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Corporate Strategy Project

Corporate Strategy II Project Report

Table Of Contents

1. Introduction

2. Objectives of study

3. Historical Evolution of t e co!pany

". #ajor strategic decisions and its conse$uence

%. I!ple!entation of strategic decisionerits&'la(s of i!ple!entation). Su!!ary and conclusions

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I. Introduction Welcome to a world without passengers. Welcome aboard Kingfsher Airlines,where you are made to eel like a guest and not just a passenger. Thus reads thestatement about Kingfisher Airlines, which started with the promise of abundance, warmthand prosperity which its customers/guests would feel while flying with Kingfisher.Kingfisher Airlines, a dream venture of Vijay Mallya entered into the aviation industry with alot of glamour and promise to the regular traveler. ut the series of strategic decisions andthe way in which the company was managed by him caused it to lose its leadership positionin the industry and resulted in a huge debt and an eventual close down of the entireoperations within a period of ! years from the beginning.

II. Objective of this Analysis". To analy#e the various strategic decisions ta$en at the company and the conse%uences

&. To find out what would have been the best course of action for the company

'. (elate the failure of the company)s strategic decisions with the topics covered in *+

III. istorical Ti!elines of "ing#sher AirlinesThe Airline was founded in &--', but commenced operations from May &-- . t had its(egistered ffice in 0 *ity, angalore while its head office was in Andheri12ast3, Mumbai.

2ver since its launch in May &-- , the Airline has bla#ed with a trail of innovations andintroduced a range of mar$et4firsts that have completely redefined the whole e5perience of flying. 6uring its journey, the airline had been bestowed with many prestigious awards " inthe beginning of its journey.

t had many firsts to its credit, including the first airline to introduce in4flight entertainment1 723 system on every seat for domestic flights in ndia. t provided complimentary welcome$its to its guests and also introduced live TV entertainment to its guests through an alliancewith 6ish TV.

On December 19th, 2007 Air Deccan and Kingfisher Airlines decided to merge .Kingfisher Airlines) parent company 0nited reweries 10 8roup3 have ac%uired 9:; of Air 6eccan)s parent 6eccan Aviation, which possesses &; of the total sta$es.

1

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6irectorate3 or government of ndia)s other regulatory commissions did not intervene inthese matters, until the danger signal was raised by their auditors and subse%uently by+ . ut it was too late as the airline was having severe cash flow issues and their debtand unpaid dues were way too high to be able to continue operations.

Another thing which played a major role in the failure was the lac$ of delegation ofauthority in the organisation. 6r. 6r. Vijay Mallya was the one who was ta$ing the day today operations at the airlines. There were several changes in the top level e5ecutive layersincluding the *2 )s, and hence there was no one with sufficient e5perience in theindustry to advise him on a continuous basis, as and when he made a wrong strategicmove. n the case of his other ventures 10nited reweries and 0nited +pirits 3, he had astrong team of long term e5ecutives for running day to day operations and he himself wasthere to ta$e any strategic decisions. eing in that industry for several decades, he $newin and out of the industry. ut that was not the case with the Airline ndustry, where therewas cut throat price war between the different players. Also, the airline itself was %uitenew 1started operations only in &-- 3 and he was not very $nowledgeable in thatindustry. Moreover, he didn)t have that much time available to loo$ in to each and everyitem on a day to day basis. A clear delegation of authority to a strong and stable e5ecutivelayer would have made a huge difference.

ne of the $ey reasons why Kingfisher ac%uired Air 6eccan was mainly due to 6r. 6r.Vijay Mallya)s desire 1his >et project3 to start operating long distance flights to

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destinations at 0+A 1li$e +ilicon Valley3 and 2urope. The move was strongly opposed bymany of his close allies and directors, but he went ahead with that. n doing this and other such decisions, he forgot the basic rules of running a business ? to generate an aboveaverage ( for the shareholders. Many of such strategic decisions would have beenavoided if the mar$et mechanism was strong enough to influence or if the regulatory

bodies and the other sta$e holders stopped him in a timely manner.

Mo-ing a#ay from the ocused Differentiation !trategy.

@This is a world class e5perience, all at an affordable price.

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the basis of total share of traffic and revenues, and it had the lowest loss figure too in thatyear. ut the global recession started in late &--D and simultaneously the jet fuel priceswere also s$y roc$eting, and this made the airline operations e5tremely difficult. oth theairlines had most of their aircrafts and engines on dry lease 1maintenance, insurance etc.has to be borne by the airline, not the lessor3 And the combined company ended uphaving a variety of aircrafts 1Airbus A4'&-)s , Airbus A4''-4&--, AT(49& and AT(4!&)s3and engines, which will ma$e the maintenance and substitution in alternate routes willma$e it too costly. There were several engine issues and aircraft issues during &--E,which grounded a si#eable number of the aircrafts to be out of operation for a long time.This, together with the recession and the jet fuel cost hi$e caused the already loss ma$ingentity to have a higher loss figure year on year. Also, many of the international routeswere discontinued due to issues and they had to be satisfied with a few routes to Condon,+ingapore and =ong Kong.

n &-"-, Kingfisher decided to discontinue the Kingfisher (ed services, stating that it nolonger interested in the low cost route and wanted to concentrate only on its premiumservices through the original $ingfisher premium brand. ut by this time, the combinedentity had caused a huge debt due to the accumulated losses, increased maintenance andambitious orders for several new aircrafts for its international e5pansion during &-"94":timeframe. 6ue to the merger, both Kingfisher and Air 6eccan)s operations and dominant

position in its respective segments were lost and finally resulted in the closing of theKingfisher (ed brand. y the end of &-"-, the already cash strapped company was in direstraits, with several of its fleet were lost, a good number of its pilots leaving for greener

pastures and the remaining Airbuses used in Kingfisher red were re configured1at a goodamount of wor$ and hence not available for service for some more time3 for premiumservices and constantly losing mar$et share to both premium carriers li$e Fet and budgetairlines li$e ndigo, 8o Air etc. This plight further continued and finally resulted in

pending salaries, dues and even T6+ payments and ended up with the stoppage ofoperations of the airlines altogether. The brand dilution was the result of the merger, andthe value of the company at the end of &-"-4"" 7G was even lesser than what they have

paid for ac%uiring Air 6eccan.

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&ac' of &ong ter! Strategic $ision

+ e co!pany never see!s to ave a long ter! vision. ,t -rst it started as apre!iu! airline and it see!s to (in in t at sector and (as about to brea/even. 0ut at t at ti!e t ey decided to !erge (it t e lo( cost carrier ,ir

eccan to start international ig ts ( ic t ey felt as very pro-table and ast e !agic pill ( ic (ill solve all t e issues4 and also to ave a lo( costoperation alternative in t eir arsenal. 0ot of t ese failed and caused severeda!age to t e co!pany. 0ot carriers ad several overlapping routes andt e solution ( ic r. r. 5ijay #allya ca!e up (it (as to si!ply cancel t e6ing-s er 7ed route 8 + in/ing t at t e passengers (ill upgrade to t e6ing-s er ig t. 0ut in fact t ose people (ent to t e ot er lo( cost carriersli/e Indigo . ,ccording to Capt. 97 9opinat ( o sold t e ,ir eccan to r.5ijay #allya t e 6ing-s er 7ed (as al(ays considered as a :Step C ild; and( enever t ere (ere a con ict of routes t e solution (as to si!ply cancelt e 7ed ig t.

,lso t e lo( cost airlines al(ays !a/e up t e lo( fares (it t e elp ofausterity !easures li/e no frills service outsourcing !ost of t e operations(eb based boo/ing no baggage !a2 airports for operations in lieu of lo(er operations costs and

aving unifor! aircrafts for lo(er !aintenance cre( and inventory to!ini!ise t e cost of !aintenance and substitutability. 0ut ere t eco!bined entity ad in e

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ile analy=ing t e -nancial state!ents of t e airline it (as $uite clear t att e biggest e

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$. I!ple!entation of strategic decision)(erits*+la,s

S Strategy Intended Outco!e 7esult

1 'ocus onPre!iu! Serviceand get t epre!iu!pay!ents for t esa!e D 'ocused

i?erentiationStrategy

9et loyal ig payingcusto!er base and!a/e pro-t out of t esa!e since t ey (illbe ready to pay for t edi?erentiated service.

+ is is one of t edo!inant strategy

e!ployed bysuccessful pre!iu!carries (orld>(ide li/eSingapore ,irlines andE!irates

+ is (as (or/ing (onders for6ing-s er and t ey (ere on t everge of brea/ing>even butsi!ply for operating ininternational routes a ead ofti!e t ey !erged (it t e lo(cost carrier ,ir eccan ( ic

ad an entirely di?erent cost

leader strategy (it no frillsservice. + e result (as a failureof bot brand dilution andenor!ous loss and debt

2 Corporate9overnance

+ e airline industry is avery lo( !argin oneand !any of t ecarriers (orld>(ide areconstantly going out ofbusiness. Hence veryclose !onitoring andfocused strategies(ere t e /ey tosuccess. r. 5ijay#allya too/ t isresponsibility on iso(n and try to run t eairlines in a single

anded !anner and

did not listen to isadvisors

He neit er possess t enecessary /no(ledge and s/illsfor t e airlines industry not e

as t e ti!e to do t at. + e toplevel e

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Strategy t e synergies inoperations reducecost i!prove ,ir

eccan s brand

t roug 6ing-s erbrand and t us get

ig er custo!er base

aircraft type !ade t e!aintenance and operationsdiJcult. + is in fact increasedt e operating e

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(ould ave !ade t e carrier pro-table. + ey (ould ave started t einternational ig ts by 2A1A as t ey (ould ave co!plete % years ofoperations by t en . + e !erger and ot er related disasters follo(ing t at(ould ave been avoided too

Corporate /overnance - r. #allya s ould ave allo(ed a CEO to andlet e operations and andled only t e strategic decisions in consultation (itt e e