7/31/2019 Kingfisher Was Launched as an All

1/5

rohan

Intro:-

Kingfisher was launched as an all-economy, single-class configuration aircraft with food andentertainment systems. After about a year of operations, the airline suddenly shifted its focusto luxury. After Kingfishers plunge into luxury came its next foll ya merger with Air Deccan,an airline formed by Captain G R Gopinath in 2003. The fall of Kingfisher airlines started thevery day when they bought Air Deccan. Capt. Gopinath, the owner of Air Deccan can betermed as shrewd but smart investor who knew when to part with his investment, just at theright time. The all-economy configuration of Air Deccan was rebranded and called Kingfisher Red, which continued to operate as its low-cost wing till recently.

Kingfisher ended up spending Rs 550 crore on an airline that had losses of over Rs 550crore. It is widely believed that Kingfisher merged itself with Air Deccan so that it couldclassify as an airline with five years of domestic flying in 2008, thus fulfilling requirements tofly international routes. The fact that Jet had meanwhile swallowed Air Sahara didnt help,fuelling a competitive race to be the biggest airline around. Essentially, jet fuel prices beganto sky-rocket and soon touched $150. Then came the 2008 recession that madefundamentals in the airline industry worse, which is when the airline launched itsinternational operations.

Some companies just fail to learn either from the examples that its peers may have set for the industry, or from its own past mistakes. Now, Kingfisher has decided to change its modelyet again discontinuing its Kingfisher Red brand and completely converting its fleet to adual class, full-service configuration.

Kingfisher was gifted to Mr. Sidhartha Mallya by his father on his birthday i.e. a Near Zeroexperience in running a company and the later CEOs appointed by Mr . Mallya couldnt b ringany significant result too. His over indulgence in petty things like parties and Kingfisher Calendar also lead to inadequacies in his finances. .IPL is also one of the reason for Kingfisher downfall because it is known that most of the money was diverted to IPL from

Kingfisher airlines, resulting which they defaulted in Loans and recently became a NPA (non-performing asset) to its leading bankers like SBI.

The lack of trust was shown recently when Mr Mallya asked the government of India to bailhim out. The new minister Mr. Ajit Singh clearly told that the Government will not bail outprivate airline because Air India is itself in need to bail out. Mr Ajit Singh made a gooddecision because When Kingfisher doesnt give public anything in return of its profit , thenwhy is it asking for Public hard earned money ( tax money) to bail him out.

rohan

7/31/2019 Kingfisher Was Launched as an All

2/5

Narendra

Here are 5 probable reasons for the downfall of Kingfisher Airlines.

1. Problem associated with the Aviation sector - Owing an Airline companycan be very sexy but managing it is a very hefty task. Aviation business is one of theworld's most risky businesses as the cost involved in it both capital and operational isvery huge. None of the Airline Company in the world has able to make consistent profitsyear after year this is because of the operating problems associated with the Aviationsector. Starting from Airplanes purchasing cost, Fuel cost, maintenance cost, interestcost , salaries & wages and many other costs companies has to bear if this is notenough operational problems like weather and technical delays further worsen thecondition for aviation companies all these problems makes the aviation business most

vulnerable.

2. Faulty business modal of Kingfisher Airlines - Kingfisher Airlines startedtheir proceedings as a premium player in the Indian Aviation sector but soon they stuckin the price war with competing airline companies which leads them to offer their premium services at much reduced prices to the passengers which hurt Kingfisher onboth the revenue and the cost side. A luxury airline like Kingfisher was never required for Indian market where less than 1% of the population uses airlines as their mode of transportation but if Kingfisher wanted to make its premium modal a success it shouldnever jumped into the price war and keep charging premium prices for their premiumservices which can give them good margins but Kingfisher mess up all.

3. Improper handling of Financials by the company's management -Since its inception in 2005 Kingfisher never earned a single penny and continuallyincreasing its losses year after year even then management of the company took no bigstep to reduce their cost. The ever increasing Debt is also a major worry for thecompany. Company's management has failed miserably in handling the financials of theairline.

4. Acquisition of Air Deccan by Kingfisher - In order to enter the 'Low costairline' business and to get the permission to fly international Kingfisher acquired Air Deccan which is one of the major reason for the financial crisis in which Kingfisher iscurrent in. Air Deccan was itself struggling and incurring huge loses when Kingfisher acquired it. Adding 2 negatives only increase the problems for the company.

5. Vijay Mallya's over enthusiasm killed Kingfisher Airlines - The manbehind Kingfisher, Mr. Vijay Mallya himself killed Kingfisher Airline. Dr. Mallya'senthusiasm for his airline to make it best in the world leads him to over spend on theairline. Mr. Mallya is not ready to accept his airline's failure and continuously pouringmoney from the profits of his other ventures and by taking loans which is makingconditions worsen for the Kingfisher.

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7/31/2019 Kingfisher Was Launched as an All

3/5

Saloni

Threat of New EntrantsA lucrative industry is always a target for investors looking at investment. One of the

foremost factors in consideration while looking at the attractiveness of an industry is the

threat of new entrants. In the airlines industry, this was a major threat a few years ago.The

airlines operating in he industry were limited and the industry had few players like Indian

Airlines and Jet Airways. However, as the industry had scope for accommodating more

players many players joined the fray but is not the case. The airlines industry however

comes with its fair share of barriers.

The investment in the airlines is very huge and acts as a major barrier to entry. Bundled with

it were different permits for running an airline company from the civil aviation company and

FDI limits. Factors that can limit the threat of new entrants are known as barriers to entry.

Some examples include:

Existing loyalty to major brands

Incentives for using a particular buyer (such as frequent shopper programs) High fixed costs

Scarcity of resources

High costs of switching companies

Government restrictions or legislation

Power of SuppliersThis is how much pressure suppliers can place on a business. If one supplier has a large

enough impact to affect a company's margins and volumes, then it holds substantial power.

In the airlines company there is huge amount of bargaining power the supplier because

more than 40% of the flying cost consists of fuel costs.

Firstly, suppliers in the form of aircraft builders, who very often exceed the time limits.

Adding to it are suppliers of oil who hold the key to running of the airlines. Here are a few

other reasons that suppliers might have power.

7/31/2019 Kingfisher Was Launched as an All

4/5

There are very few suppliers of a particular product

There are no substitutes

Switching to another (competitiv e) product is very costly

The product is extremely important to buyers - can't do without it

The supplying industry has a higher profitability than the buying industry

Power of BuyersThis is how much pressure customers can place on a business. If one customer has a large

enough impact to affect a company's margins and volumes, then the customer holds

substantial power. Predominantly, in the airlines industry, it has been seen that the civil

aviation ministry has been in favour of the customer and buyers thus they have reasonablepower. While most airlines companies are running with wafer thin margins, it is pretty difficult

for companies to increase prices as the capacity utilization will be seriously affected.

Keeping Indian markets in mind prices play a major role, Indians prefer low cost carriers

more than high priced.

Here are a few reasons that customers might have power:

Highly money minded buyers of buyers

Purchases large volumes

Switching to another (competitive) airline is sim ple

Swiching to other transportation facilities(trains & busses)

The airline is not extremely important to buyers; they can do without the same brand for

a period of time

Customers are highly price sensitive

Saloni

7/31/2019 Kingfisher Was Launched as an All

5/5

RAHIJAvailability of SubstitutesWhat is the likelihood that someone will switch to a competitive product or service? Ifthe cost

of switching is low, then this poses a serious threat. Most airline companies have similar

facilities and are listed on website such as makemytrip.com, yatra.com where customers

choose from the cheapest available tickets. This shows that the customer has alot of options

and would not mind shifting to a new service.

Hence threat of substiturte is very high

Here are a few factors that can affect the threat of substitutes:-n

The main issue is the similarity of substitutes. All low cost airlines have similar facilities.

If substitutes are similar, it can be viewed in the same light as a new entrant.

Competitive RivalryThis describes the intensity of competition between existing firms in an industry. Highly

competitive industries generally earn low returns because the cost of competition is high.

The competition in the airline industry is cutthroat and each player is trying to gain an upper-

hand based on non price factors. A highly competitive market might result from:

Many players of about the same size; there is no dominant firm

Little differentiation between competitors products and services

A mature industry with very little growth; companies can only grow by Stealing customers

away from company.

RAHIJ