Wet vs Dingfisher

8/7/2019 Wet vs Dingfisher

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Jet vs Kingfisher (With SWOT Analysis)On October 28, at a ceremony to unveil Air Deccan's new-look aircraft in Mumbai, chairman ofUnited Breweries group and Kingfisher Airlines, Vijay Mallya, said with characteristic flourish:"We have given the full service carriers a run for their money. Now, we will give the low costcarriers a run for theirs."

Though he did not refer to any one airline, it was clear his statement was directed at Jet Airwaysand Jetlite (formerly Air Sahara). Ever since Mallya launched Kingfisher in May 2005, making itnumber one in India has been a foregone conclusion; it's the world's biggest carriers he wantsto take on.

Kingfisher's meteoric rise has taken rival and unquestioned number one domestic carrier in thecountry, Jet Airways, quite by surprise. Used to competing with only Sahara (never a worthyopponent anyway), Jet enjoyed several years of unfettered success after it had trounced IndianAirlines's monopoly and market, becoming India's premier airline since 1993.

This supremacy has now been challenged by a nimble and aggressive Kingfisher which, in justtwo years and following Mallya's buyout of Air Deccan, is commanding the same market share

as Jet Airways and Jetlite.

He may not publicly admit it but Goyal's troubles began soon after Kingfisher took to the skies."If Naresh Goyal had a magic wand, he'd probably wish away the last two years. Few thingshave gone right for his airline since the second half of 2005," says a close associate who wason his board but has since resigned.

In Mallya, Goyal appears to have found his first worthy opponent. If Goyal is well connected andknows how to keep the politicians beaming, Mallya is "not exactly an orphan".

If Goyal has managed to hire professionals and build a brand, Mallya is a past-master atbuilding brands. And if Jet has never had a problem raising money before, Mallya has group

United Breweries (with a market capitalisation of $5 billion) backing him.

In its initial avatar Kingfisher was aiming to be a low-fare carrier, but soon after its launch Mallyaconverted it to premium service, taking Jet head-on. Mallya is spending money like water (theairline lost Rs 400 crore in the first year) and has left no stone unturned to grab Jet's market,launching direct advertising campaigns asking Jet fliers to convert to Kingfisher, luring them withmiles, better food and a slicker, cooler yet equally efficient option.

Mallya is proving to be "maniacal" about being on time; every delay is examined threadbare in amuch dreaded early morning conference which he conducts over the telephone with his seniorexecutives, no matter which part of the world he's in.

When Kingfisher started, many in the industry had questioned its survival. "Not only has itsurvived," says Kamal Choubey, officer on special duty to civil aviation minister Praful Patel,"one simply cannot deny that Kingfisher's product is the best in the industry."

There are few who appreciate Jet's subtle, quiet efficiency when it's up against Kingfisher'sflamboyance. Gopal Sarma, CEO of Feedback Ventures, who accumulated 400,000 miles onJet Airways' frequent flier service, says he now often chooses Kingfisher simply because itsservice on the ground is so superior.


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He received a Kingfisher Gold card in the mail and has already accumulated 80,000 miles on it."If I call Kingfisher and ask to be put on a flight in two hours, they give me incredible service.With the amount I travel, I appreciate things like this," he says.

Other than the corporate flyer, Kingfisher is trying to attract the young, upwardly mobile Indianwho aspires to fly Kingfisher simply because he identifies with Mallya and his style statement of

living life kingsize. Mallya's passion for his airline (some call it obsession) is very clear.

In 2006, Jet's initial troubles were compounded by its messy buyout of Air Sahara which manyfeel was simply a move to thwart Kingfisher from acquiring it. Against the advice of his seniorcolleagues, Goyal offered Rs 2,300 crore (Rs 23 billion) for it, a pretty high price for the airline.

"It was like a bee in his bonnet. Once he set his mind to it, he refused to back down, eventhough everyone warned him it wasn't a great buy," says a senior official who has since left Jet.

As was widely predicted, Jet's share price reacted adversely and has never recovered to what itlisted at. The company's total market capitalisation following the announcement of the Saharadeal fell from over Rs 10,000 crore (Rs 100 billion) to Rs 4,558 crore (Rs 45.58 billion).

The moment the deal was called up, the share price recovered somewhat - a clear indication ofwhat the market thought of the Sahara buy, but even today it is trading below the price at whichit listed.

At roughly the same time the civil aviation ministry threw open international routes to privatecarriers. Jet saw this as a natural extension to its business (and one where it enjoys first-moveradvantage) and ordered new aircraft.

With competition rising and losses deepening (in the first half of 2006-07, it totted up losses overRs 100 crore), it needed to raise money and the intention was to do that through foreigncurrency convertible bonds (FCCB) of $400 million.

But with the share price languishing in the Rs 600-800 range, Goyal would have been forced todilute a larger portion of his equity than he was willing. So, the issue was postponed.

Around the same time as Jet announced its buyout of Sahara, Air Deccan listed. By then Goyalhad seen Air Sahara at close quarters and even he realised it was not worth the money he'dcommitted - but withdrawing proved harder than he'd expected.

"As the court battle with Sahara proceeded, it was far from evident what the final judgmentwould be. I think he (Goyal) chose to go in for a known position rather than an uncertain one,which could be worse," says a Jet official, who was privy to the goings-on.

These events coincided with a bloodbath in fares in the domestic market as Air Deccan cutprices to take on new competition, and the new competition cut prices to take on Air Deccan.

"All the players - full service or low-fare - were sucked into it, so obviously everyone startedmaking losses," says Kapil Kaul, CEO of Centre of Asia Pacific Aviation. With losses ondomestic operations rising and the launch of international operations - which will pay off onlylater - most investment firms and brokerages are maintaining a "reduce" position on Jet stock.

Says Gautam Roy, aviation analyst with Mumbai-based financial services firm Edelweiss: "We


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are not very optimistic on Jet's immediate prospects. It is more a long term story." It has nowbeen two years since Jet has been trying to raise $400 million through some form or the other(earlier through an FCCB, now a rights issue) and it's proved more elusive than Goyal couldhave imagined.

Although Jet officials say that by end January, they should be able to raise the funds, industry

sources say they'll only believe it when they see it.

Kingfisher's chief financial officer, A Raghunathan, argues that this is one of Kingfisher's bigstrengths vis-vis Jet. "Obviously, our own balance sheet is not strong enough. The group'sbacking is a pillar for us." He says that the airline has got Rs 500 crore (Rs 5 billion) in equity,loans and guarantees from the group to raise finances.

Jet loyalists are quick to point out that using group funds to get into a sector where you bleed isnot good business sense, and that Jet has raised over $2 billion in the past from internationalloans on its own strength, passing the intense scrutiny of lenders.

Then, during the middle of this year, Mallya made a calculated move, buying out Air Deccan for

what many feel is a "song", to deftly match Jet and Jetlite's marketshare.

So, while Jet's management has been struggling to make sense of what it inherited in theSahara deal, Mallya is capitalising on Deccan's advantages and has entered a segment that'ssure to give returns in India.

What has compounded problems for Jet is its chairman, Goyal's centralised style of functioning(according to sources he only trusts board member and confidant Vic Dungca, based inLondon), leading to an exodus at the middle and senior management levels over the last twoyears.

Often, major decisions exclude top officials, so the joke in Jet is that "whenever anything of

significance happens, senior officials are the last to know"! "To be an able general, you have tocarry your troops with you. That Goyal hasn't been able to do," says a former board member ofJet.

With Kingfisher and several other career options coming up, what started off as a steady tricklehas become a virtual flood. Goyal's problems on this front intensified when four seniorexecutives of the airline resigned together in April 2007, including highly trusted vice presidentfor corporate and public affairs, Nandini Verma, who'd spent 20 years with Jet.

The latest who's planning to abandon the Jet stable and jump onto the Kingfisher bandwagon isCharles Soon, head of airport services, who after being publicly castigated by Goyal for a flightdelay has been in a huff and is looking to quit.

Eight former employees that Business Standard spoke to said that the chairman's style offunctioning "left a lot to be desired". (Executive director Saroj K Datta and chief executive officer(CEO) Wolfgang Prock-Schauer refused to comment on this, arguing that disgruntledemployees will have grouses.) In contrast, barring erratic timings and odd schedules, UnitedBreweries group and Kingfisher airline executives don't have many complaints against theirchairman. Several Kingfisher senior officials are old UB hands who have spent 25-30 years withthe group.


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However, as Saroj Datta puts it, people come and people go. He says that Jet's attrition ratehas been constant and that in any industry with competition and new opportunities, things likethis will happen.

"We have 10,000 employees. Even if 100 people leave, it's not very significant. We had seen itand have been well prepared for it," says he. "Yes, people are leaving, but are loads falling?"

asks a Jet source. Like rival Kingfisher, Jet Airways is a one-man show (without Naresh Goyalor Vijay Mallya, both companies would be rudderless), making it a shared weakness.

But unlike Kingfisher, which is yet to build a strong foundation, Jet already has one. It has aphenomenal network and will expand by 20 aircraft from April 2007 to March 2008 (it now has70 aircraft).

According to Wolfgang Prock Schauer, the last two years have been tough for the entireaviation industry in India, not just for his airline, and he doesn't think that the rise of one airline -with India and its gigantic market - has to necessarily coincide with the fall of another.

"While things may look rosy for Kingfisher right now, Jet has been through and survived worse,"

says a former Jet Airways board member, his point being that Mallya should not underestimateGoyal's strengths. "I have never known a man so persistent once he's made up his mind. IfNaresh Goyal wants to talk to you, no matter which corner of the world you are in, he will getyou," says the former Jet board member, adding that after he's got what he wants out of you, itmay be a long while before you hear from him again.

Goyal has a phenomenal network across the world, knows his business like Mallya knowsliquor, and never forgets a face, name or number. A hard taskmaster, he expects a lot from hisstaff. The Sahara acquisition in retrospect looked better than one would imagine: the airline hadordered 10 B737-800s, which in today's market would fetch a premium, it has gained twohangars in the process (which Jet was finding difficult to get) and has entered the lower-endmarket segment where growth is concentrated today. Twenty-one of its 24 aircraft are up and

running and a turnaround looks within reach, Jet officials believe.

The other factor in Jet's favour is a recognition of Kingfisher's strengths, especially in terms ofquality. CEO Prock-Scaheur says: "We have to take the product and the quality of its servicevery seriously." but he maintains that none of this is reflecting on Jet's loads - "Our businessclass loads have not gone down and our Jet Privilege membership is expanding rapidly. Yes,instead of people saying 'I fly only one airline', they now choose. But that hasn't made anymaterial difference to us," he says, arguing that his airline's strong brand and obsession withquality and consistency will stand the test of time.

The airline business the world over is cyclical, primarily about keeping costs in check to ensuresurvival. And here is where Jet Airways officials feel it has a distinct edge over rival Kingfisher.

In the end, they feel, this one factor alone will separate the wheat from the chaff.

What Works, What Doesn't

Jet's Strengths

* A phenomenal and well-developed network both of the airline and the chairman.* Goyal's knowledge of the sector.* A massive pool of loyal customers.


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* Excellent lobbying skills and ability to leverage connections within government.* Ability to survive downturns earlier.* Financing raised on strength of own balance sheet.* Has built a professional organisation.

Jet's Weaknesses

* A perceived drop in service standards when pitted against Kingfisher.* Struggling with the carcass of Air Sahara.* Poor people management skills of chairman.* Inability to raise money for the last two years.

Kingfisher's Strengths

* Superior product on ground; in the air Jet business class is being equated with Kingfisher'seconomy.

* UB group backing for raising financing.* Well capitalised airline, prepared to take losses.* Better handling of employees and staff; less centralised style of functioning.* Chairman Mallya's grand vision where it is looking to be among the best in the world.* The Deccan deal - which gives it market share, a new market segment and was cheap.

Kingfisher's Weaknesses

* Kingfisher is yet to build itself into an organisation; structures yet to fall in place.* Not as professionally run as Jet; yet to build a professionally competent team.* Mallya's knowledge of the sector does not parallel Goyal's.

* Chairman's people skills are better but employees have to work very erratic hours.* Unable to leverage connections to the same extent while lobbying.* Kingfisher's loads are lower than Jet's, which could be a reflection of its marketing and salesability.

Kingfisher's SWOTStrengths:

- Strong brand image

- Focus on LCC segment as well with Kingfisher Red

- Financial backing of UB group

- Strong and competent management

Weakness:

- High maintenance cost at ground and airline

Opportunities

- Poor service of Indian Airlines / Air India


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- Problems with Jet airways (strikes etc)

- Growth in air travel, with businesses and markets doing better.

- More leisure travelers (Eg spicejet has recently added a new flight from Mumbai to Goa)

Threats:

- Rising oil prices play havoc with prices and therefore with load factor- Other low cost airlines providing better services with their newer airplanes (Kingfisher Red has

old aircrafts)

- Government initiatives in railways with fast running trains like Duronto.

- Better roads mean business travelers may prefer taking the road than the train for short

distances, since it comes out cheaper and there are no delays at airports etc.

- Threat of terrorism leads to fewer international travelers

REVENUE FOR INDIAN AIRLINES

Today nearly 80%of the customers are provided by the travel agents tothe Indian Airlines and

these travel agents are 2000 in number spanningthe whole country. Indian Airlines provides 5%

and 7% commission ondomestic and international fares respectively to the travel agents.SWOT ANALYSIS OF INDIAN AIRLINESSTRENGTHS

Large fleet.

Experienced staff.

Dedicated departure terminal at Delhi.

Connectivity with the reservation centers and agents is good.

Adequate infrastructure and large network.

People are loyal towards the national carrier.


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Government Backing.

Indian Airlines has a modern and complete in-house training

Facility

WEAKNESSES

High overheads and huge workforce resulting in lower output.

Preconceived image of PSUs.

Attitude of the staff.

Ageing fleet.

Inaccessibility of the staff over phone.

Political/Bureaucratic interference.

On the spot decision making flexibility not there.

Ageing workforce (cabin crew). Indian Airlines has its socio-economic responsibility of catering tothe inaccessibility areas at subsidized rate affecting operationalexpenses. Being a dedicated terminal all services rendered at the airport ispresumed by passengers to be done by Indian Airlines. Job security too high.

OPPORTUNITIES


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Tourism industry is gaining momentum.

Induction of new aircrafts on lease.

Response to some of the promotional fares (schemes) isencouraging. Shelving of the privatization plans of Indian Airlines by theGovernment of India.

Corporates are showing interest in Indian Airlines.

Weakening of the dollar rate in comparison to the rupee.

Economic scenario is showing an upturn.THREATS Perception of the better product in comparison to that of thecompetitor. Recent world events hitting the tourism industry badly. Expectation of people from Indian Airlines is high, even some ofthem are unrealistic. Increase in the capacity of various airlines. Falling market share of Indian Airlines to that of Jet Airways.

Wet vs Dingfisher

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