Free Essay

Kingfisher Crisis and Its Causes

In: Business and Management

Submitted By dhruvsheth
Words 1996
Pages 8
Warren Buffet once wrote, “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money.” (Kaul V, 2012) – This statement is epitomized by the case of the Kingfisher airlines. Ever since it commenced operations in 2005, the airline has never posted any profits, despite having been endowed with huge amounts of capital. Its losses and debts are aggravating and accumulating with each passing year. For the many banks including SBI that borrowed huge amounts of money to this loss making enterprise, Kingfisher has now been recorded as a non performing asset (NPA).
Kingfisher entered its worst ever crisis since October last year - By early 2012, the crisis had got so bad that the airline accumulated total losses of over $ 1.27 billion. Moreover, the market share of Kingfisher airlines in the Indian aviation sector fell drastically – while it boasted of having the second largest market share in October last year, its market share has now fallen to the lowest of any Indian airline in April. To make things worse, the airline has had to cut the number of its flights to about 120 a day, down from about 340 daily flights. (Hatif T, 2012; Parija P, 2012 ). There were a large number of flight cancellations too. In addition, in May 2012, the Indian aviation director even threatened Kingfisher that it would lose its flying slots if it did not pay the income tax of Rs 269.06 immediately. (Anonymous, 2012; Munshi N, 2012)

Kingfisher’s market share in the Indian aviation sector in 2009 (domestic operations)

Kingfisher’s market share in the Indian aviation sector in 2011 (domestic operations)

Kingfisher’s market share in the Indian aviation sector in 2012 (domestic operations)
Kingfisher has been declared as a non performing asset (NPA) by the following 7 banks: SERIAL NUMBER | BANK | 1 | SBI | 2 | Bank Of Baroda | 3 | PNB | 4 | IDBI | 5 | Central Bank | 6 | BOI | 7 | Corporation Bank |

So what exactly triggered this downfall? What caused Kingfisher airlines to drop from the first to the last position in terms of market share?
Global aviation industry is passing through challenging times due to unprecedented fuel price hike during the last 4 years, turbulent financial markets and economic recession. (Ghosal B et al, 2012). Other times, costly planes, fears of terrorism and even outbreaks of disease ads to the woes of ailing aviation. Many airlines in India are currently suffering from operating losses, especially due to the depreciating Indian rupee ad the economic recession. Due to these high losses, Kingfisher was having great difficulties in paying the salaries to its employees. This resulted in a large number of strikes and demonstrations by the Kingfisher pilot and staff, which further hampered and blemished the image of the company as well as cutting down its sales revenues. In addition, some serious strategic blunders have been made by Dr Mallya which proved to be disastrous for this airline.
These are considered to be the conventional reasons to explain the failure of Kingfisher and why it has fallen into such a huge crisis.
Due to the constraints of time and space (word limit), I will only be looking at three of these reasons in detail. I considered these reasons to be significant as they involved internal factors and strategic blunders made by Kingfisher itself, which led to its misery. Unlike external factors which affect all airlines worldwide, it is these internal factors which distinguish Kingfisher’s abominable situation from those of other successful airlines. These reasons are as follows,
With a record debt of Rs.7, 057.08 crore to be paid, paying out the salaries to all employees was always going to be a mammoth task for this crisis ridden airlines. Unfortunately for Kingfisher and Dr Mallya, this was the case. In fact, in one of his letters to the employees, he even mentioned that their salaries were ‘seriously overdue’, making very evident his guilt and embarrassment. He even stated that he would be make regular visits to all the major stations to address the concerns and problems of his suffering staff. (Anonymous 2012; Nigam S, 2012)
One of the main reasons which caused this payment problem is because Kingfisher never treated customer experience and employee experience as one and the same – their focus was always on keeping the customer happy. Keeping the customer happy is quintessential for any business but not to the extent that you forget caring about your employees.
It is true that without customers a business would not be able to survive but employees are equally essential or maybe even more important to keep the business running. In fact, without a motivated, hard working labor force, a business can never be started and can surely never become profitable. Employee motivation and satisfaction is very important for any business to do well and the management should ensure that the employees are kept happy and satisfied. If the employees are not paid their salaries on time, how do expect them to keep working with complete efficiency and motivation? This is where Kingfisher lost the battle – it gave customer experience paramount importance whilst ignoring its employees. This resulted in a very unhappy and de-motivated workforce, which further worsened Kingfisher’s situation in the months following November 2011. The brand has suffered low morale, damaging in-flight announcements given by disgruntled employees complaining to passengers that they have not been paid and a reported high-turnover of aircrew and top-talent. (Anonymous, 2012) Also, many flights during the peak and the normal season have been cancelled, resulting in greatly reduced sales revenues as well as a damaged reputation. When I took figures into account, I observed that a 15.42% drop in the number of departures (of Kingfisher flights/ planes) has resulted in 15% dip in sales revenue earned. (Sanjai P, 2012)
Apart from the non - payment of salaries, even strategic blunders (foolish strategic choices) led to the downfall and misery of Kingfisher airlines. When its operations commenced in 2005, Kingfisher airlines had its international operations base in Bangalore where it hardly had anyone to compete with. However, in a hasty and rather preposterous decision, Dr Mallya decided to change its base to Mumbai. Shifting from its international operations base from Bangalore, where it was the sole Indian carrier offering wide-body services, to Mumbai, the home base of both Jet Airways and Air India, Dr. Mallya forced his team (management at Kingfisher) to indulge in suicidal competition. Despite best efforts, the international operations which constitutes only 22% of total revenue, still continues to be a huge money drain, loosing over 5% of gross revenue.
Moreover, the merger of Air Deccan has been the main reason behind Kingfisher crisis. Substantial liabilities and recurring losses of Air Deccan and the failure of Kingfisher management in synergising and rationalising the two entities is one singular factor mainly responsible for the current Kingfisher crisis. (Ghosal B at ol, 2012) Many sources claim that Mallya treated this new merged business (known as Kingfisher Red) as a step child since it was a low-cost aviation carrier as opposed to Kingfisher airlines itself. Post the merger, whenever there was an Air Deccan and Kingfisher flight at almost the same time-slots, a decision was taken to do away with the Air Deccan flight in the hope that the passengers will graduate to Kingfisher full-service. But just the opposite happened. They went to other low cost carriers instead, worsening the case for Kingfisher and further diluting its market share.

Months | Exchange rate average for the month(how many rupees was one dollar worth) | 2011 | | August | 45.365 INR | September | 47.6585 INR | October | 49.2856 INR | November | 50.7911 INR | December | 52.5228 INR | 2012 | | January | 51.1976 INR | February | 49.1978 INR | March | 50.404 INR | April | 51.7775 INR | May | 54.3858 INR | June | 56.0164 INR |

This table shows how the Indian rupee depreciated, which was one of the external factors that increased Kingfisher’s misery.
So what could be done to avoid crises like this in the future? What measures should be taken by the system as well as other airlines to ensure that they do not end up as the next Kingfisher? Firstly, all businesses should ensure that they treat consumer experience and employee experience to be equally important. Comprising on even one of the two would result in horrible consequences for the business. Both these entities are very important to any business and making even one of these unhappy could be disastrous. Employees should never be taken for granted – because it is only highly motivated and efficient workforces that can provide excellent customer service and maximize customer satisfaction. Secondly, however centralized the management structure of the business may be, delegation should always be encouraged in all business situations. Dr Mallya once said that as far as running his airline is concerned, he ‘takes things very personally’ – this should be obvious considering the fact that the Kingfisher airlines was his brainchild. Many people suggest that it was Mallya’s persistent interference in the affairs and running of Kingfisher and his reluctance to delegate important tasks which has resulted in the downfall of this airline. Thus, it is quintessential for any manager or director to delegate tasks as it ensures that everyone is actively involved in the running of the business. Moreover, delegation even helps to motivate employees and makes them feel that they are considered to be important and trustworthy.
In any business, the management should ensure that strategy is followed and a sense of direction is maintained. It is not advisable to bring about frequent changes in strategy (anonymous, 2012). Also, it is important that strategic choices made by the management are well thought of and suitable for the situation at hand – one cannot afford to make outrageous blunders here. For this, it is important to have a CEO or MD who makes all decisions regarding strategy, its implementation and the overall goals of the business. The over interference of Dr Mallya in the affairs of Kingfisher prevented this from happening effectively, proving to be detrimental for the airline. This is evident from the fact that Kingfisher initially started out as a full-service carrier, then added a low-cost model, expanded it further, only to fold it up and go back to the initial focus of full service - all this in a period of just six years – it proves how confused and muddled up the central focus of the airline was.
What you stand for, the operational choices you make, the culture you foster, the experience you deliver, and how you deliver it through your people and processes have to work in harmony to mutually support and reinforce the brand. Each element must work with every other in order for the strategy to work and when you change one element it can have a serious effect on the rest. This means that the business needs to be viewed holistically and strategy executed in the same way. Somewhere down the line, this was the aspect that the business model of the airline greatly lacked and suffered as a consequence of it.
However, my conclusion is limited by the constraints of time as well as the research method I have used. The research methodology primarily used by me has been secondary qualitative and quantitative research. This gave me a deep insight into the situation faced by Kingfisher while endowing me with different views (opinions) and reasons for which Kingfisher has landed in this ghastly crisis. I was even provided with accurate figures, statistics and facts. Also, all this information and data was easily accessible on the internet and could be acquired at minimal costs as opposed to many kinds of primary research. However, on the other hand, it is very difficult to evaluate the validity and reliability of the information obtained through secondary research.


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