The name Kingfisher is a household name in India, it’s a refreshing beer and we can call it the Budweiser of India. Making some good profits in the brewery Industry, the CEO, Vijay Mallya ventured into the Airline Industry and launched Kingfisher Airlines commencing operations in 2005. Ever since that company has been running on a loss and right now, it’s almost in bankruptcy.

Exhibit 1: Profit/Loss: Courtesy Wikipedia, Numbers in Indian Rupees (X 10 million), EPS in Rs

A lot of things have gone wrong with the operations of this airline which has resulted in a big crisis for all its stake holders, not limited to its employees, its lenders, airline partners, stock holders and its flight leasers. Kingfisher Airlines has more than 80000 Million Rs in debt with very little cashflow.
So what went wrong?

1) Addressed the wrong market initially? It targeted the business class initially with fewer economy seats in its planes. Result: Empty business class seats and mounting losses. Under current economic conditions in India, there was more demand for economy coaches and lower cost airline tickets. He failed to understand the mentality of the mass.

2) Acquiring Air Deccan: In order to rectify its position, king fisher acquired a low cost/profitable economy carrier named Air Deccan and re-launched it as Kingfisher Red. This acquisition came at a heavy cost and besides, the CEO of Air Deccan Lt Gopi was set aside and the operating principles/philosophies were changed. As you can see, ever since Air Deccan was acquired in 2007, Kingfisher had 1000+ crores of loss during each year of its operation. 3) There were reports of how overstaffed Kingfisher was and with the addition of Kingfisher Red, it only increased! 4) After acquiring Air Deccan, Kingfisher hiked up ticket prices resulting in more empty seats and higher operation cost. Passengers moved to other low cost airlines like Indigo and Spicejet 5) The operations were not centralized and it was scattered with lot of resources underutilized. 6) The CEO ended up cutting some high traffic routes of Air Deccan which overlapped with King Fisher Airline and destroyed the cash-cows 7) There was very little difference in terms of quality between Kingfisher Airlines and Kingfisher Red. However, the Kingfisher Airlines was addressing premier customers with hiked up prices for the same economy seats while Kingfisher Red was cheaper. This resulted in lower revenue from Kingfisher Airlines. 8) With debts mounting up, the CEO was forced to pay high interest rates resulting in capital liquidation. 9) Dis-satisfaction grew within the company resulting in frequent strikes and hence customers faced undue delays and flight cancellation. This resulted in decreasing popularity and even lower revenues. 10) Overall, Vijay Mallya failed to run a low cost airline industry, he was so focused on how to improve the business class experience with silver plates and spoon while devoting very little time to maximize from his cash cows, ie the Economy class.

Moral of the Story?
Understand your cash cows and optimize operations around it to maximize profit.