Rise and Fall If Kingfisher Airlines

The Fall of Kingfisher Airlines
After his father, Vittal Mallya, died unexpectedly in 1983, Vijay Mallya took over the UB Group
before he reached thirty. Deccan Aviation's Capt. G.R. Gopinath, who was looking for a buyer
for his company, Air Deccan, had almost finalised a deal with Anil Ambani. Ultimately, the deal
failed due to a few last-minute difficulties. And it was at this point that Mallya, who had
continued to deny that he cannot even imagine purchasing an airliner whose business strategy
was different from his own, unexpectedly put in his proposal, seemingly proposing more money
to attract the offer than the prior one. Mallya obtained a sizable portion of the Air Deccan and
other aeroplanes' markets, as well as an instant listing. Another product was thrown in because
Air Deccan had been in the firm for 5 years, the regulation required every carrier to fly overseas
to obtain a permission to operate on international routes. The carrier, on the other hand, suffered
repeated losses.
Through a reverse merger, Kingfisher Airlines renamed Air Deccan, and once the deal was
completed and the necessary regulatory clearances from the SEBI regulator were in place,
Mallya quickly renamed the carrier back to Kingfisher Airlines in 2008. He rolled off the Air
Deccan fleet into Kingfisher Red, a subsidiary. As a result, Kingfisher Airlines offered both an
economy and a business class and flew trunk routes, including metros, whilst Red flew Tier II
area circuits as well as some of the bigger cities.
Mistakes
1. Mallya worked for several companies, each of which was unique. For such diversified
companies, one would often appoint a CEO to run it with a hands-on strategy, each of
which would report to the company chairman in particular.
2. This was the point at which he made his second blunder. On its own, the carrier had a lot
going for it: good visibility, devoted customers, and a large network. Mallya could be
spotted all over the place, and he seemed to have a stronger desire to run the carrier than
was necessary, but it wasn't enough. The company's plan was unravelling, and losses
were beginning to mount. There had been cannibalism of the mother brand.
3. The third error, according to industry analysts, would have been for the airline to
integrate its local flights first and then add international flights afterwards, because
competition only grows on foreign routes and among those with more resources.
Because of the three errors listed above, the Kingfisher Airline currently has total debts of nearly
Rs. 6,000 crores. Mallya was forced into accepting loan payments from banks that still have a
total exposure to Kingfisher Airlines of over Rs. 7,000 crores, of which over Rs 1,300 crore was
converted into equity as part of a debt recovery procedure during much of the 2015 fiscal year.
The repayment terms for the lenders' entire exposure amounts to approximately Rs. 4,000 crores.
Microeconomic factors in Kingfisher Airlines Crash
1. Effect of Global Economic Crisis

The failure of large financial institutions has led to the global financial crisis, which has had a
severe impact on the global economy during the previous several years. The aviation industry,
which is one of the fastest expanding, has been severely impacted by the crisis. The worldwide
economic effect of civil aviation is expected to be around US$ 3.5 trillion, or 7.5 percent of
global GDP, and revenues have fallen by 7% since 2001. This resulted in a decrease in demand.
2. The Fall in Demand

Because there is a synergy between the global economy and the airline sector, any economic
crisis would have the greatest influence on civil aviation. Air transportation is a pro-cyclical
business.
Kingfisher Airlines Ltd, a subsidiary of Vijay Mallya's UB Group, said its first-quarter deficit
had expanded due to the global recession, which was exacerbated by lower passenger demand.
The country's largest carrier by market share reported a financial loss of Rs240 crore in April-
June, up from Rs158 crore the previous year.
Revenue for the quarter fell by 6% to Rs1,314 billion rupees from Rs1,398 billion rupees as
demand for air travel fell due to a weakening global economy.
3. The Fall in Supply
The aviation industry's problem has spread to airlines all around the world. Many of them
postponed the delivery of new planes, putting the manufacturer's output forecast in jeopardy.
4. Expenditure on Fuel
As local oil marketing businesses lowered rates in line with dropping global crude oil prices,
Kingfisher's single-largest expenditure, jet fuel imports, fell 53 percent to Rs414 crore. Jet fuel
accounts for around 40% of an airline's operational expenditures in India.
Kingfisher also owed oil marketing businesses money, which accumulated when oil prices
spiked. Kingfisher owes Indian oil marketing companies Indian Oil, Hindustan Petroleum, and
Bharat Petroleum Rs950 crore as of May 31, 2009.
Fuel Expenses KINGFISHER stats

Year 2012 2011
Revenue generated 582,400.00 649,560.00
Fuel Expenses 294,590.00 227,400.00
% 50.08% 35.01%
It is clear from the above table that 50.58 percent of their 2012 revenue is fuel expenditure, of
which 31.78 percent of their revenue was their fuel payment. Nearly 70 percent of their fuel costs
were raised, and many suppliers filed a petition with the Bangalore High Court against KFA such
as BPC (Bharat Petroleum Corporation) due to their fuel cost non-payment.
5. Differentiated Oligopoly
This is a distinct oligopoly. A few producers make similar items within an industry. Each
manufacturer strives to make their items somewhat distinct to charge clients greater prices. Jet
Airways, Air India, Indigo, and SpiceJet are the key participants in the airline sector. These
contribute for 87 percent of the market's overall 76 percent.
I. Entry barriers
Joining an oligopolistic sector and performing as an independent start-up business is challenging.
Firms in an oligopoly are large and profit from economies of scale. To succeed in this area, you'll
need a lot of know-how and money. As a result, a big corporation such as United Breweries
stepped in. He did, however, experience pain as a result of the procedure.
II. Huge Capital Investment

a) Rapid fleet expansion: 366 budget airlines were registered, with Kingfisher airlines flying 20
foreign routes. They also had a fleet of 67 aircraft. This increases the number of aeroplane leases
available. In 2011, the leasing rent reached Rs.984 crores, and 66 aircraft were grounded as a
result.
b) In 2012, Kingfisher Airlines' maintenance, navigation, and parking expenses accounted for
10.86% of total revenue, which was 3% more than Jet Airways'.
c) High Overhead Costs: In 2012, Kingfisher Airlines had the highest staff cost than any airline.
III. Brand Loyalty

People buy tickets from airlines with which they are acquainted and comfortable, resulting in
great brand loyalty.
IV. Economies of Scale

Without analysing the market, Kingfisher moved into the aviation sector from the liquor
business. Manufacturing several products by a single company is less competitive than having
multiple firms, each specialising in the production of a single product.
Other Key factors in Kingfisher Airlines Crash:
1. Going against LCC trend

Kingfisher Airlines, which has struggled to run both a low-cost and a luxury brand under a same
management structure, defies the market's low-cost trend. SpiceJet, IndiGo, and GoAir are
among the country's fastest-growing budget airlines, accounting for half of the six main airlines.
Kingfisher Airlines' premium service approach, which comes at a time when the Indian airline
sector is experiencing widespread losses, also foreshadows a period of slower development as a
full-service market. This might reduce Kingfisher's market share while simultaneously increasing
the attractiveness of LCC competitors.
2. Kingfisher unprofitable since launch

The airline reported growing financial losses as a result of rising fuel prices, fierce local
competition, and a shift in the market toward low-cost flights. Greater levels of demand, load
factors, and yields, as well as a debt recast that helped lower interest costs, have had a negative
impact on margins, and higher sales have been offset by higher levels of demand, load factors,
and yields.
Year Profit before Interest and Taxes
2005 46.01
2006 -53.8
2007 79.7
2008 -211.56
2009 45.7
2010 -12.89
2011 33.19
2012 -1827.9
2013 -2626.19
500 Profit before Interest and Taxes (INR)
-53.8 -211.56 -12.89 -1827.9 -2626.19
0 79.7
46.01 45.7 33.19
PROFIT IN INR
- YEARS

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The Fall of Kingfisher Airlines

Microeconomic factors in Kingfisher Airlines Crash

1. Effect of Global Economic Crisis

2. The Fall in Demand

Fuel Expenses KINGFISHER stats

II. Huge Capital Investment

III. Brand Loyalty

IV. Economies of Scale

1. Going against LCC trend

2. Kingfisher unprofitable since launch

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