The inevitable has finally happened. With the DGCA cancelling the flying license of the beleaguered airline from Bangalore, it effectively puts the lid on a chapter which has led to the biggest aviation crisis in India ever [No, I am not forgetting the Air India debacle, but this one especially could have been saved unlike the story of the "maharaja".]
This might sound cliched, but I only hold Vijay Mallya to be responsible for where his airline is, today. That said, we all know its not the last we are seeing of him, but certainly the last we will be seeing of his airline. Optimists can say that there will finally emerge a buyer for KFA and that we can see it flying again, but this time both the pessimist and the realist would have firmly put the lid on the future of the Fly Kingfisher brand. All those planes grounded in Mumbai shall remain so, for a considerable amount of time, from what it looks like. One might wonder how the airline reached rock bottom in a matter of 3 years. I have a few answers to it, not all ofcourse, but definitely a few teething questions which are always worth having a look at. The comparison of the business models of Kingfisher Airlines and IndiGO, which is supposedly the world’s fastest growing airline (true story! ) gives a very interesting perspective on the whole story.
Kingfisher Airlines : The debacle
Kingfisher started as a full service carrier in 2005, offering single class configuration on all flights. Not a year later they were back tinkering that model and going on the lines of airlines such as Emirates or Singapore Airlines, offering five star travel facilities for its users. Facilities included live in – flight entertainment, virtually the first time ever in the asian subcontinent for all flights. It was an instant hit with the business travellers’ segment who were already disappointed with the monopoly of Jet Airways and Sahara back then. Quite obviously that the airline suffered losses in its first year of operation due to its nascency.
Year 2006 saw Kingfisher getting into serious talks at the prospect of acquiring Air Deccan. Air Deccan, the premier low cost airline in the country at that time had started getting slippery and Capt Gopinath, in my opinion, was the most street smart man on earth to have thought of bailing out, seizing the opportunity at just the right moment. I say this because Air Deccan worked on a business model which was virtually opposing the KFA model. Gopinath’s Deccan was built around a single fleet, no frills, cost minimized approach which made flying accessible for the first time to every economic class of people in the country. I remember how my grandmother’s sister flew for the first time in her life, thanks to Deccan.
And Mallya was serious about acquiring this airline, which any expert in aviation would have advised against. Anyway, he went with his gut feel and acquired the airline in 2007. The main idea surely was to gain more market power with the increased fleet strength of 70 odd jets in the sky. But that opened up three segments for Mallya: Kingfisher First (Business Class), Kingfisher Premium (Economy Class) and Kingfisher Red, the new low cost entrant from the residues of Air Deccan. 2008 and 2009 were by far, the best years for KFA despite the merger with Deccan. He had a lion’s share in the aviation market and Mallya quite rightly brandished that feeling of power in his hands. Awards and accolades did come in his way and all looked promising for a while.
Three different business models with none being sound had already had chaos written all over it. Mallya was the only one who denied anything of this sort. Year 2010 saw his fleet strength go down and the re-emergence of Jet airways at the top. What was also significant was this little airline called IndiGO. IndiGO had an outstanding passenger throughput exceeding 90% on all flights and had the best on – time flight record. Addition of international routes did not do much of a favour to KFA and it continued to rapidly decline market share wise. 2011 was the first year when they seriously started reporting cash flow issues and simply attributed that problem to the rising fuel costs. I agree, rising fuel costs was an issue, but certainly not the only one. Had it been the only one, other airlines should have suffered equally as well. Airlines like the Jet Airways and IndiGO had continued to flourish in comparison with KFA. And that was due to the age of the fleet. IndiGO, for example has an average fleet age of around 2.4 years, SpiceJet has around 3 and I am sure none of us want to even think of Air India. The older the fleet, the more the fuel, the more the cost. Simple logic.
And so, the pilots left, flights and payments got delayed and the way downhill was almost inevitable now for Kingfisher. Curtailment of schedules, ensuing strikes by employees over the non payment of compensations has brought the airline to a grinding halt.
Business Model Analysis -Kingfisher
- If there is one aspect at which we could pinpoint the demise of KFA to apart from Dr. Mallya, it would be the failure of the company to read the business models carefully before they went into acquisition. The KFA model was a blind adaptation of the internationally successful airline business models and lacked any localization to the region it was operating on. I mean, why would an airline acquire a low cost company which made money on flying to airports such as Rajahmundry, Gulbarga, Trichy Vijayawada & Coimbatore and then put those flights to compete with the regular Delhi – Mumbai, Bangalore – Delhi routes? It was astounding, the confidence of KFA on the low cost brand that it blew away all the Air Deccan strategies and created a few themselves, which misfired.
- Another most common flaw that is easily pointed out is the fleet mix and the dream of buying jets at a nascent stage rather than leasing them. This was effectively the reason to shut down Paramount Airways, if we remember. And more than that, successful carriers which fly low cost have always adopted a single fleet composition. All the leading low cost carriers in the world like Southwest (B737), Easyjet and Ryanair (A319/320) have all gone in with this diktat and it works. Because, single fleet reduces the costs involved in training of personnel and also on the maintenance aspects. KFA was too young to take more than 5 different types of Airbus’ and work without incurring huge losses. A good deal of it would have been negated with a sound business model and marketing strategy, but KFA sadly had none of it.
- The lack of technical expertise on the airline affairs. It won’t be surprising knowing the nature of Dr. Mallya that KFA had only two CEO’s in total for all the airline departments and Mallya insisted on running the airline most of the time. This might sound very familiar to that when Air India is run by a politician, and assisted by bureaucrats instead of a group of aviation experts, as is the practice with other airlines. Mallya might be gifted in many ways, but surely not gifted enough to manage an airline since he lacks the formal training in doing so.
Business Model Analysis – IndiGO
- IndiGO had a business model which was clearly a no – nonsense one at it. Single class configuration, no frills, quick turnaorund times (25-30 minutes in Indian airports is like magic), They leased flights instead of buying them and vowed to add one flight every four to six weeks. Possessing a very quirky advertising and marketing campaign, IndiGO quickly got onto the top ranks by possessing a record for the biggest percentage of on time flight records. This can only be attributed to the rapid turnarounds observed, which is one of the signs of a sound business model.
- They had a CEO on board as early as 18 months before they commenced operations. Not just that, they did not believe in exploding to life with a big bang as Kingfisher did. They were rather skeptical of slipping down and thus took baby steps into the aviation industry in India. Acquiring jets was not their forte and instead they decided to lease them in the beginning, for leasing was a far more cost effective solution.Working this way up to the top has ensured a very firm base from where IndiGO can command and exert exceptional control over its strategies and the overall aviation scenario in India. And this has precisely got it into the position of the leading airline in the country, the fastest growing airline in the world in the world and quite obviously, the only airline in India to register profits.
- The gawkiness in getting deals done the way they want deserves a special mention because they have managed to do just exactly that. With 220 orders for the A 320 family lined up [one of the biggest deals ever], they managed to strike one of the best deals in aviation history with Airbus, as part of their expansion programs started in 2010, four years since their inception into the flying business. Whereas Kingfisher managed to reduce its fleets by 4 years because they had bought all of it and were experiencing mounting losses already.
Thus, quite clearly the demise of Kingfisher had everything to do with a flawed business model and the inability of it to live upto the needs and wants of the growing and increasingly ever-so-complicating global airline sector.