Management Lessons from Kingfisher Airlines

A

ankitagaba

Ankita Gaba
We all know the dire state of Kingfisher Airlines, the good times are not so good now.

While the airline struggles to stay afloat, we as management students can learn a lot from the failure [or should we call it just a dip].

What are the management lessons that you can learn from the grand lifestyle airline's financial crisis?
 
I think kingfisher should liquidate its airline business. Our Indian governments rules and regulations are so unfavorable that all airlines are in a loss.

Let the loss making sector / subsidized sector be handled by the government until it becomes profitable. Education was less profitable for over 5 decades and was subsidized by govt. Let travel be handled by govt until it becomes profitable.
 
Hi Ankita really interesting and funny article....i feel Kingfisher Airlines has run into a debt because of mis-managed business model. Even thought the regulatory conditions are unfavourable for many airlines there are few who are making profit because they have a very sound and logically formed business model. Look at Indigo it has a very sound presence in the domestic segment and it has not hurried to buy aircrafts on lease and fly international....they know the current environment and are working around it. Airline business across the world are having turbulent times as we all know quantas is forming like a Jet Airway. The business structure for Airline Industry is very very complex and volatile. Playing around it with changing times will lead you to the top.
 
Very interesting thoughts there.

Do you also think the company lacked having it's own entity. The culture of the CEO was naturally adopted. Had the company been working stand alone, without as much influence of the CEO BRAND, it would have sustained longer.

Or maybe, it is the CEO's Brand only that is helping it sustain it's difficult days

What do you think?

Also as a management student, what would you suggest Kingfisher should do now?
 
Hey Ankita i would not point out the flaw in CEO culture just because if he has the power and capability to run a huge company like UB group and that too successfully then he would have had it in him to run this as well. But yes both of them are a complete different businesses and the airline one is the most complex one.

Coming to your 2nd thought of how could they turn from here on is to follow the basics and get back to the rules of the game. Here are few points that i would think of for a turnaround of their business:

1) Foremost problem is their huge debt. Two ways to pay off it. Either there is an FDI in aviation which would be more than 26%u0025 or sell off your few aircrafts and try atleast to make the debt manageable going forward.
2) Now comes the business structure that they will need to change. They will have to sell most of their aircrafts and also reduce their running to fewer destinations. This would help them to buy time to understand the market and the complexity of the business and also they would come to know which part of flying is generating revenues for them.
3) They will have to reduce the number of employees. One person will have to do the work of 2 or may be even 3 for quite some time.
4) They need to focus more on domestic business and will have to reduce their expenses on the personnel they employ.
5) Keeping in mind the USP of Kingfisher which is their service, they will have to keep it up with with reasonable price.
6) Instead of focussing now more on price they will have to focus on volumes. The more and more number of passenger they board will be beneficial for them.
7) Business class passengers focus should be increased so that they can compensate on domestic pricing by charging them a premium.

Many more points can be rolled out but those would only impact the business if these big steps are taken going forward. For rest of it lies in the hands of the government to let the FDI participate in the Indian Aviation Companies or to reduce the Taxes on the fuel which they import and reduce the ground charges for the airlines and many such regulatory harrasments which all the airline companies are facing.

Cheers
 
koolin said:
Hey Ankita i would not point out the flaw in CEO culture just because if he has the power and capability to run a huge company like UB group and that too successfully then he would have had it in him to run this as well. But yes both of them are a complete different businesses and the airline one is the most complex one.

Coming to your 2nd thought of how could they turn from here on is to follow the basics and get back to the rules of the game. Here are few points that i would think of for a turnaround of their business:

1) Foremost problem is their huge debt. Two ways to pay off it. Either there is an FDI in aviation which would be more than 26%u0025 or sell off your few aircrafts and try atleast to make the debt manageable going forward.
2) Now comes the business structure that they will need to change. They will have to sell most of their aircrafts and also reduce their running to fewer destinations. This would help them to buy time to understand the market and the complexity of the business and also they would come to know which part of flying is generating revenues for them.
3) They will have to reduce the number of employees. One person will have to do the work of 2 or may be even 3 for quite some time.
4) They need to focus more on domestic business and will have to reduce their expenses on the personnel they employ.
5) Keeping in mind the USP of Kingfisher which is their service, they will have to keep it up with with reasonable price.
6) Instead of focussing now more on price they will have to focus on volumes. The more and more number of passenger they board will be beneficial for them.
7) Business class passengers focus should be increased so that they can compensate on domestic pricing by charging them a premium.

Many more points can be rolled out but those would only impact the business if these big steps are taken going forward. For rest of it lies in the hands of the government to let the FDI participate in the Indian Aviation Companies or to reduce the Taxes on the fuel which they import and reduce the ground charges for the airlines and many such regulatory harrasments which all the airline companies are facing.

Cheers
Click to expand...

Hi Kulin, those are impressive points and I think they have already been implemented.

Kingfisher has already optimized its aircrafts, it has optimized its fare and has still kept its positioning as premium air carrier.

All problems of a "poka-yoke" are already implemented when it comes to the internal environment. I think its the external environment - govt policies, infrastructure costs, inflation etc which have forced all airlines to bleed.

Dont you agree?
 
Hi Farhana,

I completely agree with you. Kingfisher has already optimized its aircrafts. They have been forced to do so because of their huge debt. But now they just cant sit back and wait for the external environment to get better or favourable simply because nowhere soon are we expecting these two important changes for the Airline Business which might prove to be a game changer:
1) Increasing FDI in Aviation more than 26%u0025.
2) Reducing taxes for the fuel imports by the airlines.

If we still see bad external conditions to prevail then Kingfisher is only buying time for its bankruptcy. More than Kingfisher Airlines i feel and i guess even you will agree that AIR INDIA is a bigger and larger case of badly run business. I dont see our Aviation sector doing well for the next 3-5 years atleast if not more than that. And these companies in the end help students like us to learn from their mismanaged business.

Going forward in the same case let us discuss about Indigo as a positive sustainer inspite of turbulent external environment. This will make some important and key distinction between a badly run and well run business. Any suggestion for the above?

Cheers!!!
 
A lot of interesting points rolled out here. I would like to chip in.

First of all Kingfisher definitely started on a roll, a roll based on extravagance inspired by their CEO and the work culture of UB group. Breweries and Airlines don't work the same way. They started too big for their own good. Predatory pricing ensured that none of the premier airlines could sustain their business model including Jet Airways. Even they had to go for a correction, while Kingfisher continued doling out goodies to every passenger to garner a customer base which it couldn't sustain.

Secondly, if you look at the groups history you'll know that corporate governance meant little to it as a brewery group(especially domestic businesses) and they continued the same idea of a closed group approach of being opaque in their policy decisions. Lack of transparency with their own employees especially the ones sitting in the cockpit and doing the flying so to speak led to a negative sentiment within the Kingfisher fold. And I am sure everyone agrees that negative sentiment spreads like wildfire. Through out the aviation industry there was a buzz of eventual failure.

Thirdly, the Air India sort of deals, fleet expansion too big to handle, sectors flown to with predatory pricing too hot to sustain.

Clearly lean business model meant little to the ambassador of good times ;)

Now for solutions.

Externalities cannot be avoided. Negative sentiment and publicity will continue, competitors will ride on this sentiment, the so called favourable policies may not come as quickly as the industry would desire.
My issue is even if favourable policies come in, the current managements functioning would not be able to pull it together. FDI inflow would probably help Jet most, not Kingfisher, so the whole FDI brouhaha is not even applicable to Kingfisher unless they pull up their socks.

So what next ???
Well some ideas would be :
a)leasing out their planes(unused or minimally used planes) to other carriers
b)cancelling all orders of airplanes.
c) Transparency and confidence building measures firstly amongst its own employees and then the customers.
d) Cut costs by not flying to expensive sectors and airports resulting in huge parking costs and low returns.
e) Focus on tier II nd tier III cities where other airlines may n have made considerable inroads and judge the operating costs of the same.
 
What are the operating profits or operating losses of indigo airline?

I doubt there is much substance to indigo being successful if you analyse it independently without any biased press coverage or advertising promises.
 
Hi Farhana,

Here you go with some stats:
1) Profit at Rs.650 crore on 48%u0025 revenue growth

2) India%u2019s largest low-fare carrier, IndiGo, posted an 18% jump in profit in the year ended March, performing better than many of its rivals, all of which except one made losses during the period.

3) Among rivals, low-fare carrier SpiceJet was the only one that made a profit during the year%u2014 Rs.101.16 crore, up 64.62%. Market leader Jet Airways%u200B (India) Ltd, including JetLite, made a loss of Rs.86 crore compared with a year-ago loss of Rs.420 crore. Kingfisher Airlines Ltd made a loss of Rs.1,027.40 crore compared with a Rs.1,647.22 crore year-ago loss. All three firms are listed, IndiGo isn%u2019t. Air India%u200B made Rs.7,000 crore loss in the same period.

4) IndiGo%u2019s total revenue rose 48% to Rs.3,946 crore on expenses of Rs.3,229 crore. It hired 1,097 people, including pilots, cabin crew and engineers, averaging a headcount of 94 people per aircraft.

5) The carrier made Rs.121 crore in non-operating revenue, potentially from sales and leaseback.

6) The airline was able to protect margins on tickets, figures indicate. IndiGo was able to charge approximately Rs.3,508 average airfare from 9.46 million passengers, based on total passenger revenue of Rs.3,518 crore. Its closest rival SpiceJet charged an average airfare of Rs.3,409 during the year, according to the airline.

I do agree as to this company might not have the substance but when it comes to competitors Indigo has slowly but steadily grown QoQ. Its definately a success story among other loss making Airlines.

Cheers!!!
 
Surprising, I have an all new respect for indigo airlines. All other companies just need to adopt indigo's processes in line with their company vision to turnaround.
 
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