Failure Story of

Kingfisher
Airlines

Strategic
Management
Assignment
Assignment Topic: Success or failure story of an Indian Company: a.
Their success or failure story; b. Reason behind the success or failure; c.
Recommendation based on your own observations

Name: Asif Mahamud

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 Failure Story of Kingfisher Airlines
Abstract
Kingfisher Airlines Ltd. was owned by biggest liquor tycoon of India with an ambition to become an industry
leader. Growing share in aviation market, wide number of destinations and numerous awards, depicted a very
attractive and innovative picture for the company. Kingfisher airlines achieved success in gaining customer
satisfaction by offering great and comfortable flying experience to its passengers. However, in the Indian aviation
sector, Kingfisher Airlines had a short but lasting impression. By the end of 2011, Kingfisher Airlines suffered a
huge financial crisis. Kingfisher Airlines, UB Holdings Ltd. was provided loan by many private and public sector
banks in India, considering the reputation of its CMD. He was unable to repay loans to many public sector banks,
however private banks recovered all loans. Here, we have tried to understand the business of Kingfisher Airlines
and studied the role of banks in extending loans and recovery attempts. Moreover, we have attempted to
emphasize the reasons behind the financial failure of the company from the point of view of mistakes in strategic
decision making.

Introduction
Vijay Mallya’s dream venture, Kingfisher Airlines –widely known as The King of Good Times – witnessed its worst
phase. Kingfisher initially launched as the all-economy, with single-class layout aircraft with high quality eatables
and entertainment systems. Vijay Mallya’s jovial nature, knew well enough how to live the life of a king, and
focused only on this thought that each air traveller would expect their travel similar to a king’s journey in the
Kingfisher Airlines. A year later after the airline was set up, the focus shifted to the high luxury class. The airline
could not hold stability with changing time and ideas of its models and expecting random expansion. The
misguided government policies made entire Indian domestic aviation suffer from a serious market failure, and
thus the ministers were needed to step in quickly to fix it. Kingfisher, the debilitated airline asked for life support
from the government and banking sector and focused to manage much of the business funds with outside
money. Since 2005, as the airline initiated operations, the business is proclaiming the losses. In India, a large
number of aircrafts were added by most of the upcoming airlines since 2006 and they deployed them mostly on
metro sectors which resulted into baneful price war among all the airlines. Even today, almost every airline in
India is suffering operating losses. But after the company acquired Air Deccan in the year 2007, the situation
became even more dreadful and this made the airline face financial issues for long. Kingfisher Airlines holding
second largest share in India's domestic air travel market till December 2011, faced extreme financial crisis. Here,
I tried to understand the business of Kingfisher Airlines and studied the role of banks in extending loans and
recovery attempts. Moreover, I attempted to emphasize the reasons behind the financial failure of the company
from the point of view of mistakes in strategic decision making.
Background of the Company
Kingfisher Airlines was established in the year 2003 and owned by the United Breweries Group which is based in
Bengaluru. It came into the aviation market at a time when the low cost airlines had galvanized the market and

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made air-travel available to every Indian. The promoter of the airline, India's biggest liquor tycoon Mr. Vijay
Mallya was well known for his vibrancy, quality and style. He upholds the legacy of his family business at the age
of 28 and his luxurious lifestyle gave him the corporate fame at quite an early age. He used his popularity to
uplift United Breweries Groups brand and invented “King of all times” slogan for the beer. Starting off as the
Chairman of UB Group, his international blitz of buying and selling Berger Paints U.K. and spending money on fast
cars, yachts and many international homes remodelled him to its brand icon. “My own lifestyle got intertwined
with brand personality and so without really planning it that way I became almost my brand ambassador of and
that’s just the way it’s kept on developing” he once said. This slogan led to the creation of a brand image of
Kingfisher airlines. The company possessed two subsidiaries Vitae India Spirits and, Northway Aviation. The
Aircraft acquisition and financing pre-delivery payments was taken care by Northway Aviation. On 9th May 2005
Kingfisher airlines started commercial operations with four brand new Airbus A320 – 200s, which operated
between Delhi and Mumbai on a daily basis. The company aimed to provide world class facilities and lead the
competition in products well as service offerings, with brand new planes and excellent facilities like: hot meals,
comfortable seats, personalized entertainment and treating passengers as “guests”. With this kind of an
approach, the company started with 4 flights in a day between Delhi and Bangalore, and further increased it to
104 flights per day by introducing 17 aircrafts and connecting 16 cities in one year and setting record in 2005-
2007, of fastest airplane induction. By the year 2006, the Airlines achieved a five-star status and were popular
among the business class travellers. It also offered personalized live in-flight entertainment by collaborating with
Dish TV India Limited. By connecting Bengaluru with London, the airline commenced its international operations
on 3rd September 2008. During the year 2008, the company attained the reputation for being the only five-star
air travels in India and came to be known for rendering excellent flight services to its travellers and maintained
its position for the next three years. In 2009, Kingfisher won numerous accolades across the globe and it was one
of the only seven airlines which got 5-star rating by Skytrax. Eventually it became the largest airline of the second
most populated country in the world with 26.7% share in aviation market. Kingfisher Airlines operated around
250 daily flights. In May 2009, Kingfisher Airlines got the highest share in aviation market among all the airlines in
India by carrying more than 1 million passengers. At that time three classes of travel were offered by Kingfisher
airlines to its travellers:
Kingfisher First: which was the business class service mainly focused on people who can afford premium services,
Kingfisher Class: The Premium Economy service for the middle-class people who were trendy and upwardly
mobile and Kingfisher Red: Low fare basic class which was another name for Air Deccan and focused on the
middle class people who were price conscious. In the year 2011, it was once again awarded the best Indian
airline of the year. However, it reported a loss of Rs. 1,000 crores for three consecutive years.

Vision of Kingfisher
“The Kingfisher Airlines family will consistently deliver a safe, value-based and enjoyable travel experience to all
our guests.”
Start of the Bad Time
There was a time when Kingfisher airlines was one of the best rated airline in India and got success in gaining
customer satisfaction, but it failed to sustain that for a long time. With the economic slowdown in 2008 and the
increasing fuel prices as well as the KFA’s mandatory requirement to provide services on non-profitable routes,
the path ahead was full of difficulties. The cash strapped Kingfisher airlines was caught in a precarious web and
burdened under huge debt, which it owed for airport fees, fuel, and salaries to employees, repayment of loans to

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different banks and service tax. In Sept 2010, ex-CEO of Spice Jet, Sanjay Agarwal, joined Kingfisher Airlines and
Vijay Mallya assumed the role of MD and Chairman of Kingfisher Airlines. In September 2011, in order to get
along with the cash crunch, kingfisher airlines decided to exit Kingfisher Red, which was its low cost segment, but
the survival mantra was very late for the ailing airlines. According to the Kingfisher Airline’s annual report for the
year 2011, reasonable doubts over the company's existence were raised and it was pointed out that the
government money had not been deposited by the airlines, which it deducted as TDS and provident fund
contribution, highlighting scruffy financial sustenance of the company. With the passage of time the situation of
the company got worse, leading to termination of international flights and cancellation of domestic flights, which
is still continuing unabated. On 25thApril, 2012 its languishing shares hit an all-time low of 13. During the year
2012, losses of over Rs. 7,000 crores were accumulated by the company, with about half of its aircrafts grounded
and many members of its staff going on strike. As all its operation suspended, the airline came to a halt.
In view of these predicaments, Vijay Mallya appealed the government for a bailout, but was refused the same.
DGCA suspended its flying license on 20thDecember 2012, and the airline had to shut down its operations.
Rule
The ministry set Directorate General of Civil Aviation (DSCA) rule drafted in July 2010, as bases for the argument
that allowed the airline to function if it would possess five aircrafts and had a capital paid-up for no less than Rs
50 crore. Kingfisher airlines for over a year kept on cancelling the scores for flights under a debt, of more than Rs
7,000 crore and liabilities over Rs 4,000 crore. Lessor have confiscated its aircraft, which significantly reduced its
fleet. The ministry was proved unsuccessful to mention the rule which states that an airline’s license is a subject
to “mitigation of potential risk factors” discovered during a financial surveillance, ensuring safety was not
accommodated due to the airline’s financial pressure.
Causes
There was the severe need to identify airline cause for distress considering financial and operational issues to
ensure safety functions don’t get affected. The possible unfavourable trends in the operator’s financial state
could include:
1. Decrease in safe operating standards or evidence of cutting corners.
2. Fall in training standards.
3. Significant turnover of personnel.
4. Delayed meeting payroll.
5. Insufficient aircraft maintenance.
6. Storage for supplies and spare parts.
7. Decrease in frequency of flights.
8. Sales or repossession of aircraft and other major equipment items.
Reasons behind the Downfall
Till December 2011, KFA was considered among top 5 passenger airlines in India but after that it suffered high
losses, heavy debts and finally shutdown in 2012. From the data collected, it depicts that there are more
business reasons as compared to marketing reasons behind the failure of KFA.
The main marketing reason responsible for the decline was the merging of KFA with Air Deccan and starting of
Kingfisher Red.
Operational Reasons
1. The maintenance, navigation, landing cost of KFA in 2012 was about 10.86% of the total revenue generated
and 3% more than that of Jet Airways.
2. The employee cost of KFA was also higher than any other airlines.
3. The cost of Value added Services (VAS) by KFA was also very high and also they paid less attention on
cleanliness, connectivity, scheduling and low prices that were the basic requirements of Indian customers. From
the reports generated and studies conducted it shows that the condition of Aviation Industry in India was in so
much pain that it adversely affected the KFA. There were 4 factors responsible for bad condition of Aviation
Industry in India.
Rise in Fuel Prices
Due to rising demand for fuel and competition among various airlines there was continuous increase in the price
of jet fuel and KFA was not able to pay the bills of fuel consumed.
1. Fall in Rupee
2. High cost of landing fee and airline taxes

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3. Price cutting by AIR INDIA
Worst Decision Made
In 2007, KFA merged with Air Deccan that was a low-costcarrier that charges low fares while kingfisher was a
high cost carrier that was known for its luxury. Kingfisher thought that Air Deccan was in market before it so it
would uplift the financial position of the company and another reason was that Kingfisher didn’t have 5 years of
domestic experience but Air Deccan had and to get international license in aircraft it must have 5 years of
domestic experience that is why it acquired Air Deccan. After merging with Air Deccan there was introduction of
Kingfisher Red in 2008. But this business strategy caused confusion in consumer’s mind because the KFA
passengers were used to the luxury provided like cuisine and lounge access etc. The merging degraded the brand
status of KFA and the company lost its premium value. The company incurred a loss of more than 10 billion for 3
years after merging with Air Deccan. When Kingfisher gets to know that they did a big mistake by acquiring Air
Deccan, it increased the prices of Kingfisher Red. But Kingfisher Red was also not a good option at that time
because it was under loss and this created confusion among the management to call it a low cost or normal
carrier. In December 2011, Income Tax Department of Mumbai freeze the bank accounts of KFA because of due
of Rs 70 crores. To pay the debt the company took more loans. For debt reconstruction the lenders who lend
loan cut the interest
rates and converted the loan to equity. But this was also not helpful to the company as liquidity problem was
faced by the company after that. Kingfisher Red was finally shutdown in February 2012. Now KFA is under a total
debt of Rs 7057.08 crores (USD 1414 million) and total losses of Rs 6000 crores (USD 1202 million.

Strategic Issues
1. The major mistake committed by Mr. Mallya is that he failed to make proper decisions. He failed to
understand the requirement of consumers and made all decisions on the basis of luxury sells. For him airlines
were considered to be a luxury travels but in India only selected classes were ready to pay extra for luxury.
2. Mallya being a liquor tycoon was unable to identify the differences between the two industries. Customer
might pay extra for alcohol but not for transport, because transport is type of necessity than luxury.
3. In 2008 Deccan airlines was rebranded as Kingfisher Red by Mr. Mallya. So Kingfisher Airlines operated both
business and economy class airlines. This looks perfect but wasn’t actually. Mr Mallya was in different businesses
at the same time. For his liquor business officials were appointed but for airlines all was going by itself. The
business needed the attention of Mr Mallya.
4. According to reports, 366 domestic flights, 20 international flights were flown by KFA. It also owned 67
aircrafts. This increases aircraft lease rental. In 2011, the lease rental crossed Rs.984 crores and because of this,
66 aircrafts have been grounded.
5. In 2011 there was a time when Kingfisher was not able to pay the salaries to employees. Salaries were due for
4 to 5 months. After this the employees started refusing to sign the mandatory “Tech Log” which states that
aircraft is fit and ready to fly. This was noticed by Directorate General of Civil Aviation (DGCA) and they cancelled
the license of KFA.
Economic Slowdown
Economic slowdown in 2008 is another external factor for downfall of the Kingfisher. In 2008, first international
route from Bangalore to London was set up. Because of downturn, fuel prices of airplanes raised landing charges
at international airport which highly impacted Kingfisher airlines.
Lack of Proper Management
The frequent change of CEO for more than once in a year and malfunctioning of top level management, which
Mr. Vijay Mallya never took any serious intervention in day-today operations. Later airline was gifted to Siddarth
Mallya (son of Vijay Mallya) by his father on birthday. He lacked the maturity to handle such a big airlines

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business and so, lack of correct proficiency and experience in the airline industry, kingfisher airlines suffered
severe downfall due to lack of proper management.
Bank Dues
According to a report generated by “The Indian Express” in November 2015, Mr. Mallya suffered a total loss of Rs
9,091.40 crore. He took loan from 17 banks. His highest debt was with State Bank of India of Rs. 1600 crore. From
the above data the airline owes Rs 800 crore each to Punjab National Bank and IDBI Bank. It also owes Rs 650
crore to Bank of India, Rs 550 crore to Bank of Baroda, Rs 410 crore to Central Bank, Rs 320 crore to UCO Bank,
Rs 310 crore to Corporation Bank and Rs 430 crore to United Bank of India, among others, data showed.
Recommendation based on my own observations
 Downsize: Exit all loss-making routes, operate manageable fleet downsize personnel
 Negotiate hard to return all unused aircraft to the lessors.
 Dissolve the present board of directors and constitute a new one with some airline veterans. Ensure proper
oversight and accountability
 Replace most of the existing management with a new professional team, with proven records, and give them
carte blanche in running the airline
 Reduce non-bank debts to the tune of about Rs. 2000 crore. Around Rs. 1200 crore (debentures and deposits
from group cos) could be converted into equity
 Redesign the route structure to maximise both aircraft and crew utilisation
 Embark on a strong marketing campaign to regain passenger confidence
 Wi-Fi on flight, DGCA will have to chip in on this one (regulatory hurdle). There will be additional cost, but I'm
sure there would be a tech company say Google willing to spend to experiment.
 Food on demand. Tie up with Mac and dominoes amongst others work the logistics out on that. It's difficult
not impossible.
 Cut the fleet. Focus on two airplanes- a long range like the B777 and one for domestic hops, like B737.
Stick to one manufacture, order a bulk as I can afford and get going.
 The debt: give the banks investment branch a share of the company, with assured buy back as and when
possible, so as to slowly repay the debts.
 Keep the core business alive, try to be the luxury airline in the International market, and a mean, lean
budget one in the domestic.
 Focus on minimal turnaround times, on time performance and keeping the aircrafts in the air for
maximum hours per day
 Cut a deal with Bangalore and Delhi for hub status and decreased parking/maintenance fees
 Focus on core cities first, trying best not to go to the smaller, hardly profitable ones, at least until the
turnaround is complete.
 An employee appreciation programme to improve the staff’s love for the airline.
 Try to get back the Star Alliance that was in the offing- they would love to, considering their current
partner is Air India.
References
1. Air Deccan is now Kingfisher Red - Times of India
2. Strategic Mistakes That Led to The Failure of Kingfisher
Airlines
3. Kingfisher default bill: This is how much defunct airline owes
to banks; largest dues to SBI - The Financial Express
5. [Link]
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irlines-/-aviation/why-vijay-mallyas-kingfisher-airlines-is-stillnot-
grounded/articleshow/[Link]?from=mdr
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of-a-castle-in-the-air/[Link].