Kingfisher Airlines : A dream that never really flew

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

  1. 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.
  2. 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.
  3. 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

  1. 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.
  2. 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.
  3. 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.

Passenger Survey Questionnaire :: Master Thesis Research Study

Passenger Survey Questionnaire

Dear readers,

Please take 5 minutes of your time to answer this questionnaire which will be used as part of my Master’s degree research study conducted in the MIT Portugal Program. I request you to read the instructions given in the questionnaire so that it will make your experience in answering the questionnaire easier.

Please forward this to your friends and/ or colleagues so as to garner maximum coverage for the survey and aid me in giving better research output.

This is the link: http://www.surveymonkey.com/s/KB38YSV

Warm Regards,
Nikhil Menon

Unified Terminals and the easyJet Model

Two interesting articles on Airport Business, in my set of reviews for today.

One talking on the emergence of Amsterdam Schiphol as a major force in Europe and on their vision for sustainable growth. Schiphol has been a pioneer of the one – terminal concept – one of the factors, to which they attribute their success over the years gone by. Innovations in ground handling, recognizing the need for making frequent flyer friendly facilities for passport control and realizing the need for the airport to play a vital role in the growth story. What also caught my interest is the response by a certain, Roshan Lal who tries to talk on the present Indian context of the airports scene. Read the full article here.
The second one talks on the success story of the easyJet business model. Contrary to the other low cost airlines, easyJet intends to directly compete with the legacy carriers by focussing its services on the primary airports instead of the secondary and regional terminals situated elsewhere. The model has worked well for the airline which has grown from being a UK centric carrier to have bases on a pan European basis, the latest being in Lisbon. Read the full article here.
As for my research, Schiphol and the easyJet model could be perfect, if only they complied with my requests for an interview and subsequent observations into their respective cases. Low cost airlines need to ensure their sustainability and that will come about only if they serve airports with larger possible capacities – a reason why I believe the easyJet model makes sense than the conventional Southwest to me. Sure, Southwest has been an inspiration for almost any airline to dream of flying low cost, but it needs to be understood that times such as this, call for a rethink and a re-evaluation of strategies.

Master Degree Thesis: The Intitiation

Working TitleExploring the prospect of operating low cost carriers and legacy carriers from the same main airport terminal by interventions on the revenues generated by the airport. 
 
ProposalThis thesis strives to explore the prospect of operating low cost carriers and the legacy carriers out of the same main airport terminal. In doing so, this thesis also strives to explore a possible correlation of reducing the aeronautical charges for low cost airlines at the main airport terminals by seeing the potential of the airport to cover up those reduced charges by the expected increase in the non aeronautical revenue that the airport stands to gain by this measure.
 
Literature Review: A large amount of the existing literature on these aspects have been consulted and referred to, on the course of this work. It is believed that while the secondary airports seem to be a solution for the low cost phenomenon, it can be seen only as a solution, which will keep things at bay in the short term (Forsyth., 2007). Many airports which serve the LCCs maybe unable to take any advantage of the economies of scale which are bound to come up with the booming low cost revolution. Local authorities may believe in subsidising as a means to attract more traffic which will stimulate the local economy. But this might not be a stable solution for the secondary airports which may simply use subsidies to finance lower charges to win traffic from main airports with spare capacities, since it will lead to a misallocation of traffic (Forsyth., 2006).
On the argument for low cost carriers using the main airport terminals, it has been observed that there is no statistical difference between a passengers flying by a low cost carrier or one who is flying by a legacy carrier (Manzano, C., 2010). This has been observed in the study involving 7 Spanish airports. The passengers flying low cost have the probability to make a purchase or consume food and beverages before a flight. (Manzano, C., 2010) There is mixed evidence which proves that passengers on low cost carriers are no more ‘budget shoppers’ at airports, particularly because low cost carriers do not have in – flight catering, thus requiring these passengers to make purchases for food and beverages before the flight (Graham., 2009). Further studies on Canadian airline companies Westjet (low cost carrier) and Air Canada (legacy carrier) by McDonald and Gillen (2003) have shown that while a Westjet passenger spends an additional C$6.20 at the airport while an Air Canada passenger spends C$1.22. This has been attributed to the fact that low cost carriers do not provide in – flight meals and thus have higher chances of passengers purchasing Food and Beverages from the airport terminals. Another reason is due to the fact that a major portion of the passengers flying low cost carriers are leisure travellers who are expected to spend more than the passengers flying by legacy carriers, thus increasing the revenues at the airports.
De Neufville (2006) explores further on the aspect of accommodating low cost carriers in main airports – both as a means of describing the problem at hand and a possible solution for the same. According to him, the managers of the main airports have not formed a consensus about how to deal with the rise of the low – cost carriers. Some airports have taken a no compromise decision when it comes to providing cheap facilities while some others have started work in that direction (cheaper landing fees, budget terminals, refurbishment of old terminals etc.). He also describes the inevitability of the situation at hand and expects the main airport managers to show merit to the rising trend, by providing differentiation in the products they offer to the airlines as a possible solution to this problem.
Literature regarding the methodology to be proposed has been studied in detail as well. James (2009) discusses on a framework for developing categories of simulation models related to strategic, operational and tactical problems of an airport terminal. The airport terminal under the study was the Cochin International Airport Limited (CIAL) situated in the southern Indian state of Kerala. The simulation software used was Extend (of Imagine That Inc.). Brunetta and Jacur (2001) conduct a similar study by creating a new flexible simulation model adaptable to the various airport configurations for determining the capacity and delay experienced at airport terminals. The validation of this model, called AIRLAB has been conducted by comparison with similar research on the Milan Malpensa Airport, Italy.  
 
Methodology: The methodology being proposed for the current work shall involve interviews being carried out of the experts in the field of aviation – possible both academia and industry. Main actors in this process would be the airport managers of airports across Portugal and the rest of the continent on the basis of availability of information and the willingness of the professionals in sharing the information for the purpose of this study. Economic Models shall have to be resorted to, to determine the expected change in revenue from Non Aeronautical revenue by operating the low cost carriers out of the main airport terminal instead of the existing low cost terminal or the secondary airport.
 
A word of thanks already for Prof Juergen Muller of the German Aviation Performance (GAP) Project (Berlin School of Economics and Law) for being kind enough to mail his work for reference and possible inspiration on this regard.