Published by MBA Skool Team, Published on April 23, 2012
It’s surprising to open a newspaper one fine morning and see that one of the leading industrialist is asking for a bailout for a venture he acquired from a rival hoping to turn it into another one of his many successful businesses. The person being referred here is Mr Vijay Mallya and the venture is obviously KINGFISHER RED, the ‘low priced’ twin of KINGFISHER AIRLINES.
Let’s first move a few years back and try to gauge at what exactly were the propositions for Mr Mallya and what might have been his expectations out of this deal. Here is what the deal was in nutshell:
“Kingfisher Airlines' parent company United Breweries Group acquired a 26 percent stake in Air Deccan's parent company Deccan Aviation. The combined fleet of 71 Airbus A320 family and ATR aircraft will operate 537 flights to 69 Indian cities, "whilst taking advantage of unparalleled synergy benefits arising from a common fleet of aircraft," according to Kingfisher. "For the near future, Kingfisher will continue to serve the corporate and business travel segment, while Air Deccan will focus on serving the low-fare segment, but with improved financial prospects for both carriers," Kingfisher added.”- SOURCE – Wikipedia
Besides the obvious expansion and growth in the fleet, the major precipitating factor behind the deal was the chance for Kingfisher Airline to go international. According to government policies an Airline can’t go international within first five years of its launch. Thus shaking hands with Deccan meant that Kingfisher could ply on international routes much before the anticipated deadlines.
If we analyse the steps taken up by the Kingfisher management post the deal then we might be able to come up with reasons for current status of the airlines.
The premier brand of the airlines Kingfisher focused on the elite customer segment and served them with best in the class services. The services came at a price and this was what restricted the airlines to only the higher strata of the society. Thus the motive behind Kingfisher Red was to launch an airline which had the brand power of Kingfisher and keep the costs within limits of middle class. Had the airlines implemented this model efficiently then the airlines might have gone on to make humongous profits.
The problem arose when Mr Mallya gave the same name to both the brands along with more or less similar services. Now a person who preferred to travel in premier class of Kingfisher reasoned that if he could get same services at a cheaper price then he should switch over to the Kingfisher Red airlines. Rather than moving over to lower cost segment they turned to other niche airlines as traveling in luxury was a status symbol for this customer segment.
Secondly, arming Kingfisher Red with high class services lead to a scenario wherein the costs shot up ultimately leading to increment in the prices of the tickets. Thus it was not able to tap into the market of budget driven customer base segment, effectively. Whole motive of launching a low cost airline was reduced to zilch. Now, Kingfisher Red hung in between low cost airlines and luxury carriers.
Trying to understand the psyche behind raising the bar of the services being provided, we can make a guess that Mr Mallya never really was convinced by the concept of low cost airlines. Instead he tried to promote his product by giving in more at the price of one. He failed to understand that customers were much more interested in reduced prices then extra benefits. This is where he went strategically wrong.
Another move of his that went wrong in this industry was to launch his airlines into international circuits without realizing the profits in domestic arena. This is because building up a successful international circuit is very expensive and sucks up a lot of cash.
Another reason for the airlines to fail was the restructuring of the routes of Air Deccan. Mr Mallya removed the services of Deccan from routes where full time services of Kingfisher were already present as he believed that it would help Kingfisher premier airlines. On the contrary these being cost sensitive routes, people shifted to economical variants of Spicejet and Indigo airlines.
Now let us analyze a model of a successful low cost airlines and then try to see how it can be implemented to make this a successful venture.
One of the leading low cost airlines in India is Indigo. Following is the philosophy around which the airlines functions:
Indigo has understood that if an Indian customer is given a decent service at a reasonable price then he is willing to pay for it. This is what they try to capitalize upon. They make it sure that their aircrafts are on time and when a customer boards an aircraft everything is fresh and clean. Thus, customers are happy to get what they wanted at the price promised.
To ensure that Kingfisher Red comes back on track, it has to mimic somewhat similar model and it will be able to see light at the end of the tunnel.....
This article has been authored by Priyanshu Mansukhani and Anuj Gupta from MDI Gurgaon.