Kingfisher- the flightless airline

It has been an interesting few days considering the week before saw some 3 commercial airliners and a military chopper fall out of the sky for various reasons. Today the newspapers had two headlines featuring two Indian airline companies for two different reasons- Spice Jet asked to reimburse passengers on a flight delayed for over 5 hours due to technical issues and the other being a bank statement on the loan defaults of Kingfisher Airlines.

Considering the number of discount fares for far off future being offered each month, I have my suspicions on the available operating cash reserves with Spice Jet. Sadly, Kingfisher Airlines is a living case study of what can eventually happen to an airline in a high debt ridden civil aviation sector in India. Each time I fly, I see Kingfisher planes, baggage trollies, ladders, etc. parked away in remote corners of almost all major airports. The check-in counters which once boasted of a staff worthy of being ramp models are empty and as we all know; they either migrated to the hospitality industry or are rendered jobless.

An airline which was once the Captain Pompous in the Indian skies has definitely left a bad taste for employees, investors, vendors and suppliers and the travellers alike. It has indirectly affected the overall business environment as the name or the brand of any company no longer has the capacity to command over vendors. Human resource policies where employees were not paid for months together but also not allowed to change over to other jobs without forfeiting their part claims have set a very bad example. As for the airline industry, it has set a benchmark of what can happen if profitability through operations get ignored.

Kingfisher Airlines and its acquisition Air Deccan both had been ground breaking concepts in Indian aviation. Jet Airways had established a leadership position against Indian Airlines and Sahara- the three emerging as the survivors of the first batch of open skies after ModiLuft, East West Airlines, Damania shut shop. Air Deccan was the first low cost airline in India and it can be said that the skies have been never the same again. While Deccan enabled the common man to fly, Kingfisher changed the flying experience with a young and vibrant appeal and also introduced the economy passenger to services like in-flight entertainment (IFE); a service rendered only to first class passengers so far.

Deccan and Kingfisher were riding on what Southwest and Virgin Atlantic had successfully shown the world. Both these airlines had an impact on the aviation industry to a fair extent. It was evident from the fact that Jet and Indian Airlines also offered IFE and on board catering got revamped. Kingfisher also prompted some rather rash moves like Paramount Air which had a 100% first class concept. Deccan on the other hand set off a string of low cost airlines like Indigo, Spice Jet and Go Air.

This triggered a price war in an industry which was already grappling with high airport tariffs and fuel bills. In 2007, while Jet and Indian were surviving with profitability on international routes, Sahara was plagued with low occupancy and went up for sale. Deccan was also grappling with a high debt crisis and sustainability became difficult. This was possibly the place where Kingfisher pushed things a little beyond its grasp. While Jet was all set to take over Sahara, Kingfisher attempted to challenge its rival by staking claim for Deccan. The move was motivated for the international flying license granted only after 5 years in service; which Kingfisher would get 3 years in advance by virtue of the merger. Sadly, what it brought along was a lot of debt as well.

I guess it was ambition driven rash decisions which led to the downfall of Kingfisher. IFE on planes is heavy on its set up cost and has an even higher running cost. Suppose a flight has 3 channels and every seat pays Rs 150 as royalty to the content owners, a plane with 180 seats will be paying about Rs. 27000 per flight for just IFE. And let me tell you, this is a very conservative estimate. Not to forget, with IFE came the IFE equipment which adds in weight, plus cost for head phones and maintenance. What all can you push back to the customer when the market is bleeding in a price war?

Kingfisher believed that going international was the way to get into profits. The biggest reason to believe was Jet Airways could garner profits in a cut-throat scenario. Sadly, it was operational efficiency that works in the aviation sector. Both Deccan and Kingfisher were failing to achieve it. Kingfisher was notorious for attracting pilots with lucrative salaries and high incentives, lavishness across the board and thanks to the owner- sponsorship on Formula 1 cars. Sadly, all this was adding to the debt and not so much to the revenues. Then it was the ego and arrogance of Mallya- where he pledged his personal assets and his flagship UB Spirits to keep the airline afloat. His political weight also ensured that the airline; though bankrupt, was not grounded.

The license for Kingfisher was finally revoked in 2012, but the airline still is a willful defaulter on the list of its lending banks. The highly paid staff is yet to be paid their dues and has been practically rendered jobless. Those who had invested in assets against a high income at one point are fighting for survival. And as for Kingfisher, apart from loss of credibility, the group also came on the brink of losing its majority stake in its flagship companies. 

Every industry has their skeletons and ghosts which haunt their working for months and years after they happened. Kingfisher is going to be one such ghost for the aviation sector; and when I come across a discount ticket sale for tickets as much as 6 months in future, it triggers a thought on the cash-flow situation for the airlines. It is also going to be a standing example for every vendor and also employees as a brand where by virtue of its clout defaulted on payments and set arm twisting business terms.