Saving the king of good times

When Kingfisher airline started in 2005 it generated widespread curiosity. The curiosity was understandable. The brand was and is extremely popular especially among young Indians due to a strong association (Kingfisher beer is extremely popular in India). Kingfisher stood for everything premium and people expected the same from the airline. Operationally the airline started off as a fully web based booking platform like Air Deccan. The airline bypassed the conventional GDS (global distribution system) an interface which helps B2B transactions between travel agents and airlines. This also meant huge savings on GDS hosting costs. However, it soon back tracked and hosted itself on major GDSs. Being absent from the GDS probably put the airline in the same league as a low cost carrier (which Kingfisher was not willing to be positioned as).

Kingfisher was soon India’s first and only five star airlines. Passengers were called “guests”, red carpet was literally rolled out for business class passengers and economy class passengers had the privilege of in-flight entertainment and got a takeaway travel kit. Operationally Kingfisher did a spectacular arrangement of tying up with then Indian Airlines for its ground handling services. This meant getting airport facilities at par with the national carrier. For example in Delhi the airline operated from terminal 1A, which was much less busier than the chaotic terminal 1B. The domestic network expanded quickly and Kingfisher was talk of the town. Industry experts predicted that Kingfisher will bleed other airlines and soon be the numero uno in Indian skies. Sadly things did not go the way they were projected.

What went wrong?

Buying out Air Deccan and the global financial crisis of 2008 together sealed the fate of Kingfisher. Air Deccan which was supposed to give access to international operations to Kingfisher proved to be a liability instead. Poorly managed and with poor service standards, Air Deccan sapped Kingfisher of its finances and energy. Kingfisher Red (rebranded Air Deccan) created confusion and brand ambiguity. Once known for its premium service Kingfisher Red was not same as flying Kingfisher. The airline started losing its five star image. It was a low cost airline after all. Kingfisher’s international network, which was supposed to grow rapidly, did not grow. Whatever international flights the airline started was on extremely competitive routes like London Heathrow, Singapore, Hong Kong, Bangkok and Colombo, resulting in low yields. The airline also ordered a large fleet from Airbus including an A380 super jumbo, which further pressured the balance sheet.

The present state of the airline can be blamed on a few bad decisions like slow network expansion, inefficient fleet utilisation and brand confusion with induction of Air Deccan. In the last couple of months the airline has been hit by serious challenges. Accounts being frozen by tax authorities, suspension by IATA (International Air Transport Authority) for non payment, cash and carry operations by airport operators and oil companies, strike by cockpit and cabin crews, mass cancellations, etc. None of these stand for a five star airlines. Reputation of the airline has taken a serious hit and market share has been lost to rivals like Indigo, SpiceJet and Go Air. It is time for the airline to do some destructive innovation.

Time for housekeeping

Its time to fill the empty seats

First of all Kingfisher has to come out of the denial. The regular press statements coming from the airline assuring passengers that everything is fine reflects a deep sense of denial. Such statements will further damage the image of the carrier. The next step should be to cut the flab. Kingfisher needs a lean top management team which can multitask efficiently. A complete overhaul of its schedule is urgently required. It should look at reducing the number of destinations offered and fly only on sectors which it has at least breakeven operations. It should also reconsider its international operations. Flying on highly competitive routes will only reduce yields and further pressure the finances. Untapped yet fast growing markets like Indonesia should be considered. Indonesia and Malaysia offer both O & D (origin and destination) traffic and huge potential of transfer passenger to the Middle East via Delhi or Mumbai. Reducing the fleet by leasing out aircraft or selling them will reduce costs in short term. This will also reduce operational and maintenance costs.

Kingfisher needs cash urgently. Reports suggest that it might get emergency funds from investors; however with current operational set up there is hardly a business case for investment in the airline. Kingfisher needs to do a lot of housekeeping to become attractive for an investor. The policy change allowing FDI (foreign direct investment) in Indian carriers by foreign carriers beyond 25% seems a distant dream, especially after a poor show by the party of current aviation minister in recent elections. Even with a quick decision on the topic it will take months for the policy to fully come into force and for an airline to make up its mind to invest in India. Kingfisher should make use of this time to tidy up and get ready for potential investors.

The fundamentals of Indian aviation industry are still strong and growth will continue in the long run. What the industry needs is efficient management and self regulation. Predatory pricing seen in the Indian aviation industry of late will not help anyone in the long run. The ministry of civil aviation should further liberalise the sector by making it easy for airlines to operate in an unconstrained environment. The king of good times is in a gloomy mood these days, cheering it up will be a long process but not impossible. 

Clearing the turbulence – Need for a contemporary civil aviation policy

The last two decades of economic growth have also lead to exponential growth in air traffic in India. In the financial year ending 2001 India counted 30 million passengers per annum (mppa) on domestic routes, which went up to 106 mppa in year ended 2011. Total passenger traffic (international and domestic traffic put together) grew from 42.5 mppa to 106 mppa during the same period. The two large aircraft manufacturers, Airbus and Boeing have both projected a demand of around 1,000 aircraft for India in a twenty year period ending 2028. Indigo, India’s largest low cost airline created history by ordering 100 Airbus A320 aircraft and recreated history by adding another 180 recently. On top of the growth in aviation, the sector creates jobs directly and in related sectors like airports, ground handling, airport retail, public transport, cargo and warehousing, etc. According to International Air Transport Association (IATA) aviation in Singapore contributes 5.4% to the national GDP and supports over 100,000 jobs. In India the figure is 0.5%. What is wrong with Indian aviation?

There is more than one leak in the tub, the biggest being absence of a comprehensive and relevant civil aviation policy. The delayed civil aviation policy along with rules like a “minimum of five years” experience of continuous operation of domestic scheduled air transport services; and at least a twenty aircraft fleet” are suffocating the growth potential of Indian carriers. Such restrictions not only stifle the competitiveness of the industry, but also give an unfair advantage to foreign carriers. A case in point is the Middle Eastern carriers. From full service carriers like Emirates to low cost carriers like FlyDubai, all started as small companies with a handful of aircraft and took their maiden flights to Indian subcontinent. Indian carriers on the other hand have to wait for a period of five years.

Second area is ground infrastructure. Barring the five private airports (Delhi, Mumbai, Bangalore, Hyderabad and Cochin) most Indian airports are struggling for better management and expansion. The government started the process of privatising thirty five non metro airports in 2008, but the process was cancelled without any explanation. The most likely reason was immense pressure from labour unions that rightly feared for job losses. A handful of Greenfield projects were awarded but progress has been slow due to land acquisition issues. The latest approach of the Airports Economic Regulatory Authority (AERA) to shift towards a single till model (where airfield operations are subsidised by commercial revenues) has made airport investments unattractive. Such arrangement will deter investors from putting their money in airports.  

The third area where the civil aviation policy can help is Maintenance Repair and Overhaul (MRO) business. The large fleet orders placed by Air India, Indigo, Jet Airways and others will need MRO facilities to service their fleets. At present Air India is the only airline to have its own MRO centre in India. All other airlines send their aircraft to neighbouring countries like UAE, Singapore and Sri Lanka for the maintenance works. This results in major loss of revenue, which could have been added to the GDP. A major reason for lack of MRO facilities in India is high tax and import duties on original equipments. The low labour cost advantage in India is offset by the high taxes and duties. This is true for both scheduled airlines like Air India, Jet Airways, Indigo and business aviation companies.

Fourth, aviation as such is not considered as a priority sector. Long standing demands like allowing Foreign Direct Investment in airline by foreign airlines, standardising aviation fuel taxes and a liberalised air service agreement regime (which allows airlines to operate flights between two countries) have not been addressed. Troubled airlines like Kingfisher can benefit from FDI and other airlines too can gain expertise and know how.

Fifth, painfully slow procedures for air freight clearance. Singapore and Hong Kong process air freight shipments within hours; In India it takes a couple of days. Countries which have a thriving aviation sector like that of Dubai or Singapore have given a priority status to aviation and accordingly framed policies. India needs to think of aviation as a sunrise sector and lay down policies to facilitate the business. The policy framework should provide a level playing field to all stakeholders and should not discriminate.