The Rise and Fall of Kingfisher Airlines:

Group 10 The Microeconomic Factors

Team Members: PGDM No.

Swaroop Shetty 19115
Thrupti 19116
Varun K G 19117
Vignesh Nayak 19118
Vinodshankar Bhat K 19119
Vivek Mithra 19120

Microeconomics
The Rise and Fall of Kingfisher Airlines

Introduction:
Kingfisher is a major airline based in Mumbai, India. It is the fifth India’s airlines that provide
largest passenger airline in which international and domestic flights are provided to the
customers with very flexible fares. Kingfisher is one of the largest airlines in India and it was
established in 2003. It is owned by the Bengaluru based United Breweries Group. Basically,
the commercial operations are started in 9 may 2005 with the fleet of four new Airbus A320-
200s Operating flight from Mumbai to Delhi. Then the next international operations are started
on 3 September 2008 by connecting from Bengaluru to London.

The Kingfisher airline has been facing financial issues for many years. Kingfisher airlines have
the second largest share in the air travel market till December 2011. However due to the

astringent financial crisis faced by the Kingfishers airline, it has now the fifth largest market
share currently and only above Go Air Airlines.

Kingfisher Airlines is one of the only seven airlines that are awarded 5-star rating by Skytrax
along with Cathay Pacific, Qatar Airways, Asiana Airlines, Malaysia Airlines, Singapore
Airlines, and Hainan Airlines. Kingfisher operates 250 daily flights including domestic and
international services. Kingfisher Airlines carry more than 1 million passengers which help the
Kingfishers Airlines to make the highest market share among all other airlines in India in May
2009. Kingfisher also holds the Skytrax award for one of the India’s best airline of the year
2011.

Background:
Main issue of the downfall of the Kingfisher Airline.

All things are going in a very good manner and kingfisher is at its peak but in 2005 the airline
faced many problems in the operations, the Airlines then reported as in loss. But the situation
become worst when the new airlines called Air Deccan is adopted by the Kingfisher airline in
2007.

Due the collaboration with the new airline the Kingfisher suffered a loss of over Rs. 1,000
Crore continuously for 3 years. In the Starting of 2012, the staff of Kingfisher airline is going
on strikes and it also faced a very big loss of over Rs. 7,000 Crore with half of the money is
bankrupted. In this tough situation the faces mainly faced financial problem and to overcome
the situation the airline went for loans, so that they can cover it. But the heavy interest and debt,
in November 2010, the company adopted a way to decrease the burden the airline adopted debt
restructuring on those total 18 leading lenders, those have landed total Rs. 8,000 crores, they
agree to cut the interest the rates and convert part of loan into equity. As per the contract the
lenders have to convert the debt into shares which is converted into equity. .

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The Rise and Fall of Kingfisher Airlines

The use of the strategy Debt restructuring also didn’t help the airline a lot; no doubt by using
this it reduced the interest charges by Rs. 500 crores every year, but due to the high increase
in cost and many other factors the company started faced problems of liquidity. Due to no
funds available the company also faced these types of problems like delayed salary there are
over 6,000 workers which are working in the company and after the financial crisis company
have delayed salaries of the staff that will affect the workers a lot because they are working
like the same and we can say they are working more than normal but these type of problems
decrease the workers morale and dissatisfaction factor also arises. Due to the non-availability
of the funds they are also many things that will effect like due fuel, Service tax, Air craft
lease rental due and many more.

The Rise
Land:
As the Kingfisher entered the market. They expanded to various locations in several countries
and majorly in India which contributes the rise of Kingfisher Airlines in the means of Land.
The following list shows some of the destinations where the kingfisher airlines had expanded:

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The Rise and Fall of Kingfisher Airlines

Labour
One of the main reason or an organization to grow or to rise is when it has an excellent labour
force. Talking about kingfisher airlines their employees reach and maintenance was
exceptional due to good job offers and salary packages. As they gave to much importance to
their labourers.
The following data shows the growth of employment in kingfisher airlines leading to its rise:

Employess growth rate

18

16
16

14

12
12

10
10

0
0
2005 2006 2007 2008
1 2 3 4

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The Rise and Fall of Kingfisher Airlines

Capital and Shareholders

The blood of an organization is its finance. The main source of finance for Kingfisher airlines
was its equity shares and by the statistics analysis we can interpret that the Equity shares
value rose to a great extent so the organisation grew and had a rise. The no of equity
shareholders also increased when the time passed as they wanted more money to survive in
the industry due to meet the premium quality so there was rise in capital and share holders
which can be seen the below table.

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The Rise and Fall of Kingfisher Airlines

Organization and competitor analysis

1. The organization was facing intense competition in the airline sector but still through
some factors like Food on board, In flight entertainment, Complementary gifts,
Advertisements their demand increased at a high rate and had competitive advantage
from others such as Jet Airways, Air India, Go Air, Jet lite, Kingfisher, Indigo, Spice
jet. So the organisation grew by taking good market share compared to its competitors
which further lead to its rise.

The Fall
After looking at the rise of kingfisher airlines we shall now look at its fall in the market
which was caused by many reasons such as the following.

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The Rise and Fall of Kingfisher Airlines

Costs
As the time passed by Kingfisher Airlines has incurred many expenses which was very huge
compared to its income and no provisions were made by the firm in the past. The
organization also had taken many loans from many sources which they had already invested
for a long term. So the organization had many costs which effected the fall of the airlines in
the long term.

Airways Year Financial charge Provision Extra ordinary expense

Jet airways 2010 8.83 0.44 0
Jet lite 2010 3.38 0.42 0.65
Kingfisher 2010 18.05 0 5.99
Spicejet 2010 1.12 0 0.33

Merger with Air Deccan

Kingfisher Airlines commenced service in 2005 as a full-service airline and two years later in
2007 acquired LCC Air Decan, renaming it Kingfisher Red. The carrier has not made a profit
since its launch in 2005, struggling to keep pace with fast-growing LCCs in the market. The
challenges associated with the integration of Air Deccan hampered the path to profitability.
When the merger happened the market share of kingfisher was 11% and market share of air
deccan was 14%. The combined market share was 25%.Equity value was 2115 Crores and it
initially acquired 26% at 550 Crores. Here’s the data of total income, total expenses and the
expenses which is affected by fuel expense

Year Total Income total expenses Fuel expenditure

Percentage of total expenditureProfit before Interest and Taxes
2005 320.28 274.27 92.98 33.90090057 46.01
2006 1,345.06 1,398.86 625.45 44.71140786 -53.8
2007 2,142.31 2,062.61 979.5 47.48837638 79.7
2008 1,569.90 1,781.46 889.3 49.91972876 -211.56
2009 5,868.07 5,822.37 2,602.62 44.70035398 45.7
2010 4,734.62 4,747.51 1,802.99 37.97759246 -12.89
2011 6,495.56 6,462.37 2,274.03 35.18879297 33.19
2012 5,823.91 7,651.81 2,945.89 38.49925704 -1827.9
2013 683.46 3,309.65 402.17 12.15143595 -2626.19

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The Rise and Fall of Kingfisher Airlines

Risk
In any business risk is an common factor, but making provisions, taking insurances, by taking
calculated risk makes the organisation succeed it its industry. Now talking about kingfisher
airlines operational, investing and financial charges was very huge which was made
uncalculated without any provisions. So there was a huge amount of risk which led to the
downfall of kingfisher airlines.
The following table shows thee statistics of kingfisher airlines increasing expenses without
provisions which was a risk leading to its downfall:
kingfisher 2008 2009 2010 2011
distribution of total expense 100 100 100 100
operting 95.5 121.6 90.2 83.6
financial 2.9 4.4 9.9 18
provision 0.1 0 0.1 0
charges 1.4 2.1 2.2 3.1
provisions 0. 4.5 6
positive/negative 0.2 -28.1 -7 -10.8

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The Rise and Fall of Kingfisher Airlines

Diseconomies of Scope
Without analysing market, kingfisher diversified into airline industry from liquor business
leads to diseconomies of scope. Multi-product production by a single firm that is less efficient
than having separate firms each specializing in the production of a single product.

Diseconomies of scale
diseconomies of scale are the cost disadvantages that economic actors accrue due to an
increase in organizational size.
In the case of kingfisher airlines as they expanded to various destinations, resulting in
increasing number of flight trips the main cost of fuel increased, by which we can conclude
that the size of kingfisher airlines grew and costs increased leading to diseconomies of scale
which is explained further:

Fuel inflation throughout the economy at a time when headline inflation is still above 9%.
Higher oil import costs could translate into higher fuel costs, which will raise.

From the given data it can be said that there is a noticeable increase in fuel price

Year Fuel expenditure

2005 92.98
2006 625.45
2007 979.5
2008 889.3
2009 2,602.62
2010 1,802.99
2011 2,274.03
2012 2,945.89
2013 402.17

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The Rise and Fall of Kingfisher Airlines

Conclusion

Disequilibrium: shortage of supply with more demand

Disequilibrium occurs when the quantity supplied does not equal the quantity demanded.
There are two conditions that are a direct result of disequilibrium: a shortage and a
surplus. A shortage occurs when the quantity demanded is greater than the quantity
supplied. In the case of kingfisher airlines the growth rate passangers(demand) increased
but due to increased costs inability to survive to cater to the market which led to shortage of
supply.

1. Decision process

2. Cash inflow

3. Pay off salary

4. Collaborations

5. Re-engineering

Decision process:

With lot of increase in loss of kingfisher airlines and overdue of tax, fuel suppliers and airports and
only few of the flights are working. If they want to again successfully run the business then
promoters need to invest some money first then the kingfisher airlines firstly clear the due of fuel
and overdue of the tax with this money and they should step up the ladder of success.

Pay off salary:

The morale of the employees should be considered first because they are the very important to the
kingfisher airline especially the staff and the pilots they should never be dissatisfied. So kingfisher
airlines should clear all the due of the salary of the employees because due to unpaid they have to
suffer and their families also suffer with them. They cant afford to lose quality pilots and if this will
continue it may be happen that the plant should shut down.

Collaboration:

As the organization was already in a collapsing stage, they should collaborate with profitable firms in
order to increase their business and survive in the market.

Re-engineering:

Aircrafts used in the kingfisher used now is very less and due to the mismanagement of the staff and
between the owner leads them to failure because as I discussed earlier mallaya always have the
direct control of the business and may be some factors that are left which are not considered by
mallaya that affects a lot to the organization. The perception of the owner may be somehow wrong
that is why the organization structure should be clear and should be made by various talented minds
that help to success of the airlines.

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The Rise and Fall of Kingfisher Airlines

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