failure of kingfisher

Financial Crisis

Top 3 Reasons & Analysis for failure …

Brief About Kingfisher Airlines

• Brief About Kingfisher Airlines • Reasons for Failure: -Airlines was unable to make profit and keep on piling debts: High Fuel Price -Lack of Long Term Strategy -High Operational Cost • Analysis Framework: SWOT Analysis & Porter Five Force Model • Top 3 Reasons for failure: High Fuel Price, High Operational Cost, Weakening Rupee • Financial Analysis: Establishment of failures through P/L Accounts • Comparison of India Aviation v/s Global: Highlighting reasons of failure • Press Release & Media Statements: What management has to say • Survey of Employees of Aviation Industry: Results & Analysis • Comparison with Other Players: Correlating with reasons of failure • Final Storyline summarizing reasons for failure

Topics Covered

• Kingfisher Airlines started its operation in 2005, with center of operations as Bangalore.

• The primary focus was customer comfort and service which was well appreciated by the passengers.

– first Indian airline to have in-flight entertainment (IFE) systems on every seat even on domestic flights.

– won the Freddie Awards 2008 for best consumer service.

• In May 2009, Kingfisher Airlines carried more than 1 million passengers, giving it the highest market share among airlines in India.

• Second largest share in India's domestic air travel market till December 2011. • India's only 5 Star airline, rated by Skytrax and 6th airline in the world. • Kingfisher Airlines has codeshare agreements with American Airlines, Asiana Airlines,

Philippine Airlines.

Brief About Kingfisher Airlines

Ever since its inception, the airlines was unable to make profit and keep on piling debts

Debt increased further by acquisition of Air Deccan

High fuel prices and weakening rupee

High Airport Taxes

Slump in air travel due to global recession

Lack of long term strategy

No long term CEO or MD

Indians are cost conscious rather than brand conscious.

Copying network of arch-rivals.

Moving center from Bangalore to Mumbai where it was the sole carrier offering international ops.

Frequent change of focus from full service carrier to low cost model and again back.

Less focus on Low-cost aviation business which has 70% market share in aviation industry.

Reasons for Failure

Many unprofitable routes leading to

Multiple hopping resulting in delay of flight

More turn around time as compared to competitors

Moving to expensive new terminals in Delhi n Mumbai.

Diversified aircrafts leading to

High Inventory of Spares

High Training Cost

High Maintenance Cost

High Operational Cost

Scheduling difficult

Reasons for Failure

Analysis Framework: SWOT Analysis

Analysis Framework: Porter Five Force Model

Top 3 reasons for failure

High Fuel Prices

High Operational Cost

Steep depreciation of Indian Rupee

Particulars Quarter ended June ’12(lacs)

Quarter ended June’11 (lacs)

Income from Operations 30,138.15 190,701.67

Expenditure

Employee cost 5888.36 17,366.72

Aircraft Lease Rental 5702.04 24,730.18

Aircraft Fuel 23,278.38 84,513.21

Other operating cost 19,380.75 66,565,48

Depreciation 5,552.50 8,654,60

P/L from operations before other income, finance and redelivery cost

(29664) (1112852)

• High Operating Cost amounts to 100% of Income (FY’12) • High Fuel Price amounts to 77.23 % of Income (FY’12) • Loss occurs because of these two factor corresponds to 95-100% of income

Financial Analysis: Establishment of failures through P/L Accounts

Total revenue of Rs. 5,715 Cr (-11.8% vs. FY11) Passenger revenue declined by 11.8% over FY11 EBITDA loss of Rs. 855 Cr vs. profit of Rs. 140 Cr in FY11 (a decline of Rs. 995 Cr over FY11) Negative EBITDA margin primarily due to Rs. 672 Cr of additional fuel cost impact in FY12 vs.FY11, despite flying lesser number of hours and additional costs due to depreciation of Indian Rupee as compared to FY11 EBITDA margin declined from +2.2% to -15% EBITDAR profit of Rs. 13 Cr vs. profit of Rs. 1,124 Cr in FY11) EBITDAR margin declined from +17.3% to 0.2% Total RASK declined to Rs. 3.72 from Rs. 4.01 in FY11 (-7%) Passenger RASK declined by 8% over FY11 (Rs. 3.48 to Rs. 3.20) Ex-fuel EBITDAR CASK reduced to Rs. 1.79 from Rs. 1.92 in FY11 (-7%) CASK (EBITDA) increased by 9% over FY11 (Rs. 4.28 from Rs. 3.93)


Financial Facts: -

Operational Strategy and Market Conditions (Fuel Price and Steep Depreciation of Indian Rupee) are key reasons for failure

Company Operating Parameters


Revenue from Passengers and Fuel Cost gets worse in FY’12

Comparison of India Aviation v/s Global: Highlighting reasons of failure

• Domestic airlines are paying 50% more for aviation turbine fuel than the price in West Asian and the European markets.

• ATF accounts for nearly 50% of an Indian carrier’s operating cost, compared to 20-25 per cent globally.

Source: Business Standard / Nov ‘11

Comparison of India Aviation v/s Global: Highlighting reasons of failure

• Crude oil price remained range bound between USD 100-120 for most part of the year , this significantly impacted profitability of the Indian aviation industry

• The high cost of ATF (Aviation Turbine Fuel) coupled with a weakening Rupee is the biggest challenge that the whole aviation industry in India is currently dealing with and we are no exception.

• However, the impact of high fuel cost, high interest rate, depreciation of Indian Rupee and extraordinary expenses on account of return of aircraft to the lessors and the costs associated with non-operating aircraft, resulted in a loss after tax of Rs. 651 crore.

• Kingfisher has been working and continues to work aggressively to raise fresh capital. As you would appreciate, in a volatile global economic environment and with oil prices as high as they have been, it is not an easy task. We continue to believe that Kingfisher is a great investment opportunity and have recently announced (subject to shareholders’ approval) a rights issue which can be launched in addition to a GDR or separately to raise capital.

• Source : Kingfisher FY ‘12 report

Press Release & Media Statements: What management has to say

A survey was conducted with the people in airline industry to gauge what they feel about the Kingfisher Crisis: Link for the survey: (http://www.surveymonkey.com/s/3W8QCQF)

Survey of Employees of Aviation Industry: Results & Analysis

http://www.surveymonkey.com/s/3W8QCQF


Survey Depiction: High Fuel cost and operational cost are the major reason for crisis of KFA.


Survey Depiction: Around 80% people believe that management has not handled crisis to the best. When they were asked explicitly, then they answered that management should try to reduce operational cost by changing operational strategy(like better routing of flights) in order to minimize losses due to high fuel.

• High Operational Cost (as factor of income)

• High Fuel Prices (as factor of income)

22-27% 34% 38%

44% 41% 40% 54%

Comparison with Other Players: Correlating with reasons of failure

KFA is on high-end (as compared to competitors) for both Fuel and Operational parameters.

Indigo Kingfisher Jet Airlines Go Air

31 destinations in India

63 destinations in India

75 destinations in India and 400 daily flights

1000 flights in week, covering most cities.

Focused and profit making routes

Many unprofitable routes

Trusted airlines and have a good rapport

Good marketing and branding

Low terminal cost like 1D in Delhi and 1B in Mumbai

Operations shifted to New terminals in Delhi and Mumbai

Excellent operations and marketing

Strong backing of promoters

Less turn around time

More turn around time

High customer satisfaction

Less turn around time

Standardized aircraft

Diversified Aircrafts Positioned as a value airline

Positioned as a value airline


• Multiple hopping of aircrafts leading to cascading effect , hence delay of flight • More diversified aircrafts leading to

– High inventory of spares – High training costs – High maintenance costs – Scheduling difficult – More human resources required (Total Employee Cost corresponds to 20% of income)


Major reasons(for KFA as compared to Competitors) leading to high operational cost:

These reasons corresponds to 64% of

income

Steps Taken:

• In Q1 FY13, Kingfisher airlines halved its operating losses to Rs. 204 crore from Rs. 429 crore in Q1 of FY12. This was achieved by reducing level of operations in this high cost environment through a 20 aircraft ‘holding operation’.

Final Storyline summarizing reasons for failure

Top 3 Reasons for failure: High Fuel Price, High Operational Cost, Weakening Rupee • High Operating Cost amounts to 100% of Income (FY’12) • High Fuel Price amounts to 77.23 % of Income (FY’12) • Loss occurs because of these two factor corresponds to 95-100% of income. The

position further gets worsened due to weakening rupee.

Main reason for Operational Strategy failure were Multiple hopping of aircrafts and more diversified aircrafts. The impact of high fuel cost, high interest rate, depreciation of Indian Rupee and extraordinary expenses on account of return of aircraft to the lessors and the costs associated with non-operating aircraft, resulted in a loss after tax of Rs. 651 crore. Kingfisher airlines continues to believe that it will get recapitalized and get on a path of profitability. The airline is in discussion with several strategic and financial investors to bring fresh capital. KFA is now taking steps to improvise their operational strategy. One such indicator: • In Q1 FY13, Kingfisher airlines halved its operating losses to Rs. 204 crore from Rs.

429 crore in Q1 of FY12. This was achieved by reducing level of operations in this high cost environment through a 20 aircraft ‘holding operation’.

N-031 Chanpreet Singh

N-032 Chatar Pal Adwal

N-036 Devanrata Singh

N-037 Dhananjay Jha

N-038 Dharmendra Kumar

N-039 Divesh Nayyar

N-040 Gaurav Gupta

N-041 Gaurav Seth

Group-4

failure of kingfisher

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