Nov 19, 2012, 06.10 PM | Source:

Lessons learnt from Kingfisher Airlines mishap

No one but Kingfisher Airlines alone is to be blamed for its downfall. Yet, it teaches interesting lessons that its peers can avoid.

No one but Kingfisher Airlines alone is to be blamed for its downfall. Yet, it teaches interesting lessons that its peers can avoid.

Pruning Costs: In a bid to provide a range of facilities right from beverages to meals, the company’s costs increased sharply. Its peers such as SpiceJet, Indigo Airlines and Jet Airways India, concentrated either on regional connectivity or price war. Kingfisher Airlines also had international operations, which ballooned its costs. Also, it was not prompt like its peers in exiting from loss-making routes. Instead, it added routes. It was only after the company realised it was bleeding beyond description that it announced its decision to cut down on the loss-making routes. This blew the company’s balance sheet and impacted its profitability. According to the June ’12 quarter, the company’s total expenditure as a percentage of its net sales is 304%, while for Jet and SpiceJet, it is 96% and 98%, respectively. Gradually, the company lost cash. And as they say in the markets - sales are vanity, profits are sanity and cash is reality. The company did not pay much heed to this reality.

Unplanned Expansion: Another imprudent strategy that worked against the company was its strategy of expanding aggressively even as it struggled to maintain its operations up and running. Today, the company has over 60 aircraft from over 35 when it started flying and there are more aircraft that are pending delivery. Such aggressive expansion plans even when its operations have been in doldrums have taken a toll on the company. There have been incidents when the company has had to ground its aircraft due to engine problems. Also, it has cancelled flights due to poor servicing of its aircraft. These factors hurt the credibility of its brand to a large extent. Besides, the company also did not emerge as a strong player in the price war game, which most airlines gain in times of low capacity situation in the airline industry.

Source: Nirmal Bang's Beyond Market

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