Business Strategies Making The Difference – The Comparison of Strategies of Indigo Airlines And Kingfisher Airlines

In Business Report by Tarun GuptaLeave a Comment

Many corporate honchos, consulting firms and freelance consultants have lauded over this multi-billion dollar question: What makes a company succeed, while another company, in the same operating and competitive environment, falter? Yes, indeed, we are talking about the business strategies of two airlines, Kingfisher and Indigo.

To start with, let us first understand the businesses of the two airlines and how their business strategies differ.

1. Kingfisher Airlines: Established by the Bengaluru-based organization, the United Breweries Group in 2003, the airline went commercial on May 9, 2005 with four new Airbus A320-200s operating a flight from Mumbai to Delhi. However, it reported insufficient sales of its product and service, which led to increasing losses since its very inception. Kingfisher then modified its business strategies by acquiring Air Deccan, which was re-named as Kingfisher Red. However, after acquiring Air Deccan, Kingfisher reported losses of over Rs. 10 Billion (USD 160 Million) for three consecutive years. It also ventured into international business strategies and operations on September 3, 2008 by connecting Bengaluru with London.

On November 15, 2011, the airline demonstrated poor financial results, mainly due to high-interest debt. Mr. Vijay Mallya, Business Owner of the UB Group and Kingfisher Airlines demanded that the government reduce fuel and other taxes. In December 2011, for the second time in two months, Kingfisher’s bank accounts were frozen by the Mumbai Income Tax department for non-payment of dues, which also caused the tax body to make a statement that the airline is delinquent.

By early 2012, the airline had accumulated losses of over Rs. 70 Billion (USD 1.1 Billion) and half of its fleet were grounded with several of its staff going on strike. Kingfisher’s ranking among Indian airlines (on the basis of market share) had slipped to last from its previous ranking of 2, because of its business strategies. On October 20, 2012, Kingfisher’s license was suspended by the Directorate General of Civil Aviation, after it failed to address the Indian regulator’s concerns about its business strategies. As on February 25, 2013 its international flying rights and domestic slots were scrapped by the Indian aviation authorities. To sum it up, the Kingfisher airlines’ business strategies have been in doldrums since early 2012.

2. Indigo Airlines: On the other hand, Indigo has maintained all of its business strategies as a low cost carrier and hence, is the largest airline in India with a market share of 30.3% as of September, 2013 headquartered at Gurgaon, India. Indigo was set up in early 2006 by Rahul Bhatia of InterGlobe Enterprises and Rakesh S Gangwal, a United States-based NRI. InterGlobe holds 51.12% stake in Indigo and 48% is held by Gangwal’s Virginia-based company, Caelum Investments. It is one of the fastest growing low cost carriers in the world. Indigo demonstrated solid business strategies right since its inception, when it placed a firm order for 100 Airbus A320-200 aircraft in June 2005 with plans to commence operations in mid-2006.

By early 2012, Indigo had taken the delivery of its 50th aircraft. Indigo is known to have placed the largest order of 180 aircrafts at a total value of USD 15 Billion. This deal pushed up the percentage of Airbus aircraft in India to 73%. By February 2012, Indigo was expanding rapidly and was making solid profits, the only airline in India to do so. It had replaced Kingfisher as the second largest airline in India in terms of market share.

Riding on the backdrop, it can be observed that the two airlines, operating under the same business environment, suffered different tales of fate, mainly due to differences in their type of marketing strategies.

Business Strategies: Some Clicked, While Some Failed

While Indigo Airlines reported profits of Rs. 550 Crore, Kingfisher Airlines reported a loss of Rs. 1647 Crore in 2009-10. Again in 2010-11, the trend remained the same with Indigo posting profits, while Kingfisher’s business strategies still in doldrums. Flying lighter aircraft, operating several flights between fewer cities and keeping a tighter rein on costs could be some of the business strategies accounting for the above trend of Indigo. However, to analyze the problem in more detail, let us first understand what Kingfisher did wrong in its business strategies, and/or what Indigo did right.

Kingfisher’s Approach: Business Strategies That Failed

Business Model: Kingfisher’s schizophrenic approach to a business model could be the contributor to all other problems. Kingfisher made rapid changes to its business, thus allowing no time for the business strategies to stabilize and yield dividends for the airlines. Kingfisher was initially launched as an all-economy aircraft with facilities of food and entertainment systems. However, after about only a year of its operations, the airline suddenly changed its business strategies and started focussing on luxury. It changed the configuration of its Airbus 320 aircraft (20 business class and 114 economy class seats from its initial 180 all-economy seats). Kingfisher was very aggressive with its international expansion as well, thus wanting a lot of rights at once, as said by a senior civil aviation ministry. According to an industry insider, when an airline takes to random expansion, thus making dynamic changes in its business strategies and model, it leaves itself no time to stabilize.

1) Merger With Air Deccan: It is widely believed that Kingfisher adopted aggressive business strategies by merging itself with Air Deccan so that it could classify itself as an airline with five years of domestic flying in 2008, thus fulfilling requirements to fly international routes. The all-economy configuration of Air Deccan, an airline initially formed by Captain G R Gopinath in 2003, was rebranded as Kingfisher Red, which continued to operate as its low cost wing till recently. However, Kingfisher changed its marketing strategies yet again to discontinue with its Kingfisher Red brand and convert its fleet to a full-service configuration.

2) Lack of Professional Airline Management: According to Chennai-based aviation analyst, Mohan Ranganathan, who is also a part of various government committees on aviation, Kingfisher had a major flaw in their business strategies right since its inception. Kingfisher never had a professional airline management team in place, which led to things going out of control further. Kingfisher Airlines’ Nigel Harwood was appointed when the airline was launched in May 2005, but left after over a year. When all major airlines had their professional management team, the airline never had another CEO till September 2010 with Mallya insisting on running the airline, until finally appointing Sanjay Aggarwal as CEO.

3) Interest Dues: Kingfisher’s interest costs formed a surprising 22% of sales in the September quarter, compared to less than 10% for other airlines. Other costs, apart from interest payments and fuel costs may also have had a role in Kingfisher’s abysmal performance.

4) Finances: Kingfisher’s business strategies in finance were handled in a very careless manner. Mr. Vijay Mallya gifted Kingfisher to his son on his birthday, which turned out to be a “Near Zero” experience for him and even, the later CEOs appointed by him couldn’t change things significantly. Moreover, his over indulgence in parties and the Kingfisher Calendar also added to his woes in managing his finances. Additionally, much money was diverted to IPL, which resulted in defaulting of Loans and finally resulting in it becoming a NPA (non performing asset) to its leading bankers.

5) Miscellaneous: Frequent cancellation of flights, non-payment to employees and rude staff further added to customer dissatisfaction and hence, Kingfisher’s woes. For instance, Kingfisher employees have not been paid three months salary.

Another important point which went against Kingfisher co-incidentally and hurt them further was the Global developments (although it had nothing to do with flaws in their business strategies). The overall market conditions changed rapidly with jet fuel prices sky-rocketing to reach $150. When the airline expanded its business strategies to launch its international operations, it got hit by the 2008 recession, thus hurting the airlines in a big way.

Indigo’s Approach: Business Strategies That Clicked

Indigo started off as a small business and furthered into its gradual expansion, while waiting for five years to launch its international business strategies, although it had to wait because of the industry regulations. Indigo had solid marketing plan of sticking to a single configuration aircraft which provides point-to-point connectivity. The airline took time to stabilize by initially launching with just one aircraft and then adding a new aircraft every six weeks. All the business level strategies and processes of the management were always focussed on sticking to its low frills airline identity, where meals and drinks were sold on-board and not given away for free.

1. Professional Airline Management Team: Indigo, on the other hand, always had an experienced and professional team, which helped the airline overcome obstacles more smoothly. Indigo paid much attention to its corporate level strategies right since its inception. Its first CEO, Bruce Ashby, landed in India 18 months before its planned launch.

2. Products/Services: Indigo had a unique positioning of on-time performance, lower fares, and consistent on-board and ground services. All of its advertising ideas and advertising strategies have always been designed in line with this positioning. This enabled them to cater to their target markets more effectively.

3. Ability to Strike Savvy Deals, Especially For Its Aircrafts: Acquiring the 100 Airbus aircraft at an exceptionally low price gave them the strategic advantage. The deal involved Indigo buying 100 Airbus-320 aircrafts, which would be returned after six years. In addition, the Airbus would be held responsible for any damage or happenings to aircraft parts.

4. Costs Control: Most low cost carriers adopt innovative ideas and business strategies to reduce costs and increase efficiency and hence, are more profitable. For example, its no-frills model helps in making the aircraft light, which in turn leads to less fuel burn. Since fuel in India is at least 50% more expensive than globally and forms one of the biggest expenses of an aircraft, these business strategies aided in reducing their costs significantly.

5. Other Operational Business Strategies: Cutting down turnaround times and utilizing their space better have provided them a competitive advantage. On an average, a low cost airline can seat between 160-190 passengers as compared to about 150 only by a full service aircraft. Moreover, the pure low cost model requires lesser staffing and hence, helps in reducing costs.

6. Lower Staff Costs: Indigo has 46 air-crafts, employs less than 4,500 people and connects just about 30 cities. As compared to this, Jet Airways (with JetLite and Jet Konnect) employs about 14,500 people and has 117 aircrafts. These have helped reduce cost structures, and aided in improving the business strategies further.

Conclusion
With small international airlines (for example, Go Air) and local airlines (owing to easier form of financing in the form of venture capital), starting their businesses in India, huge opportunities for mergers and acquisitions persist in the aviation industry. These, in turn, would bring their own network of clients, customers and consumers, thus leading to overall expansion of the Indian aviation industry on the whole, through their innovative business ideas.

To conclude, the following table illustrates the key difference between the business strategies of the two entrepreneurs, Vijay Mallya and Rahul Bhatia, and their respective airlines, and summarizes why Indigo prospered, while Kingfisher is on the verge of becoming bailed-out-or-extinct.

Business Strategies and Other Parameters

Indigo

Kingfisher

Business Model

Strictly followed a low-cost, single class as well as aircraft model

Started with single-class model, shifted focus to premium class and is once again changing to a mix of less premium and more economy

Expansion

Focussed on inorganic expansion by adding a plane every six weeks

Merged with Air Deccan in order to expand aggressively in both international and domestic sectors

Resource Utilization and Operations

Second largest carrier by passenger carriage with 50 aircraft

Slipped to being the fifth-largest carrier in terms of passenger carriage, grounded over 20 aircraft and now operates with less than 40 planes

Business Management

Bruce Ashby, first CEO, was in place 18 months before the launch

Only two CEOs since its launch with Mallya insisting on running the airline himself most of the time

Current Standing

In international expansion mode and is solidly profitable, booking Rs 650 crore in 2010-11 from Rs 551 crore in 2009-10 

Is in deep financial trouble and is cutting back operations with accumulated losses of around Rs 6,000 crore and debt on its books of over Rs 7,000 crore

Recommendations For Improvement In Business Strategies
In order to stay in the competition, Kingfisher Airlines need to adapt and be flexible in their business strategies, but at the same time, be disciplined and patient because the growth would take place gradually and not overnight. Additionally, high interest dues need to be taken care of, which could be done by cutting down on spending on IPL Parties and other luxuries. A professional airline management team should be put in place to keep up with the quality of service offered by other airlines. Apart from these, the airlines could adopt certain business strategies and measures by Indigo Airlines, as for example, sticking to what they propose to stood for (true positioning), and not changing their business model and marketing tactics frequently. Kingfisher Airlines must also look to cut turnaround times and ensure timely flight, in order to optimize costs and hence, increase profitability.

Another of the possible business strategies, which it may consider if costs permit, is establishing its own retail outlet and online store, where in the customers can purchase merchandise and fancy accessories at convenient prices. Unlike many small businesses and medium businesses, which lack the costs infrastructure and have to design their marketing campaigns themselves, Kingfisher, being an established and solid business, can hire an advertising company to establish an effective marketing and advertising campaign, as Indigo did. Kingfisher may consider online advertising and internet marketing with some creative marketing ideas as digital marketing is picking up in all other sectors.

Major FMCG companies have been successful on the digital forefront. For example, the Pepsi Refresh Project was an effective cause related marketing campaign, where they funded ideas to refresh the world. This helped PepsiCo to increase their popularity among their target audience. A similar digital campaign, which could connect well with their target customers, could do wonders for Kingfisher Airlines. These business strategies, if implemented in the right manner and are maintained on a consistent basis, could help Kingfisher out of its current state of turmoil.

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