Thursday, June 8, 2017

Strategies that led to the downfall of KingFisher Airlines.



KingFisher Airlines was used to be a luxury airline in India. It was set up in 2003. Traditionally, the airline business in India has been on thin operating margin. But KingFisher took the other route. It wanted to take the "middle course" and offer luxury services at a higher price. In 2005, Kingfisher Airlines became the first and the only Indian Carrier to order the Airbus A 380 double-decker aeroplane. [1] KingFisher's owner Vijay Mallya prior to this had a flourishing liquor business. He had been successful in building the luxury brand KingFisher by aggressive advertisements involving extravaganza.

There could have been little doubt on the success of KingFisher Airlines. But due to several strategic blunders, the airlines had to stop its business. We look into the several strategic mistakes made by the business.

1) Acquisition of competitor Air Deccan: It is said that there is a "Synergy Mirage" amongst business players that acquiring other businesses to increase revenue base always leads to profitable business. However, this if far from the truth [2]. Air Deccan was the strongest competitor for KingFisher Airlines during the mid 2000s. When the oil prices increased, the airlines failed to continue the luxury airline service operations. It wanted then to move to economy service and for this, it indulged in heavy financial borrowings to buy out the competitor. 

2) Making the mistake of Pseudo Adjacency: Kingfisher had been operating well withing the domestic market of India prior to the expansion. With its acquisition of Air Deccan, it overestimated its ability to operate within India as its core business and embarked on a business involving international flight services despite producing negative operational income in the domestic market. [3]

3) Failure in the coherence test: Kingfisher Airlines, rather than improving its position as a luxury airline, wanted to capture economy air service space.  This was a strategic blunder of misplaced understanding of its position in the market. The airlines, at first, failed to focus on developing the capabilities as a luxury airline. Second, it entered into an "apparent adjacency" about which it had no prior experience. It failed to pass the coherence test. [4]

The above three primary reasons reiterate the need of taking informed strategic management steps in relation to making the business successful. If the business is unable to understand this, it would be doomed to failure much as in the case of a once famous liquor brand Kingfisher that failed to understand the landscape of Airline Business industry and lost its reputation in the market with its several accounts being frozen. 



References

1) http://www.thehindu.com/business/Industry/kingfisher-airlines-crisis-timeline/article14380262.ece1
2) Seven Ways to Fail Big by Paul Carroll and Chunka Mui from the September 2008 issue, Harvard Business Review
3) http://indianexpress.com/article/india/india-news-india/sunday-story-once-upon-a-time-there-was-a-king-vijay-mallya/
4) The Coherence Premium
by Paul Leinwand and Cesare Mainardi, from the June 2010 issue, Harvard Busines Review


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