Kingfisher Airlines - The 'Funliner' Experience

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Case Details:

Case Code : MKTG131
Case Length : 14 Pages
Period : 2005 - 2006
Organization : - Kingfisher Airlines
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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New low cost carriers (LCCs) like SpiceJet and GoAir entered the market after KFA's launch and they started an all-out price war by slashing down on fares. For instance, in December 2005, GoAir started offering 10,000 free air tickets on four new routes (Hyderabad, Chennai, Jaipur, and Bangalore). Established players like Jet Airways (India) Ltd., (Jet Airways) too looked to consolidate their market positions.

In January 2006, Jet Airways announced that it would acquire Air Sahara (Sahara) for US$ 500 million. This acquisition would make Jet Airways India's largest airline with an almost 45% market share. Jet Airways was also expected to gain control of Sahara's 22 parking bays spread across many domestic airports. In February 2006, the Jet-Sahara combine brought down their air fares to compete against KFA, and LCCs like Air Deccan and SpiceJet.

There were also other challenges which affected the airline industry as a whole, like high aviation turbine fuel (ATF) prices and congestion problems at high traffic airports like Mumbai and Delhi. In this increasingly competitive environment, KFA set its sights on becoming India's largest private carrier by 2010. Mallya said, "Having invested in the best-in-class fleet of aircraft, we are committed to achieving our ambition of making Kingfisher Airlines India's largest private airline both in capacity and market share by 2010." There were also media reports that KFA planned to launch a low cost airline called 'Kingfisher Express' to tap into the growing LCC segment.

Background

The Government of India nationalized nine airline companies vide the Air Corporations Act, 1953. Accordingly it established the Indian Airlines Corporation (IAC) to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers.

This Act ensured that IAC and AI had a monopoly over the Indian skies. A third government-owned airline, Vayudoot, which provided services between smaller cities, was merged with IAC in 1994. These government-owned airlines dominated India's air travel industry till the mid-1990s.

In 1994, IAC was renamed Indian Airlines (IA). In the same year, the Indian Government, as part of its "open skies” policy, ended the monopoly of IA and AI in the air transport services by repealing the Air Corporations Act of 1953 and replacing it with the Air Corporations (Transfer of Undertaking and Repeal) Act, 1994. Private operators were allowed to provide air transport services. Foreign direct investment (FDI) of up to 49 percent equity stake and NRI (Non Resident Indian) investment of up to 100 percent equity stake were permitted through the automatic FDI route in the domestic air transport services sector. However, no foreign airline could directly or indirectly hold equity in a domestic airline company.

By 1995, six private airlines accounted for more than 10 percent of the domestic air traffic. But in the next couple of years, only Jet Airways and Sahara managed to survive the competition; NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways lost out. IA, which had dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara, which provided better services. From a 100% domestic market share in 1994-95, IA's share had gone down to 36% by 2000-01...

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