TERM PROJECT

KINGFISHER AIRLINES -
BUSINESS STRATEGY AND
MARKET ANALYSIS
FOR INDIAN BUSINESS

Submitted by:
MakanN
KINGFISHER AIRLINES - BUSINESS STRATEGY AND MARKET
ANALYSIS FOR INDIAN BUSINESS

Aviation Sector in India – an Overview

History of Civil Aviation in India.

1. The history of civil aviation in India began in December 1912. This was
with the opening of the first domestic air route between Karachi and Delhi by
the Indian state Air services in collaboration with the Imperial Airways, UK,
though it was a mere extension of London-Karachi flight of the latter airline.
Three years later, the first Indian airline, Tata Sons Ltd., started a regular
airmail service between Karachi and Madras without any patronage from the
government. At the time of independence, the number of air transport
companies, which were operating within and beyond the frontiers of the
company, carrying both air cargo and passengers, was nine. It was reduced
to eight, with Orient Airways shifting to Pakistan. These airlines were: Tata
Airlines, Indian National Airways, Air Service of India, Deccan Airways,
Ambica Airways, Bharat Airways and Mistry Airways.

2. In early 1948, a joint sector company, Air India International Ltd., was
established by the Government of India and Air India (earlier Tata Airline)
with a capital of Rs 2 crore and a fleet of three Lockheed constellation
aircraft. Its first flight took off on June 8, 1948 on the Mumbai (Bombay)-
London air route. At the time of its nationalisation in 1953, it was operating
four weekly services between Mumbai-London and two weekly services
between Mumbai and Nairobi. The joint venture was headed by JRD Tata, a
visionary who had founded the first Indian airline in 1932 and had himself
piloted its inaugural flight.

3. A chronological diary of major milestones is as given below:

(a) 1953: Nationalisation of Aircraft Industry. The assets of 8 existing

companies were transferred to two entities in the aviation sector
controlled by the Government into two companies viz. Indian Airlines,
primarily serving domestic sectors, and Air India, primarily serving the
international sectors. This had the following implications:
Aviation became a preferred mode of transport for elite class
Restricted Growth of Aviation Industry
High Cost structure
Underdevelopment of infrastructure
(b) 1986: Private Sector Players permitted as Air taxi operators. Jet,
Air Sahara, etc. started service.
(c) 1990: The Open-sky policy came in April 1990. The policy allowed
air taxi- operators to operate flights from any airport, both on a charter
 and a non charter basis and to decide their own flight schedules, cargo
and passenger fares. The operators were, however, required to use
aircraft with a minimum of 15 seats and conform to the prescribed
rules.
(c) 1994: Private Carriers permitted to operate scheduled services.
Six operators granted license, however only Jet and Air Sahara able to
service.
(d) 2003: Entry of low cost carriers. Air Deccan, Spice Jet, Go Air,
Indigo. This had the following implications:
Aviation becomes more affordable with check fares and discount
schemes.
Various Operators with different business model in the industry.
Huge growth in Aviation sector.

Regulatory Environment of Aviation Sector

4. The regulatory environment of the Indian Aviation Industry comprises the
following:
(a) Federation of Indian Airlines. Federation of Indian Airlines
is a body formed by the scheduled carriers in India. FIA, as the voice of
India's airline industry, works to identify and take up issues on behalf
of the industry, with various regulatory authorities, government
departments and other key stake-holders. The functioning of the FIA is
guided by an Executive Council, comprising chiefs of each of the
member airlines.

(b) Ministry of Civil Aviation. The Ministry of Civil Aviation in

India is located at New Delhi. The ministry formulates national policies
& programs for development & regulation of civil aviation & also
prepares schemes for the growth & expansion of Civil Aviation in India.
The ministry also monitors airport facilities, air traffic services & the
carriage of passengers & goods by air. Under its purview are the
following Attached/Autonomous organizations:
Directorate General of Civil Aviation. The Directorate
General of Civil Aviation (DGCA) is a principal regulatory body for
the aviation industry in India. DGCA is headquartered in Delhi.
Bureau of Civil Aviation Security.
Indira Gandhi Rashtriya Uran Akademi set up at Fursatganj to
standardize and improve the flying training facilities in the
country, training pilots on fixed wing and rotary wing aircraft.
Air India Ltd. & Indian Airlines Ltd, now merged under a holding
company, viz. National Aviation Corporation of India Ltd (NACIL).
Pawan Hans Helicopters Ltd.
Airport Authority of India.

(c) Civil Aviation Policy. The mission of Civil Aviation Policy is to

maintain a competitive civil aviation environment which ensures safety
 and security in accordance with international standards, promotes
efficient, cost-effective and orderly growth of air transport and
contributes to social and economic development of the country. The
strategic objectives are as follows:

(i) Trade, tourism and overall economic activity and growth is

encouraged.
(ii) Safe, efficient, reliable and widespread quality air transport
services are provided at reasonable prices.
(iii)Effective systems are put in place for timely crisis and disaster
management, including investigation of incidents/accidents

(d) Open Skies Agreement. India and the United States signed
a landmark agreement, permitting any number of airlines to operate
any number of flights to any point in each other's territory. The
agreement will enhance passenger and cargo services between the
countries, decrease airfares and accompany innovations and new
partnerships in the aviation industry.

5. Sector structure/Market size. The Indian aviation industry is one

of the fastest growing aviation industries in the world, with a growth rate of
18 per cent per annum. The government's open sky policy has led to many
overseas players entering the market and the industry has been growing
both in terms of players and number of aircrafts. Today, private airlines
account for around 75 per cent share of the domestic aviation market. India
has jumped to 9th position in 2009 in world's aviation market from 12th in
2006. India has 454 airports and airstrips. Of these, 16 are designed
international airports. The scheduled domestic air services are now available
from 82 airports.

6. Potential for Growth. The Indian Civil Aviation market grew at a

compound annual growth rate (CAGR) of 18 per cent, and was worth US$ 5.6
billion in 2008. The Centre for Asia Pacific Aviation (CAPA) forecasted that
domestic traffic will increase by 25 per cent to 30 per cent till 2010 and
international traffic growth by 15 per cent, taking the total market to more
than 100 million passengers by 2010.
By 2020, Indian airports are expected to handle more than 100 million
passengers including 60 million domestic passengers and around 3.4 million
tonnes of cargo per annum.

7. Airport Infrastructure. Airport infrastructure is being developed

at a fast pace to cope up with the growth of air transport operations. A
simultaneous operation from parallel runways having facilities for category
3B level operations has now become a reality. Ground based communication,
navigation and surveillance facilities are now being replaced by satellite
based facilities. India is developing its new satellite based navigation system
Gagan, which will enable precision approaches at all airports in India. The
following are the salient developments:

a) Mumbai and Delhi airports have already been privatised and are
being upgraded at an estimated investment of US$ 4 billion over 2006-
16.
b) Greenfield airports developed by private consortia at Bangalore
and Hyderabad are now operational involving a total investment of
over 800 million USD.
c) A second greenfield airport being planned at Navi Mumbai is
going to be developed using public-private partnership (PPP) mode at
an estimated cost of US$ 2.5 billion.
d) 35 other city airports are proposed to be upgraded. The city side
development will be undertaken through PPP mode.
e) Over the next five years, AAI has planned a massive investment
of US$ 3.07 billion—43 per cent of which will be for the three metro
airports in Kolkata, Chennai and Trivandrum, and the rest will go into
upgrading other non-metro airports and modernising the existing
aeronautical facilities.

8. Aviation Investment Policy. The major policies supporting

infrastructure which are now in place are as given below.
a) 100 per cent FDI under automatic route is permissible for
greenfield airports.
b) For existing airports, Foreign equity up to 100 per cent is
permitted through automatic approvals and up to 100 per cent through
special permission (from FIPB, Ministry of Finance).
c) Private developers allowed to setup captive airstrips and general
airports 150 km away from an existing airport.
d) 100 per cent tax exemption for airport projects for a period of 10
years.
e) 49 per cent FDI is permissible in domestic air transport services
under the automatic route, but not by foreign airline companies.
Foreign institutional investors might have shareholdings more than the
limited 49% in the domestic sector. 100 per cent equity ownership by
Non-Resident Indians (NRIs) is permitted.
f) 74 per cent FDI is permissible in cargo and non-scheduled
airlines.
g) The Indian government plans to set up an Airport Economic
Regulatory Authority to provide a level playing field to all players.
9. Major Investments. During 2007-08, various companies have
shown an interest in the Indian aviation industry. Investment in airport
infrastructure was over US$ 5 billion in 2008 and will go up US$ 9 billion by
2013, of which close to US$ 6.8 billion is expected to come through public
private partnerships (PPP) model, according to a study by research firm Frost
& Sullivan. The major firms investing are as given below:
a) Tata Advanced System Limited (TAS), to set up a US$ 113.63
million helicopter manufacturing unit at the Aerospace Special
Economic Zone (SEZ) in Adhibatla village near the Hyderabad
international airport.
b) Global Vectra Helicopters, to invest US$ 130 million during the
next two years to increase its fleet strength as well as consolidate its
operations.
c) GMR Infrastructure to invest US$ 151 million corporate jet
market in India, and US$ 60 million for a proposed JV with aircraft
component manufacturers such as Honeywell and Safran to set up a
components assembly plant in the country.
d) Changi Airports International has picked up a 26 per cent stake
for US$ 20 million in Bengal Aerotropolis Pvt Ltd (BAPL).

10. Road Ahead.

a) Passenger traffic is projected to grow at a CAGR of over 15 per
cent in the next 5 years.
b) The Ministry of Civil Aviation, envisages creating infrastructure to
handle 280 million passengers by 2020.
c) Investment opportunities of US$ 110 billion envisaged up to 2020
with US$ 80 billion in new aircraft and US$ 30 billion in development of
airport infrastructure.
d) Associated areas such as maintenance, repair and overhaul
(MRO) and training offer high investment potential. A report by Ernst &
Young says the MRO category in the aviation sector can absorb up to
US$ 120 billion worth of investments by 2020.
e) Aerospace major Boeing forecasts that the Indian market will
require 1,000 commercial jets in the next 20 years, which will
represent over 3 per cent of Boeing Commercial Airplanes’ forecasted
market worldwide. This makes India a US$ 100 billion market in 20
years.

11. Challenges for the aviation sector

Rising fuel prices.

Employee shortage
Regional connectivity
Gaps in infrastructure
High input costs

Overview of Domestic Airlines Market

12. India at present has twelve competing airlines in the domestic market as
against a single government owned airline in 1991. According to
 McKinsey Quarterly (2005) the Indian aircraft market is the world’s
second largest commercial aircraft market. On-time performance and
service levels have risen dramatically and fares have dropped. The
players in the current airline market include airlines like Indigo, Go Air,
Spicejet and Kingfisher Red (Air Deccan) with low-cost, low-fare and no
frills along with premium airlines like Kingfisher and Jet Airways, in
addition to the ‘National Carrier’ – Air India. Competition has brought in
some price advantages to travellers and has converted many railway
passengers to airline travellers. Because of proliferated number of
players in the airline industry, airlines may enjoy new business
opportunities along with high competitive threats.

Key Players in Indian Aviation Industry

13. Air India is the national flag carrier airline of India with a network of
passenger and cargo services worldwide. It is the merger of the erstwhile
state-owned airlines in the country, Air India and Indian Airlines now
known as National Aviation Corporation of India Ltd (NACIL). Air India has
44 world-wide destinations. The airline has been profitable in most years
since its inception, but is facing an acute resource crunch these days. The
Airline has approached the Govt for a ‘bail-out’ package.

14. Other Airlines on Domestic Routes

a) SpiceJet is a low-cost airline. Their marketing theme "offering

low 'everyday spicey fares' and great guest services to price conscious
travellers". Their aim is to compete with the Indian Railways
passengers travelling in AC coaches.
b) Air Deccan (Kingfisher Red) is an airline based in Bangalore,
India. It was India's first low-cost carrier. Air Deccan grew rapidly since
it first started air operations in 2003, and despite its almost disastrous
maiden inaugural flight (which caught fire), it continued to grow. The
growing Indian economy and the increasing number of middle-class
people in India has greatly helped its growth. The Airline changed its
brand name to ‘Kingfisher Red’ after association with the Kingfisher
Airline.
c) GoAir The People’s Airline, a low cost carrier promoted by The
Wadia Group is a domestic budget airline based in Mumbai, India
established in June 2004. It’s a relatively small player as compared to
other low cost airlines.
d) Kingfisher Airlines is an airline based in Bangalore, India.
Services started on 9 May 2005, following the lease of 4 Airbus A320
aircraft. It initially operates only on domestic routes. The airline
promises to suit the needs of air travellers and to provide reasonable
air fares.
 e) IndiGo Airlines is a new and a private domestic airline based in
India. IndiGo placed an order for 100 Airbus A320 aircraft during the
2005 Paris Air Show. The total order was worth US $6 billion; one of the
highest by any domestic carrier during the show. The low-fare carrier
has started operations from 04 Aug 06.
f) Jet Airways a “regular” airline which offers normal economy and
business class seats. Jet Airways, along with Air Sahara, is the only
airline which survived the dismal period of 1990s when many private
airlines in India were forced to close down. Jet Airways is an airline
based in India serving domestic and international routes. The airline
operates over 300 flights to 43 destinations across the. Air Sahara has
now merged with Jet Airways and changed the brand name to Jetlite.

15. Market Share. The market shares of the Major Airlines (First quarter
2009) are as given in the pie chart below:
(a) Kingfisher: 26.08 %
(b) Jet Airways: 16.72 %
(c) Jetlite: 7.39 %
(d) Air India: 17.66 %
(e) Indigo: 13.75 %
(f) Spicejet: 11.72 %
(g) Go Air: 4.29 %
(h) Paramount: 2.27 %
General Segmentation Trends: The Airline Industry
16. Most airlines use a very traditional segmentation strategy, dividing
passengers into Business travellers and Economy travellers (mostly leisure
travellers). The common strategy is to squeeze as much profit as possible
from Business class passengers who are attracted by superior services and
corresponding high prices and, at the same time, to try and fill the rest of the
seats and ensure growth by attracting Economy class passengers with lower
fares.

17. Business Passengers. They are crucial for the profitability of

airlines. With less spare time and more cash in their pockets, they agree to
pay a premium price for a premium service. Today business passengers
account for approximately 48% of passengers, and these 48% contribute
66% of airlines' revenue. The premium prices they pay provide wider and
more comfortable seats, better choice of meals and seats, luxurious lounges.

18. Airlines can choose from a multitude of premium services to offer to

business travellers. Some of these extras range from seats equipped with
faxes and telephones, to gambling machines, showers, massage services
and suit ironing services in the recently introduced arrival lounges. Business
passengers believe it is worth extra money if they can save time and arrive
looking fresh for an important meeting. Business passengers will avoid
transit flights even if a longer flight could save them money. But amongst
other perks, flexible reservation services are probably the most important to
them. Reservations for business trips are often made just a couple of days in
advance. A no penalty cancellation policy is also very important to business
passengers.

19. It is observed that the best way to reach business travellers is through
printed advertising. Many airlines design special promotional programs that
target corporate bookers and meeting planners, who are responsible for
business trips reservations. Frequent flyer programs are an added bonus for
business passengers.

20 Leisure Travellers. They represent a totally different market. The

most important consideration for most of them is the price. The lower the
airfare, the more people will fly the respective airline. By and large, with the
exception of wealthy travellers, this segment will not pay extra for premium
services and will agree to change several planes during their trip if this
option costs less than a direct flight.

21. Despite lower margins provided by this segment, leisure travellers are
very important to the bottom line of airlines. Part of the reason is that
technological progress in the area of tele-conferencing and increased use of
the internet for business communications is expected to reduce the number
of business travellers. Thus, airlines are counting on the leisure segment to
provide further growth.

22. The tough issue in airline marketing management is how airlines can
benefit from the growth opportunities in the leisure segment without losing
immediate profit opportunities in the business segment. By improving
services and reducing prices for economy class passengers, airlines risk that
some business passengers will switch to economy class. Since business class
passengers are not many, a company relying mostly on business travellers
will often end up flying half-empty planes, losing the potential revenue
generated by lower priced economy seats.

23. On the other hand, few airlines catering solely to economy class
passengers can be successful because a low fare carrier must fill the entire
plane if it is to generate revenue from its low-margin operations. Thus the
airline tries to sell the economy seats at a cheaper price early, while keeping
enough seats reserved for business travellers, who usually book at the last
minute. Keeping just the right amount of business seats reserved is
important: selling too few economy seats in advance may result in a less-
than-full plane while selling too many economy seats may result in a full
plane, but with insufficient revenue to gain a profit.

A Study of Kingfisher Airlines

24. Introduction to UB group UB group based in Bangalore, is a

conglomerate of different companies with a major focus on the brewery
(beer) and alcoholic beverages industry. The company markets most of its
beer under the Kingfisher brand. The group is headed by Dr Vijay Mallya. The
UB Group was founded by a Scotsman, Thomas Leishman in 1857.
Kingfisher, the Group's most visible and profitable brand, made a modest
entry in the sixties. During the 1950's and 60's, the company expanded
greatly by acquiring other breweries. First was the addition of McDowell as
one of the Group subsidiaries, a move which helped United Breweries to
extend its portfolio to wines and spirits business. Strategically, the Group
moved into agro-based industries and medicines when Mallya acquired
Kissan products and formed a long-term relationship with Hoechst AG of
Germany to create the Indian pharmaceutical company now known as
Aventis Pharma, the Indian subsidiary of the global pharma major Sanofi-
Aventis. The UB Group’s Brewing Entity - called United Breweries Limited
(UBL) - has also assumed undisputed market leadership with a national
market share in excess of 50%. Through a process of aggressive acquisition
and market penetration, The UB Group today controls 60% of the total
manufacturing capacity for Beer in India.

25. Kingfisher Airlines Kingfisher Airline is a private airline based in

Bangalore, India. The airline is owned by the United Beverages Group.
Kingfisher Airlines started its operations on 09 May 05 with a fleet of 4 Airbus
A320 aircrafts. The major destinations covered by Kingfisher Airlines on
domestic routes are Bangalore, Mumbai, Delhi, Goa, Chennai, Hyderabad,
Ahmedabad, Cochin, Guwahati, Kolkata, Pune, Agartala, Dibrugarh,
Mangalore and Jaipur.

26. It is a major Indian luxury airline operating 218 flights a day and has
an extensive network to 37 destinations, with plans for regional and long-
haul international services. It has announced plans to start flights to the USA
with Airbus A380 aircraft. Its main bases are Bangalore International Airport,
Bangalore, Chhatrapati Shivaji International Airport, Mumbai and Indira
Gandhi International Airport, Delhi, with a hub at Sardar Vallabhbhai Patel
International Airport, Ahmedabad. Kingfisher Airlines, through one of its
holding companies United Breweries Group, has acquired 26% stake in the
budget airline Air Deccan and has option to buy further of 20% stake from
the secondary market.

27. Kingfisher is one of only 6 airlines in the world to have a 5 star rating
from Skytrax, along with Asian Airlines, Malaysia Airlines, Qatar Airways,
Singapore Airlines and Cathay Pacific Airways. In a short span of time
Kingfisher Airline has carved a niche for itself. The airline offers several
unique services to its customers. These include personal valet at the airport
to assist in baggage handling and boarding, exclusive lounges with private
space, accompanied with refreshments and music at the airport, audio and
video on-demand, with extra-wide personalized screens in the aircraft,
sleeperette seats with extendable footrests, and three-course gourmet
cuisine.

28. The following are the major attributes of the Airline:

(a) Vision: “The Kingfisher Airlines family will consistently

deliver a safe, value-based and enjoyable travel experience to all our
guests.”
(b) Safety: This is an overriding value. In this line of business,
there is no compromise.
(c) Service: In hospitality business customer satisfaction is very
important and building trust, goodwill and loyalty of customers is at
prime focus.
(d) Happiness: Kingfisher seeks to build an organisation with
people who choose to be happy, and will endeavour to influence their
guests and co-workers to be happy too.
(e) Teamwork: Kingfisher believes that “We will succeed or fail
as a team. Each one of us must respect our colleagues regardless of
their rank, and we must work together to ensure our mutual success”.
 (f) Accountability: Every employee in Kingfisher will be held
accountable for the successful execution of their duties, commitments
and obligations, and they will strive to lead by an example.

29. Product: Premium class seats

(a) Sleeperette seats with extendable footrests. 48" seat pitch and a
125° recline. Fully-adjustable headrests.
(b) Laptop and mobile phone chargers in each seat.
(c) Comfortable pillows and snug blankets.

30. Price: Initially Kingfisher airlines did not differentiate

between business class and economy class. But eventually they decreased
the prices of business class and called those seats as premium seats. Fares
were very average as it had to target middle class as well as premium class
people. The introduction of Kingfisher Red services have given the airline a
‘Low-Cost’ option to compete with other ‘No-frills’ airlines. It is important to
note that the Kingfisher Red serves complementary meals on board, thereby
increasing the perception of ‘More Value for Money’ for the passengers.

31. Promotion: Various promotional strategies have been adopted

by Kingfisher airlines like the following:

(a) The 'Power Flyer' a consumer incentive offer targeted at the

corporate traveller
(b) Passengers are offered in flight entertainment options and
contests like ‘Kingfisher Flying Face of the Month' and attractive
discounts of branded merchandise.
(c) Offer in-flight silent auctions for lifestyle products and in-flight
sales of dry packaged food and beverages.
(d) The marketing department showcased the airlines as ‘The new
flying experience’.
(e) Kingfisher Airlines has announced special fares for all personnel
serving in the Indian Armed Forces, the Union Government, State
governments, and employees of all public sector units in the country.
The immediate families of these personnel are also eligible for these
concessions.
(f) The company has just launched Kingfisher First, which is a print
campaign to promote its first class service. It is a personalized
campaign, which has Vijay Mallya, signing off by saying, "I have
created a product which is better than what I would have created for
myself."

SWOT ANALYSIS

32. A SWOT analysis carried out on the Airline reveals the following:
 (a) Strengths:
Strong Brand value & Reputation in the minds of customers.
Quality of the service.
First airline to have new fleet of airbuses.

(b) Weaknessess:
High Ticket prices.
Still not a profit-making organization.

(c) Opportunities:
The expanding tourism Industry.
Untapped Air cargo market.
Under penetrated Domestic Market.

(d) Threats:
Competitors.
Fuel Price Hike.
Economic Slowdown/Recession.
Alienation of Government passengers. The Government servants
travelling on Official Duty have to use Air-India only.
Tourism Saturation.
Declining Promotions and sponsorship.

33. MARKETING STRATEGIES

Kingfisher Airlines is the first carrier in the country to offer live in-flight
entertainment.
Kingfisher Airlines Ltd and Dish TV have joined hands to provide live in-
flight entertainment on Kingfisher aircraft.
The service would enable airline’s customers to book air travel ticket
after securing ‘ngpay’ application on their GPRS-enabled mobile
handsets.
On the promotional front, Kingfisher has signed up the latest diva of
Bollywood Ms.Deepika Padukone as the Brand Ambassador.
Ambush advertising as shown in the strategic placement of own
advertisement hoardings vis-à-vis those of Jet Airways, as shown in the
picture below.
33. Union with Air Deccan. Kingfisher Airlines, through one of its
holding companies UB holdings Ltd, has acquired 26% stake in the budget
airline Air Deccan and has option to buy further of 20% stake from the
secondary market. Air Deccan is now known as “Kingfisher Red”. The main
aim behind the union is to optimise the operations of the two airlines by
working closely together to exploit the significant synergies that exist in the
areas of operations and maintenance, ground handling, vastly increased
connectivity, feeder services, distribution penetration etc. The Kingfisher-Air
Deccan group is one of the largest domestic airline with a fleet of 71 aircraft
including 41 Airbus aircraft and 30 ATR aircraft. This combined airline
powerhouse covers all segments of air travel from low fares to premium
fares and offer the maximum number of 537 daily flights covering the single
largest network in India connecting 69 cities whilst taking advantage of
unparalleled synergy benefits arising from a common fleet of aircraft.
34. The market leadership of Kingfisher Airlines is evident from the present
market share as indicated in the chart below:
References:
1. Indian Brand equity Foundation website, www.ibef.com.
2. Assam times, Community Newspaper
3. Business section of website Maps of India.com.
4. En.wikipedia.org/wiki/Airline#Airline_personnel
5. www.indianchild.com/india_civil_aviation.html
6 Kingfisherblog.wordpress.comhttp
7. www.iloveindia.com/economy-of-india
8. www.bangaloreaviation.com