Strategy Management

Kingfisher Airlines Case Study

Submitted by:
Vishal Choudhary
PGP/23/308
Q1: What are conflicts of generic strategy in the case and what effects did they
have on Kingfisher after the acquisition of Deccan?
The Kingfisher airlines acquired Deccan Air since they were one of the
prominent low-cost carrier with a significant market share of 22% by volume of
flyers as of 2005. This acquisition allowed Kingfisher’s branded house to
extend into the LCC model with an overall higher market share by volume of
customers. After acquiring the Deccan airlines, it was rebranded to Kingfisher
red. Also, Kingfisher decided to get away with the marketing and other
strategies of Deccan air in an aid to reduce the operational costs. The
important point is that Deccan air had a very different set of aircrafts, ATR
versus the Airbus of Kingfisher. It required Kingfisher to maintain separate
crew and ground personnel for kingfisher and kingfisher red which increased
cost of operations at a level far greater than optimal. Airline industry is quite
different from conventional business that has a long gestation period, which
was not incorporated by Kingfisher while considering the strategies involved in
the Kingfisher red model. With the rebranding, they just gave the luxury tag
but the no frills policy worked contrary to the expectations. It left customers in
a state of confusion and the management, which subsequently lead to the
demise of the kingfisher red. The only positive thing with this strategy was that
Kingfisher managed to run flights internationally. Overall, it could be discerned
that Kingfisher and Deccan served to different market segments and as a viable
option the strategies of kingfisher and kingfisher red should have designed
differently to support the needs of their respective markets.
Q2: When firms decide to produce on lesser than opportunity cost of capital,
how does it affect the stakeholders and society in general?
It can be observed from the case that when the kingfisher red’s decisions did
not comply the market’s requirements, it directly started impacting kingfisher
airlines as their customers started selling their flyer miles and points collected
over a period of time. With this, it can be said that the loyal customers of
kingfisher later switched to their competitor Jet Airways, which is detrimental
to any business. It can also be observed that when kingfisher could not come
up with a sustainable plan of conducting its business in the aviation industry,
the same hampered the process of raising IPO since public’s confidence in the
company was low. This was followed by a consortium of bank led by SBI which
adjudged the carrier as a defaulting company after accumulating losses of over
Rs5000 crore and defaulted on interest payment which was over the valuation
of the company. Even the regulatory authorities like DGCA and Ministry of Civil
Aviation backed the stopping company’s operation over non-payment of
salaries to staff and fees to the airports among many other pending dues. As a
result, Kingfisher was in urgent need of additional capital to remain
operational but neither the Initial Public Offering garnered the company any
kind of support nor the existing shareholders of the company were ready to
give in equity towards the company.