Name: Janki Unadkat

Roll no: Im-15107

Airlines' crisis: Why is Kingfisher Airlines constantly

losing money
By
Vivek Kaul
Kingfisher has started it’s airline services in May 2005 with huge expectations, investors also had faith
on Vijay Mallya because he is running United beverages group(Kingfisher Beer) successfully, he has a
good relationship with top politicians in India, his personal wealth is more than 7000 crore at that
time.

It takes a brave man to buy an airline. And it takes a braver man to keep running it into the ground.
Ask liquor baron Vijay Mallya, who has been running Kingfisher Airlines for a while now. The airline
now has accumulated losses running into more than Rs 6000 crore, having never made money since
its launch in 2005.

But that is hardly surprising, given that most airlines make losses rather than profits. Warren Buffett
explained this in a letter he wrote to the shareholders of Berkshir . explained this in a letter he wrote to
the shareholders of Berkshire Hathaway in February 2008: "The worst sort of business is one that
grows rapidly, requires significant capital to engender the growth, and then earns little or no money.
Think airlines. Here, a durable competitive advantage has proven elusive ever since the days of the
Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done
his successors a huge favour by shooting Orville down." But such is the glamour of owning an airline
that people cannot keep away from it. This, despite the evidence of the sector making huge losses
because of the very high capital required to start it, tough competition and the rising price of oil over
the last few years.

Interestingly, the only airline to make profits consistently over the years is Southwest Airlines. The
low-cost airline has made profits year after year since it started operating in 1973, though in the
recent past its its profits have come more from successful bets on oil derivatives rather than
passenger revenue.

The reason airlines constantly lose money is because it is one business where companies really have
no way to control their costs. The primary expense in running an airline (a company doesn't always
have to buy the aircrafts, it can lease them) is oil. And oil prices in the recent past have been on their
way up and currently quote at around $120 a barrel. Airline companies have no control over this price.
The higher it goes, the higher is their expenditure in running the airline and given the competition that
prevails, they are not always in a position to pass on the increasing cost to the customer

Hence, airlines are specialised businesses which require full time attention. Mallya's business
interests are too diverse to allow him the time and attention required to manage Kingfisher, busy as
he is running his diverse businesses and doing other things. What clearly did not help was his
decision to take over Deccan Aviation (which he shut down a few months ago).

A premium brand like Kingfisher operating a low-cost airline, by buying Air Deccan and rebranding it
as Kingfisher Red, was a big mistake in the first place. Also his other primary business interests are in
the fields of alcohol and now real estate. There isn't really any link among these businesses.
Businesses over the years have become more complicated. And just because a company has been
good at one particular business doesn't mean it will be good at another totally unrelated business.

Several big businessmen have learnt this in the recent past, the hard way. Reliance's attempts at the
retail business haven't gone anywhere. Bharti recently exited the insurance business it had started
with much fanfare. NDTV's attempts in the general entertainment business by launching the Imagine
channel came a cropper.

Marketing guru Al Ries has said in the past "Focus is the essence of marketing and branding." To his
observation, we could add the word 'business' as well. And it's time Mallya learnt that lesson. The
good times last as long as you stick to what you know.