Indian Institute of Foreign Trade

Fundamentals of Management Project

Term Project

Prepared By:
Apurv Shekhar Jha 7C
Asmita Das 8C
Ayan Chakravarty 9C
Badhe Shubham Bhaskar 10C
Bharat Maniam 11C
Chayanika Das 12C
CONTENTS

1. Introduction
2. Spicejet
3. Kingfisher
4. Southwest Airlines
5. Virgin Australia
INTRODUCTION

International --- 2 lines

The Indian airline industry has experienced exceptional growth and transformation, which
will continue in the next years. Many airlines come and go (like Kingfisher, Jet Airways, etc.)
while others have established a firm foothold in the industry (like Spicejet, Indigo, etc.).

The companies chosen for analysis are:

1. National Successful – Spicejet

2. National Unsuccessful – Kingfisher
3. International Successful – Southwest Airlines
4. International Unsuccessful – Air Berlin

SPICEJET

KINGFISHER

The airline group Kingfisher Airlines Limited was established in India. It was founded in
2003 and began operating commercially in 2005. It owned a 50% ownership in low-cost
carrier Kingfisher Red through its parent firm, United Breweries Group. Kingfisher Airlines
had the second highest proportion of India's domestic air travel industry till December 2011.
It was considered among top 5 passenger airlines in India but after that it suffered high losses,
heavy debts and finally shutdown in 2012. However, the airline has been losing money since
its establishment, has a large debt load, and was forced to close its doors on October 20,
2012.

Due to the group's poor strategic decisions and mismanagement, the large and ambitious
Kingfisher Airline project experienced significant downtime. The airline became known for
its lavish design, food, and atmosphere, as well as its ambitious plans to establish itself in the
international market, but it overlooked the lower economic classes.

A. MANAGEMENT AND OUTLOOK – 2013

 Dr. Vijay Mallya – (then) Chairman and Managing
Director

The management was hopeful about the recapitalization and relaunch of the company's airline
activities. Every effort was being made to ensure a successful restart. While the industry's
growth had slowed, India's aviation industry had a strong long-term future. Many full-service
foreign carriers had shown an interest in entering the Indian aviation sector, but they were
waiting to see if the government would help them. Even financial investors were waiting for
the government to approve foreign carriers' entry into the market so that they could quit if
they like.

The company was confident that the management's persistent and committed efforts to bring
in fresh infusions of funds would be successful, provided that the lenders show interest and
commitment in reviving the company's operations rather than the hostile and negative
approach that was causing major concern among investors.

B. PESTEL
1. POLITICAL
Kingfisher Airlines was once a toast of the aviation service, and it was subjected to
many political concerns in India. The government aided Air India's monopoly and
imposed several restrictions on private carriers. Another concern was the lack of
foreign equity and non-resident Indian investment. Kingfisher has been in financial
trouble since 2012, when it was forced to close its doors after failing to pay back taxes
and loans.
2. ECONOMIC
The crash landing of the Kingfisher aircraft from the sky to the ground was caused by
the Indian economy's upheaval. The sector was being severely harmed by rising
gasoline costs and strong prohibitions on foreign direct investment. The airline's
income and sales were also affected by changes in the interest rate and currency
value. The airline industry is also affected by the business cycle, as individuals regard
air travel as a luxury during the recession period.
 Year 2012 2011
Revenue 582,400.00 649,560.00
Fuel Expenses 294,590.00 227,400.00
Fuel Expenses as % of 50.58% 35.01%
Revenue

3. SOCIAL
People were willing to pay for travel around the world as their living conditions
improved and their disposable money increased. Kingfisher had a high consumer
value and was well-known in the community. It cost a premium ticket, which the
customers gladly paid in exchange for an incredible flying experience. The
atmosphere on board the plane was really pleasant, which made the passengers feel
more at ease.
4. TECHNOLOGIAL
Kingfisher aircrafts were outfitted with the most up-to-date entertainment systems,
including a television in the back of each seat. It was the only domestic airline in
India to offer 16 live channels. Customers could use their mobile phones and PCs to
complete the online e-booking and check-in process. Through the development of
advanced communication, navigation, and air traffic management systems,
technology was driving the image of airlines. The construction of infrastructure also
aided in the reduction of maintenance expenses.
5. ENVIRONMENTAL
Kingfisher airline's recovery plan illustrated a variety of environment friendly options.
One step was to use tiny aircrafts, which use less fuel and emit less carbon. Another
phase was to replace two engines with one. The airline's operational costs and
financial burden would have been reduced as a result of the fuel-efficient aircrafts.
Another environmental problem for Kingfisher Airlines was lowering airplane noise.
It necessitated the adoption of new technology in order to manufacture new jets.
6. LEGAL
As a result of governmental policies, rules, and regulations, the Indian aviation sector
is subject to a variety of legal constraints. One of the reasons for Kingfisher's demise
was the need for a license to fly international routes following its joint venture with
Air Deccan. Following an understanding of the airlines' financial issues, the central
government's tax charges were being cut.
SWOT

Kingfisher Airlines' SWOT analysis examines the brand's strengths, weaknesses,

opportunities, and threats. Internal variables are strengths and weaknesses in the Kingfisher
Airlines SWOT Analysis, whereas external factors are opportunities and threats.

1. STRENGTHS
 Strong brand value and reputation in the minds of the consumer
 United Brewries group as the parent company
 First Indian airline to have a new fleet of planes
 Quality service and innovation
 More than 80 destinations
 Less than 100 people (employees) per aircraft
 Strong backing from promoters
2. WEAKNESSES
 Could not break-even
 High ticket pricing (Kingfisher First and Class)
 Tough competition from Indian as well as international players
 Financial issues due to heavy debt and outstanding loans to oil marketing
companies
 Reputational hit due to laying off employees
3. OPPORTUNITIES
 Untapped International Markets
 Untapped cargo market
 Expanding tourism business
 Reputation of providing the best amenities in Indian skies
4. THREATS
 Falling demand
 Overcapacity in the skies – Low-Cost Carriers eating up market share
 Rising jet fuel costs
 Economic slowdown
 Infrastructure issues
 Pressure from aviation committees and government policies
PORTER’S COMPETITIVE ANALYSIS

1. POWER OF SUPPLIERS
 There are just two conceivable plane suppliers: Boeing and Airbus.
 The expense of switching suppliers is substantial because all mechanics and
pilots would need to be retrained.
 The price of aviation fuel is directly proportional to the price of crude oil.
2. POWER OF BUYERS
 Customers are cost-conscious. Changing airlines is a simple process that is not
associated with hefty costs as all airline booking services are online
 Customers are aware of the costs of providing the service.
 There is no / very little customer loyalty
3. THREAT FROM COMPETITORS
 The LCC market is highly competitive
 Most cost advantages can be copied immediately
 Low levels of existing rivalry as the two major low-cost airlines have avoided
direct head to head competition by choosing different routes to serve
 Not much differentiation between services. Price is the main differentiating
factor

Market Share - April 2011

7%
20%
20%

15%
6%

18% 14%
Indigo Air India Spicejet Jet Airways Go Air Kingfisher Jet Lite

4. THREAT OF SUBSTITUTES
 No brand loyalty of customers
 No ‘close customer relationship’
 No switching costs for the customer
 Other modes of transport,
5. THREAT FROM NEW ENTRANTS
 The entry barrier was very high, thus threat from new entrants was low due to the
following reasons:
 High capital investment
 Restricted slot availability makes it more difficult to find suitable airports.
 Immediate price war if encroaching on existing LCC route
 Need for low-cost base
 Flight Authorisation
C. PLANNING ASPECTS

Kingfisher Airlines rose to prominence as a premium airline that catered to the needs of high-
powered corporate leaders and politicians. It systematically built up its brand over a short
period of time. When it went to the low-cost market, however, it lost its luster.

It was not easy to navigate the low-cost market. Indigo, Spicejet, and other competitors
controlled the market. It was challenging, particularly in the domestic sector. Kingfisher
Airlines was up against fierce competition, and its hopes of making a quick buck were dashed.
Over time, its service deteriorated, and its customers switched their loyalty to better airlines.

The team's inability to make good decisions has led to its demise as one of India's greatest
airlines. The acquisition of Air Deccan, the service's rapid entry into the international arena,
and its shift in segments, which prompted rivalry, were all important factors in its demise.
External factors, such as the high cost of aviation fuel, were not adequately addressed. The
cost of fuel for Kingfisher Airlines continued to rise. All airlines, including its competitors,
experienced this, but they devised tactics to solve the difficulty, whereas Kingfisher Airlines
did not.

Within a few years of starting Kingfisher Airlines, he made two critical decisions.

The first was the acquisition of Air Deccan, a low-cost carrier. Despite the fact that
Kingfisher Airlines inherited all of Air Deccan's aircraft and market, the latter also inherited
its losses.

The rapid launch of overseas services was another choice that had an impact on Kingfisher
Airline's efficiency. It joined the international scene shortly after acquiring Air Deccan. After
consolidating the domestic service, which had by then taken a considerable share of the
Indian market, this entry into a vast market would have been excellent.
However, the foreign venture of Kingfisher Airlines was a complete disaster. Emirates and
Etihad, for example, dominated the international sky, and each had a devoted following. The
nascent Kingfisher Airlines found it too difficult to break their monopoly, and its foreign
attempt failed soon after it was launched.

D. ORGANIZATIONAL STRUCTURAL ASPECTS

An important factor contributing to Kingfisher Airline's decline and demise is a lack of

continuity at the top of the organization. Its owner was a newcomer to the aviation industry,
and it was the CEO who steered the company's route. However, no CEO stayed for more than
a year. Things may have turned out differently if Kingfisher Airlines had hired a "experienced
CEO" like Gopinath of Air Deccan and kept him for the full five-year term.

Apart from breweries and Kingfisher Airlines, Vijay Mallya's commercial interests were
numerous. His liquor business thrived because the breweries were supervised by skilled
individuals however Kingfisher Airlines did not have the same luck. The owner was also
unable to do justice due to his political (Vijay Mallya was a Rajya Sabha MP) and business
duties.

Additionally, there was a point in 2011 when Kingfisher was unable to pay its employees'
salaries. Salaries were expected to arrive in 4 to 5 months. Following this, workers began
refusing to sign the required "Tech Log," which certifies that the aircraft is safe to fly. The
Directorate General of Civil Aviation (DGCA) became aware of this and Kingfisher Airline's
license was revoked.

E. LEADING THE CORPORATE IN TESTING TIMES

Kingfisher's owner, Vijay Mallya, had extensive experience in the brewing industry. He'd
made a name for himself as a liquor baron. Despite his expertise in that field, he lacked
experience operating businesses such as airlines. As a result, he was unable to give the
Kingfisher team with motivating and effective leadership.

Mallya had taken a number of calculated risks and developed new ventures that his father had
never attempted. A thorough examination of the case reveals that the majority of Mallya's
transactions were made for his own personal gain rather than the benefit of his employees,
shareholders, or investors. Mallya broke the confidence of those who were not only reliant on
his firm but also looked up to him as a role model, committing financial fraud and, more
crucially, ethical crimes.
Mr. Vijay Mallya never took any real intervention in day-to-day operations, despite the fact
that the CEO changed more than once a year and top management was failing. Later,
Siddarth Mallya (son of Vijay Mallya) received an airline as a birthday present from his
father. He lacked the maturity to manage such a large airline company, and as a result of his
lack of skill and experience in the airline industry, Kingfisher Airlines suffered a dramatic
downfall owing to poor management.

F. CONTROLLING THE BUSINESS IN THE DOWNTURN

Kingfisher Airlines repeatedly failed to evaluate its decisions and take corrective measures to
put it back on the track of growth and profitability. Repeated strategic failures without
interventions was a major reason behind its downfall.

After merging with Air Deccan, the airline suffered a three-year loss of more than over $10
billion. When Kingfisher realized they had made a huge mistake by buying Air Deccan, they
raised the price of Kingfisher Red. However, Kingfisher Red was not a good option at the
time because it was losing money, which caused confusion among management as to whether
it should be classified as a low-cost or regular carrier. The Income Tax Department of
Mumbai froze Kingfisher Airline's bank accounts in December 2011 due to a debt of Rs 70
crores. The corporation took out extra loans to pay off the debt.

Lenders who lend money decreased interest rates and changed the loan to equity to help with
debt restructuring. However, this was not beneficial to the corporation, as the company soon
encountered a liquidity crunch. In February 2012, Kingfisher Red was eventually shut down.
Kingfisher Airlines then owed Rs 7057.08 crores (USD 1414 million) in total debt and had
lost Rs 6000 crores (USD 1202 million).

SOUTHWEST AIRLINES

AIR BERLIN

REFERENCES

1. Kingfisher Airlines Annual Report - Annual Financial Report of Kingfisher Airlines

for the Financial 2013 by Moneycontrol.com
2. (PDF) A Case Study on the Downfall of Kingfisher Airlines (researchgate.net)
VIRGIN AUSTRALIA

D. ORGANIZATIONAL STRUCTURAL ASPECTS

Many assume the Virgin Group to be a multinational, but such is not the case. Each of the
300 odd companies of the Virgin Group operates separately and Branson serves as
shareholder, chairman, and public relations supremo. Most of them are operating companies
that own assets, employ people, and offer goods and services. These operating companies are
owned and controlled by about 20 holding companies. The Virgin Group has a very complex
structure. It has been termed both as a brand franchising operation as well as a keiretsu.
However, based on its structure, the Virgin Group can be safely termed as an organization
with a keiretsu structure. A keiretsu is a group of organizations, each of which owns shares in
the other organizations in the group, and all of which work together to further the group’s
interests. Furthermore, such a large organization with a complex structure needs to be organic
in order to be able to adapt to changes in its environment. An organic structure promotes
flexibility, so people initiate change and can adapt quickly to changing conditions.

Considering each of the individual companies as a department providing a unique product or

service, it is evident that they exhibit product departmentalization. Product
departmentalization is the division of the departments of an organization based on the type of
product or service offered. For example, Virgin Mobile offers cellular services while Virgin
Records is a music label. However, the structure of the Virgin Group is so complex that it is
necessary for it to not just have one type of departmentalization. For instance, Virgin Mobile
has operations in many different countries like the UK, India and Australia. As such, the type
of service varies in each of these countries. This shows that Virgin Mobile also exhibits
geographic departmentalization. Geographic departmentalization is the division of an
organization based on the geographic location. In addition, type of service and products also
varies depending on the customer base hence exhibiting customer departmentalization.
Customer departmentalization is the division of an organization based on the kind of
customers it serves. Since the Virgin Group of companies exhibit so many types of
departmentalization, the organization as a whole is said to have a hybrid structure, which is a
mixture of two or more kinds of departmentalization. This multi-divisional approach helps
the Virgin Group to easily adapt to the cultural, technological and other forces in the region it
expands to.

The division of labour and the hierarchy is also an important aspect of an organization’s
structure. The number of levels of authority, the control, and the amount of communication
are key factors in the proper working of an organization. As mentioned, the Virgin Group’s
companies operate as separate organizations. The companies are part of a family rather than a
hierarchy. They are empowered to run their own affairs, yet the companies help one another,
and solutions to problems often come from within the Group somewhere. In a sense, Virgin is
a commonwealth, with shared ideas, values, interests and goals. In fact, Branson himself has
provided all his employees with the authority to make unsupervised decisions based on their
intuition rather than following a chain of command. This leads to the employees having more
confidence in them and in the management. Since interaction among all the levels of the
hierarchy is promoted, it increases effective communication. This is evident from the fact that
Branson personally interacts with employees on a regular basis discussing ideas and receiving
feedback. The Virgin Group expresses self-sufficiency and effective communication. Virgin
has a flat hierarchical structure and this enables quick and efficient decision making. The flat
structure is one of the reasons that the Virgin Group has been able to expand into new
ventures. In addition, a flat structure allows a wider span of control, and decentralization.
Span of control is the number of subordinates a manager manages directly. The decentralized
structure of the Virgin Group gives more power in the hands of its employees when it comes
to decision making. Decentralization is the delegation of authority to all levels of the
hierarchy. Branson believes that the employees are the backbone of the company and hence it
is important that they have enough involvement and authority in decision making.

E. LEADING THE CORPORATE IN TESTING TIMES

Virgin Australia has been a significant name in the Australian aviation market, however its
faulty administrative decisions and delayed responses to its issues have made it face high
tides. The situation has been worse for Virgin Australia due to the aviation crisis, low profit
margin, lack of single ownership and lack of innovation. The situation has become so worse
that Virgin Australia has to borrow money to run its operations. However, possible short-term
and long-term ideas may help the airline to back-up to its original position in the aviation
industry. The primary focus of the airline must be on its profitability that means to derail
service and products that are not significantly making any profit. This will not only help to
scrap out unnecessary burden at this time of crisis but also help to concentrate on profit
making services. The issue of managing the international routes has been prevalent in Virgin
Australia from an awfully long time. Considering changing the routes or scraping out few
international routes may lead to good administrative results. The competition to Qantas is
high but rather than chasing the international routes, it must focus on making cash out of
domestic travels more. The airline was losing more money due to serving the corporate and
business class customers.

The decision of taking full ownership of Tigerair Australia in 2014 was a consequence of
non-profitable decision making. The decision was taken to re-brand Virgin Australia in the
domestic market and earn better market share than Qantas which subsequently did not seem
to happen. The shift in its branding is still one of the biggest setbacks for Virgin Australia.
Qantas still holds a major market share whereas Virgin Australia is struggling to act better. It
has continued to lose money leading to borrow cash but still somehow failed to raise any red
flags. The disastrous administration can be considered the root cause for this. Virgin Blue
broke into the domestic market with a cheaper alternative to the premium class travels.
However, this idea could not sustain for long as the strategies failed to cash out the desired
profits from the market.
Virgin Australia is no longer a good player in the concentrated Australian aviation market.
However, it has seen its good times in the past where good decision making, profit making
and being loyal to the domestic customers was a primary motive of the airline. With 26
million people flying in the Australian aviation market, it has given immense opportunity to
Virgin Australia, but it could not sustain the cutthroat competition for long. Firstly, Virgin
Australia must think of making profitability as their primary motive without compromising
on the services. The availability of more domestic routes and concentrated international
routes can cash out more money. This will allow the airline to compete with Qantas at least at
the domestic level. Scarping out few of the international routes like routes to Asia can be
beneficial as it does not bring good profits. The airline may consider offloading its low-cost
carrier Tiger Airways to discontinue making further losses. It is also recommended that the
Airline can merge Tiger and Virgin to create a low-cost carrier specially on domestic routes.
The attention must be focused on not competing with Qantas’ Jetstar as its less profit making
itself and lowering the price of domestic routes. This could mean that the airline can reduce
the flying frequencies on busy routes like Sydney to Brisbane and Melbourne including other
city routes. The current situation of Coronavirus can be managed by taking better safety
measures for its customers.

F. CONTROLLING THE BUSINESS IN THE DOWNTURN

The coronavirus pandemic has had a detrimental effect on many industries, and perhaps none
more so than the aviation and tourism sectors. However, the company was struggling long
before the outbreak, constricted by debt and flat revenue. On February 26, the airline's half-
yearly results revealed a loss of $88.6 million for the second half of 2019. It also recorded just
over $1 billion in cash versus more than $5 billion in debt. Virgin Australia focused on cost
efficiency – rather than revenue – as a strategy for long-term viability. But this wasn’t enough
for Virgin to be a dominant player in the market. And with little cash flow or revenue to fall
back on, its business model was swiftly toppled by the coronavirus crisis. There are several
important lessons businesses can take away from Virgin Australia’s collapse.

1. AN EFFECTIVE COMMUNICATION STRATEGY IS PARAMOUNT

Although the future of virgin Australia remains uncertain, the company has handled the
situation well, thanks to its open and honest communication strategy.

CEO Richard Branson posted a heartfelt video on LinkedIn and an open letter on

twitter confronting the uncertainty of the moment and thanking the virgin Australia team for
making the brand what it is. He also shared key points about the company’s charitable
activities and what virgin is doing to help protect jobs.

The company’s focus on its people is a great example of how a brand can demonstrate
empathy and humanity in tough circumstances. It also illustrates how important it is to have a
clear and transparent communication strategy, especially in times of crisis.

2. DRASTIC MEASURES ARE SOMETIMES THE BEST COURSE OF ACTION

Voluntary administration is when an insolvent company hand control over to independent

administrators. The administrator then works to save the company by restructuring or selling
it. In the case of virgin australia, professional services network deloitte has taken over the
company and hopes to recapitalize it quickly by selling it off over the next couple of months.
Although drastic measures like voluntary administration are a clear sign of a business in
danger, they’re sometimes necessary to save a business in difficult circumstances. There
are several examples of this in the airline industry alone. Us delta filed for chapter 11
bankruptcy in 2005, united in 2002 and American airlines in 2011. All three airlines emerged
on top after years of restructuring, and are today some of the world’s biggest airlines.

Of course, no business owner wants to see their livelihood in jeopardy. But it’s important to
note that in times of distress, restructuring or pivoting could be the right strategy to remain
operational and to weather the storm.

3. CONTINUITY PLANNING IS CRITICAL

If virgin Australia’s fate teaches us anything, it’s that a crisis can happen at any time and
threaten the viability of even well-established businesses.

Having a clear continuity plan in place is crucial to minimising disruption and bouncing back
quickly. When continuity planning for your business, ask yourself:

 What can you do to scale back while continuing to operate leanly?

 How will you communicate with your employees, customers and other stakeholders?
 Which costs are necessary? Which can be reduced or removed?
 What government support or other resources are available?
 What can you do now to enable your business to adapt quickly in future?

4. CASH FLOW IS ALWAYS KING

While the coronavirus outbreak is unprecedented, economic downturns are cyclical and peaks
and troughs in revenue are a natural part of any business’s lifecycle.

With scant cash reserves leaving little room for error, virgin australia wasn’t able to
withstand the blow to its revenue.

The key takeaway here is that maintaining positive cash flow and having a flexible balance
sheet can enable you to act quickly in the face of a downturn. Regularly monitoring your
revenue, cost structure, business plan and capital structure can help ensure you have enough
cash on hand to meet expenses, even if sales take a hit.

It’s also important to understand the consequences (and costs) of growth and to have a clear
understanding of your cash flow status at any time. Forecasting your cash flow helps provide
a picture of your future incomings and outgoings. It also allows you to identify and fix issues
early before they become critical events.

Answering these questions can help provide certainty on where to focus your attention,
whether it’s in response to covid-19 or other unforeseen circumstances in the future.