MIS ASSIGNMENT

CASE ON KINGFISHER AIRLINES

PRE-MIDTERM

GROUP NUMBER 7

KURIAN GEORGE 33083

KRITIKA GUPTA 33082

SONALI UPPAL 33111

Evolution

The Kingfisher Airlines was established in 2003. It is owned by Bengaluru based United
Breweries group. It began its operations on 9 May 2005 after it was able to lease four Airbus
A320 aircraft. Ever since its inception the evolution of the company was influenced by strong
Internal and External factors. Some of them are as follows:

Internal factors

 Focus on being innovative.

- It was the first Indian airline to introduce in-flight entertainment (IFE) system on
domestic flights
- Complimentary welcome kits and TV entertainment by collaborating with Dish TV.
 Values (Safety, service, happiness, Teamwork and accountability )
- Treating customers as guests and not just passengers. Providing them safe, value
based and enjoyable travel experience.

External Factors:

 Fast growing Indian market for aviation

 Fuel Price hikes
 Rupee depreciation
 High cost of borrowing
 Economic slowdown

Kingfisher airlines grew at a fast rate capturing 6% market share in first year and 10 % in the
second year.

The airline operated flight to different countries and thus has global reach. The structure of the
organization was decentralized and followed an innovative orientation

It has been bearing loss ever since its inception. The airlines never reached the breakeven and the
situation became worse after the acquisition of Air Deccan which made it incur loss of 1000
crores rupees for three consecutive years. This step proved to be a very bad organizational
decision which was probably due to insufficient and poor system thinking.
Despite the heavy losses born every year and the inability of the airlines to meet breakeven, no
proper system thinking and cybernatics were applied to manage the situation.

Organisation Life Cycle

•It started with 4 domestic airbuses in 2005.

Inception •Its innovative ideas like treating 'passengers as guests' were appreciated
widely after its launch

• Growth in domestic market share

Growth • Acquisition of Air Deccan

• Started international flights in 2008

Maturity •By 2009 , it had highest market share amongst the airlines in India.
•Awarded 5 star airline title for 3rd consequtive year in 2010

•Heavy losses
•Inability to pay salary, fuel costs, aircraft lease rent
Decline •By 2012 loss of INR 70 billion.
•On 25 Feb 2013, its international flying rights and domestic slots were scrapped by
the Indian aviation authorities.

Process component in the organization is formalized and designed to manage repetitive tasks
with precision. This can be seen being employed in its booking offices, helpdesks etc. as well as
the routine procedure followed by the attendants in flights.

Technology component is visible mainly in the form of its e-ticketing services as well as
strategizing the schedules of its domestic and national flights.
Mintzberg’s Model

1) STRATEGIC APEX: In the Mintzberg’s model, at the strategic level are the people who
are charged with ensuring that organization serves its mission in an effective way. In the
Kingfisher Airlines , there is a team of talented people who take important decisions
regarding their organization. Board of members involves four very renowned people and
expert in their fields:

BOARD OF DIRECTORS

Dr. Vijay Mallya, Chairman

Mr. Sanjay Aggarwal, CEO

Mr. Subhash Gupte, Vice

Chairman

Mr. A. K. Ravi Nedungadi,

Charted and Cost Accounting

Mr. Manmohan Singh Kapur

2) OPERATING CORE: The staff involved in providing services to customers either online or
offline. They directly deal with the customers. Operating core plays an important role as they are
the face of Kingfisher Airlines, so they are well groomed and trained and qualified under various
skills. Pilots and air hostess come under the operating core, which take flights from one location
to another.

3) SUPPORT STAFF: These are the external service providers who provide services like
training to the employees, refreshments, transportation, cleaning services, air hostess hiring
agency etc. They play a great role in the smooth working of the system.

4) TECHNOSTRUCTURE: Techno staff analyzes and plan the work of the organization. They
are the people who forecast the weather and ensure smooth flights by providing scheduling,
looking at the technical problems etc.

5) MIDDLE LINE: It has all the managers and supervisors who make models and take
decisions. They act as middle men between operating core and the strategic apex. These include
managers like Head-flight safety, general manager-flight operation and safety etc.

Porters Five Forces Model:

1) BUYERS

In the case of Kingfisher airlines passengers are the consumers, as it is a service provider. It
provides service of travelling from one location to another. Kingfisher has tried its best to
provide variety and exclusive services to its customers. It provides various options for its
domestic flights and international flight travelers. Under domestic in the cabin category it has:
Kingfisher First, Kingfisher Class and Kingfisher Red. It’s not only providing best services to its
customers but also giving additional entertainment. From the buyer’s perspective, travelling
through Kingfisher is safe and comfortable.

2) SUPPLIERS

To run Kingfisher Airlines, various resources are needed and these are supplied by suppliers
from India and abroad. It requires planes to fly which it has bought earlier and now taken on
lease. The deals for planes is done with international players which are open suppliers .The
quality of AIRBUS A320-232, ATR 72-500, Boeing 727-044 is checked and detected by the
suppliers before providing the supply. Fuel supplies are ensured by ties with oil companies.

3) SUBSTITUTES

There are number of substitutes of air-flight services provided by other national airline service
providers like Air India, Air India Express, Jet airways, Jagson Airways and many more. People
who prefer to enjoy luxurious and comfortable travel prefer Kinfisher. An air-like survey showed
the following responses:

25% of people who wrote a review recommend flying with Kingfisher Airlines.

25% of people who wrote a review think Kingfisher Airlines offers a good value for money.1

Also, the railways can act as a substitute when people are looking for cheap means of
transportation.
4) INDUSTRY RIVALRY AND COMPETITORS

All the substitutes mentioned above are also the competitors of Kingfishers. To increase the
revenue Airlines are rushing for the customers, to attract customers they strategize various deals
to lure the customers. Kingfisher light tickets are relatively expensive but to keep its customers
yoked it provide better services and value additions to them.

1
http://www.airlikes.com/kingfisher-airlines-reviews
 DECISION STYLE

Keeping control over factors of production: establishing proactive, preventive, active and
reactive decision making processes are parts of the organizational performance. In Kingfisher
case Board of Directors are involved in taking proactive decisions but in reality they failed to
plan properly because of which Kingfisher went into the loop of losses and hence to the decline
stage. Various proactive measures and preventive measures taken by the directors and managers,
keeping systematic thinking in the mind are:

TABLE2

 Improved our profitability

o Adjusted pre-tax profit more than doubled, up from £357m in 2007/08 to £807m in 2011/12

o Retail profit margin up 290bps to 8.1%

o Grown adjusted basic EPS by 137%

 Generated higher returns on capital

o Improved the Group's standard return on capital from 5.8% in 2008/9 to 10.7%, now ahead
of the cost of capital

o 2011/12 Kingfisher Economic Profit of £129m (2007/08: £104m loss)

 Grown responsibly

o Made our business more sustainable, CO2 emissions down 25%

o Helped our customers make their homes more sustainable with sales of 'Eco' products
doubling since 2008/09 to £1.4billion

 Strengthened our foundations

o Reduced financial net debt from £1.6 billion at reported rates exchange rates to £88 million

2
Article: “ Delivering value, February 2008-January 2012.”, http://www.kingfisher.com/index.asp?pageid=51
 and improved our credit rating metrics

o Expanded and modernised the business, investing £1.4 billion to grow and improve our offer
for customers, securing better future prospects for our shareholders and employees

o Developed a high quality direct sourcing capability, growing our annual direct sourced
shipments from $821m to $1,456m, now representing around 15% of our total Group sales
Entropy
Entropy brings disorder or chaos to a system.

In the case of Kingfisher Airlines, entropy was a result of ignoring many changes in both internal
and external environment.

External Changes Internal Changes

• Falling profitability in the • Recurring losses and fall in

global airline industry market shares.
mainly due to sustained
high levels of Jet fuel
prices.
• Indian airline Industry -
Tough operating
environment with tough
tax structure, Rupee
devaluation, high cost of
borrowig etc.

Negative entropy

The process of bring in information and other stimuli to adapt and lower entropy is called
Negative entropy. The company tried to counter this entropy by designing alternative means to
sell and distribute inventory. It also started focusing on various marketing and commercial
initiatives including tie-ups with corporate houses to get premium business. They also made
changes to the board of directors’ etc. thinking that a new group of directors could possibly bring
positive changes.
Open system

It could be argued that Kingfisher airlines as an organization pursued open systems to an extent
as they addressed their entropy phenomenon to an extent by taking inputs from their environment
and taking corrective mechanism to bring the system back to steady state.

As a reaction to the changes in the internal and external environment, the airlines adopted
various key revenue initiatives such as launching Kingfisher express and cost reduction
initiatives such as rationalizing distribution channels and increasing operational efficiency. As an
immediate reaction, it downsized operations especially on international routes to contain
operational losses and designed certain new ways to do business.

At the same time, there is another line of argument from some quarters which states that the
airlines had a closed system with control being vested in the hands of mainly Dr. Vijay Mallya
with very little inputs from other permanent directors and so on. Despite there being strong
opposition to getting into the airline business, the chairman and MD Mallya paid little heed to
the counsels and went ahead with the plan.

Cybernetics

In organizational cybernetics, the different points of feedback in the organization establish

relationship between various elements in the organization and other entities like customers,
suppliers, stockholders etc. They have their own control mechanisms with desired deliveries
related to organizational performance.