Friday, June 19, 2009

A 'king"fishy tale

People were taking to the planes in hoards, I was told back in the summer of 2006 when I was in India on a short trip.  I did not get the chance to fly a domestic route in that trip, but got my chance when I had to fly to Mumbai in December 2007.  The (old) small hyderabad airport in the heart of the city was so crowded that it looked like a local bus stand called "Imliban". 

People who don't look anywhere like the frequent flyers in the US were sitting on the floor waiting for their flights to Bangalore, Vizag, Mumbai and other cities.  I was even amazed to learn that th flight to Rajahmundry was full.  Air Deccan.. my friend, had changed the rules of the game.  Through it low pricing and a loss-leader strategy it grabbed a nice market share of a fats growing market.  There were other similar firms - SpiceJet, Indigo which followed a similar low price strategy.  I deliberately use price, instead of cost because operating an airline at low cost is a myth, at least during the period when oil prices where at a peak. 

The incumbents were the state owned Indian Airlines and a couple of large private operators - Jet, Sahara and Kingfisher.  The entry and success of of low cost operators such as Deccan and SpiceJet set forth a wave of acquisitions and eventually Jet Airways ended up buying Sahara and Kingfisher snatched the real prize - Air Deccan.

What Mr. Mallya did not realize was that he wouls have been better off waiting it out and letting Air Deccan collapse due to its low-priceapproach. An implosion that was bound to happen, given the strategy Air Deccan had adopted.  He could have snatched Air Deccan for a much better price today.  However, hubris as they say may have played its role in the King's acquisition of Air Deccan.  He purchased Air Deccan on the premise that the market would continue to grow and that he would be able to somehow integrate Air Deccan's low-end positioning with his airlines' premium positioning and also end up gaining market share.  Surely, wrong timing.

The credit crisis, high oil prices, fall in demand and oversupply all semm to cause a problem of demonic proportions for many airline operators including Kingfisher.  I wouldn't be suprised, if the only choices woudl be Jet and Indian Airlines at the end of the day.  And, maybe one low-cost operator.

Mr. Mallya is still denying that his airline is in trouble but if the current downturn continues then there is no way Kingfisher can come out of this mess.  When Mr. Mallya launched his airlines, I presume he was trying to emulate Mr. Branson, or maybe not.  Whatever maybe his reasons for starting an airline, he sure quite a few reasons for not being able to manage it well.

1 comment:

Anonymous said...

Kingfisher was able to start international long hauls by piggy backing with AirDeccan. Aviation rules in India states that any carrier should be in service for at least 5 years before they can do international trips. Thus,The King could go international by having Air Deccan in it is kitty.