REASON BEHIND KINGFISHER AIRLINE’S FAILURE: “AN EYE OPENING CASE STUDY REVEALING THREE KEY WORDS FOR AVIATION INDUSTRY SUCCESS: COSTS, COSTS, COSTS” * JAYANT SRIVASTAVA (Asst. Professor, Trinity Business School, Murad Nagar, Ghaziabad) ** ASAD ALI & AKANSHA TIWARI (Students PGDM, Trinity Business School)
ABSTRACT: Our research paper try to throw lights on some major reasons which were somehow responsible for the current crisis going inside the kingfisher Airlines which can be realized by the press statement from KFA, on 12 March 2012, highlights the challenges: “The flight loads have reduced because of our limited distribution ability caused by IATA suspension. We are therefore combining ...view middle of the document...
In India, most of the upcoming airlines added a large number of aircraft since 2006 and deployed them mostly on metro sectors resulting into suicidal price war among all the airlines. Every airline in India is currently suffering from operating losses.
RESEARCH METHODOLOGY: The data for the current study are collected from secondary sources such as annual reports, news papers (Economic Times, Business Standards, TOI, etc), and Aviation industry analysis report. In analyzing various parameters, last one year data is collected. The study has been confined to study only the various reasons behind the failure of Kingfisher airlines. FINDINGS: While doing the research, we find that there are four main reasons why Indian Aviation Industry is in so much pain, which can be reviewed as given below:
Kingfisher’s net worth has been completely eroded, while its auditors had raised several questions about its accounting practices in its annual report. Kingfisher Airlines Ltd’s loan funds stand at Rs7, 543 crore (debt-to-equity ratio of about 3.2) & that of Jet Airways (India) Ltd’s is Rs14, 123 crore (debt-to-equity about 4.2). Spice jet Ltd, on the other hand, has lowest debt at Rs712 crore (debt-to-equity about 0.7). Kingfisher’s fixed assets stand at Rs2, 286 crore, but it has a negative net working capital (excluding cash and bank balance) of Rs1, 970 crore. Jet Airways has a much stronger asset base with the value of its fixed assets at Rs14,417 crore; its negative net working capital (excluding cash and bank balances) is relatively much lower at Rs560 crore. Spice Jet has a total fixed asset base of Rs1, 115 crore.
Kingfisher could not deliver on profitability even last year when the going was considered to be good. According to analysts, the sector experienced its best returns in the quarter ended December 2010. Even during such times, Kingfisher’s net loss for fiscal 2011 stood at Rs1, 027 crore. That’s when Jet had managed a net profit of Rs9.69 crore—on a stand-alone basis—and Spice Jet posted a net profit of Rs101 crore. Spice Jet’s net profitability, of course, was also supported by relatively lower interest expenses.
Kingfisher Airlines share price: Sep-2010 to Sep-2011
For the September quarter, Kingfisher’s operating losses are higher than the other two, with Jet’s operating loss being far lower. Kingfisher’s fuel and interest expense (Kingfisher’s debt is also probably costlier than that of Jet Airways) as a percentage of revenue is higher than that of Jet.
A higher interest cost, coupled with higher operating losses, has led to pressure on Kingfisher’s ability to service its interest and debt obligations. Further, Kingfisher’s current liabilities have increased by 23% in September from March (an indication that it may be
Stretching payments to suppliers). Naturally,...