Vijay Mallya AKA the 'king of good times' had severely damaged his own reputation by taking a lot of loans from banks all over the nation to compensate for his very beloved Kingfisher Airlines which completely failed in the aviation business.
Do you want to know what exactly this case is all about & what factors contributed to the Downfall of Kingfisher Airlines?
Let's FIND OUT ...
Introduction
Vijay Mallya Born to Vittal Mallya & Lalitha Mallya in 1955, inherited the United Group of Breweries in 1980, an empire worth a staggering Rs 19000 crores ($2.58 Billion) when he was just 25 years of age.
Mallya set up Kingfisher Airlines in 2003 & the first flight flew in 2005 & that's how the business began. Kingfisher Airlines was a full-service carrier with a premium service business model that catered to every Indian who wanted Luxury, Experience & a classy lifestyle.
Kingfisher possessed all world-class interiors along with expensive meals & breweries to be served to the patrons & if you're talking about the Air hostess beauties, then Kingfisher was definitely the right choice.
Well, having said that Kingfisher never had proper management because of the absence of a full-time CEO or an MD who could make wise decisions & bring the company on the right track.
Let's study the factors contributing to the downfall of Kingfisher Airlines in detail :
1. Shifting Focus in Business Model :
Kingfisher Airlines was started in 2005 as a premium full-service model but in later times because of facing losses, it was shifting again & again into economy & Mixed models as well which means there is no focus or attention towards the customer needs which is the main priority of any business entity. Consumer need analysis is like homework which every organization must do before stepping foot into the market but this wasn't the case with King of Good Times.
2. Acquisitions:
Kingfisher despite floating into considerable losses acquired Air Deccan in 2007 at a worth of Rs 550 crores($74.66 Million) because of which it became the market leader as it captured 27.5 % market share by that moment. Post the acquisition the domestic traveling got hiked but howsoever the airlines didn't read any sort of profits from its operations. Air Deccan was renamed Kingfisher Red which served as a mixed-service model which eventually turned out to be a bad strategy later on.
On the contrary kingfisher's biggest competitor, Jet Airways was doing decent in their operations & sales post acquiring Sahara Airlines at the same time.
3. Expansion:
Vijay Mallya had the vision to expand his business of Good Times in the international markets so he did. The first Kingfisher flight flew from Bangalore to London which also turned out to be a blunder mistake because of 3 further reasons:
- Cutthroat competition
- Huge Investments
- Low Margins
4. Cash Flow & Low margins :
So as the flights were already plying overseas which was a bad idea, moreover, an economic tragedy happened in 2008. Economic depression happened in the United States as the Lehman Brothers company got involved in a scandalous activity & got sacked for its own cause causing a great economic loss firstly for the United States then European countries & then for the whole world as a result.
Because of this reason, many companies globally went bankrupt which greatly disturbed the world economy. As a result of people not having enough money added to the misfortune of Kingfisher Airlines as there was a huge Monetary crunch.
People stopped buying flight tickets which eventually resulted in the following concerns:
- Lower Occupancy( less than 75%)
- Low ticket sale
Note - Any flight having less than 75% occupancy on board is a total loss-loss situation.
4. Rising fuel prices & foreign currency strengthening:
World economic depression further caused massive fluctuations in the Prices of Goods & services all across the globe with crude oil prices touching their all-time high of $147.30 per barrel leading to further big loss for the aviation industry to a worldwide extent.
In the aviation business, crude oil poses almost 50% of the total operational cost of flight transportation. In such a situation Kingfisher kept on making acquisitions having an empty pocket of its own & taking more loans from the banks all over India. Further United States currency began to rise leading to the depreciation of Indian currency in its comparison result which was an alarming situation overall because now within a stipulated money kingfisher had to cope with every expenditure & loss they incurred which meant they had the least buying capacity to carry out their operations like the ones listed below:
- No fuel bill repayment - having almost no money in their pockets led to Kingfishers facing bad times in repaying their fuel bills to the oil companies as such deteriorating their own credibility.
- Failure to pay Airport charges - Kingfishers were not even in a position to pay the airport charges leading to a few airports strictly prohibiting their landing on their airports.
THE AFTERMATH
Finally, in the financial year ending in 2012, Kingfisher flights got suspended as a result of being unable to pay their debt also their license was revoked in 2013.
- Stock Trading in Kingfisher Airlines was suspended in Dec 2014 because of violating the listing rules of the stock exchange (SEBI). According to the rules of SEBI if a company fails to report its financial reports for 2 quarters consecutively, then its share trading license is liable to be ceased. where Kingfisher didn't report its financial reports for two quarters till Dec 2014.
2. Vijay Mallya is being chased by different banks alongside being charged for fraud & conspiracy charges as he has completely eroded loans worth Rs 9000 crores which he took from many banks across India. It also raised a big question on the banker's head because the shareholders who got financially sacked started protesting against their actions as they kept extending loans to Mallya on behalf of his personal guarantee.
3. List of Banks from whom Vijay Mallya took credit :
- State Bank of India- 1600 crore
- Punjab National Bank- 800 crore
- IDBI bank- 800 crore
- Bank of India - 650 crores
- Bank of Baroda - 550 crores
- United Bank of India- 430 crores
- UCO bank - 320 crores
- Corporation Bank - 310 crores
- State Bank of Mysore - 150 crores
- Punjab & Sind Bank - 60 crore
- Indian Overseas Bank - 140 crores
- Federal Bank - 90 crores
- The Central Bank of India - 410 crores
- Axis Bank- 50 crores
Thereby, making him a fugitive offender in the eyes of the law.
The Final Note
While having a deep analysis of the statistics One thing is for certain, the aviation business turned out to be a flop show for Mr. Mallya because of his flamboyant presence, playboy attitude & having an illogical strategy in executing his business. Mallya didn't recognize the difference between running breweries & running an aviation business that doesn't have the same approach whatsoever. Worthlessly acquiring companies, plying flights on Non-profitable routes, no proper business model for Kingfisher Red, doing all of that at the cost of extending loans on his head turned out to be a loss-making Journey for him while his toughest competitors like Jet Airways, Air India & Indigo are still doing pretty fine in their business because of their dedicated business model, high operational efficiency & better business Forecasting.
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