In the wake of Kingfisher’s unprecedented cancellations last week, we here at Bangalore Aviation wanted to take a look at some potential issues that haven’t been brought up regarding Kingfisher’s long term viability. In light of reports that Kingfisher is close to a US $370 million equity deal with a large private investor and banking consortium, it is helpful to consider the fallout from Kingfisher’s actions over the past 10 days.
|Photo © Devesh Agarwal. All rights reserved.|
Despite all of the negative press given to Kingfisher over the past week or so, the overarching problems facing Kingfisher are not recent. Going back more than three months, Kingfisher has been hit with press reports claiming 12 of its aircraft were grounded, forced (in an eerily Air India-esque scenario) to cancel flights due to non-payment of fuel bills, and slammed by travelers over their decision to temporarily cancel 31 flights. From there, the total number of cancellations quickly ballooned to 50, reports emerged claiming that close to half of Kingfisher’s fleet was grounded, and Kingfisher clashed with the DCGA over their “re-configurations.”
On a longer term note, Kingfisher has seen its service reputation slowly slip over the past year as IFE troubles and the aforementioned maintenance issues have brought up questions about Kingfisher’s reliability. Furthermore, their increased deployment of low fares carrier (LFC) brand Kingfisher Red diluted Kingfisher’s once supreme service; as did the usage of economy-class only ATRs.
In an email titled “You Matter” sent by Kingfisher to its various frequent flyers, the carrier attempted to tide over some of the problems mentioned above, (rightly) claiming that many of the media reports were overblown:
As announced earlier, we have decided to focus on the full-service market; to this end Kingfisher Airlines has initiated reconfiguration of its aircraft. This exercise will require few of our aircraft to be out of service for the next few weeks. Ergo and in line with maximizing productivity we have rationalized our network, resulting in a temporary discontinuation of approximately 50 flights out of our current operating schedule of approximately 350 departures per day. Once the reconfiguration is complete, these aircraft will be pressed back into service immediately. Clearly the report about our flights being cancelled owing to the supposed exodus of pilots appears to be falsified.
What matters for Kingfisher is future public perception. Cancellations may make short term sense, but their longer term effects could be detrimental especially in the eyes of the general public, and let’s face it, the Kingfisher brand is very driven by public perception. The airline’s lack of engagement with the media, and then Dr. Mallya’s criticism of the media while announcing the Q2 results, does not bode well. In absence of engagement the media will feed the snake of speculation. Again, public perception rules. For Kingfisher, it is not so much whether the press reports are right, but rather what impression they give to the general public.
As with the Qantas fleet grounding in late October, Kingfisher might have traded a short term gain for a longer term problem. In Qantas’ case, the hoped-for gain was improved employee contracts, for Kingfisher; an equity re-structuring. While Mallya’s gamble appears to have paid off with the new equity investment, what will be the future effect of these cancellations on Kingfisher’s actual business? Perhaps the drastic and immediate cancellations were the only way to communicate the dire nature of their finances (which their Q2 results indicated was overblown), but the carrier’s business model might have been better served by more spaced out and longer term cancellations.
When we analyzed Kingfisher’s decision to exit the low cost business back in October, a point we frequently made was that Kingfisher’s business model was actively shifting towards courting high-yield business travelers. For these men and women, reliability and on-time performance are by far the most important factors in purchase decisions. So what would their reaction have been when on the 7th of November, they were informed that 30 flights were cancelled effective the day after? The outpouring of angry tweets from travelers gives us a hint. And after being subjected to the ignominy of being forced to re-book their flights, these displaced passengers were then forced to pay exorbitant fares on the other Indian carriers, who happily jacked up ticket prices in the face of overwhelming demand for limited capacity. Chances are, many of the displaced travelers will not be choosing Kingfisher for future business travel needs. The true dichotomy is that these very business travelers were the ones who were supposed to drive Kingfisher’s financial recovery.
In the first quarter of 2012, Kingfisher is scheduled to enter the oneworld alliance of airlines which prides itself on being the world’s “premium” alliance, with such illustrious carriers as British Airways, Cathay Pacific, Finnair, American Airlines, LAN Chile and Qantas within its ranks. On first glance, Kingfisher, with its 5-Star rating from Skytrax would appear to fit in just fine.
However the unintended result of this recent saga is that it has opened the world’s eyes to Kingfisher’s troubles. Indian travelers had known for a while that Kingfisher’s service is not all that it’s cut out to be, but international passengers tend to have an idealized view of Kingfisher.
Recent reports in papers such as The Wall Street Journal, have called attention to Kingfisher’s woes and their readers then discovered, or further research, the rather sensational and mostly over-blown headlines in the Indian media which has resulted in significant damage to Kingfisher’s reputation on the global stage.
All of this begs the question; what is oneworld’s opinion of Kingfisher’s actions?
The Indian government is given indications that it will approve foreign direct investment by foreign carriers in to Indian one. The percentage cap has not yet been decided. Options being discussed include 24%, 26% 49% or 51%.
A oneworld consortium has been often mentioned as a potential investor in Kingfisher. Unfortunately, Kingfisher’s recent actions call into question the viability of their future business model. While oneworld cannot easily abandon Kingfisher due to their need for an Indian partner, will they be willing to invest in a business that has managed to erode almost all of its net worth and alienate a significant portion of it clientele?
Much like Virgin Australia in Australia, the biggest beneficiary of Kingfisher’s customer service blunder could be rival full-service carrier Jet Airways.
Jet Airways is perceived as consistent in its service delivery, and has seen little fluctuation in its service reputation over the past few years. Though Kingfisher still gets the vote of luxury with a superior business class both domestic and international, the airline also suffers from volatility.
Earlier this week, Jet announced plans to capitalize on both its service rep and Kingfisher’s miscues; the carrier plans to increase its full-service capacity to 50% of the overall capacity of Jet+JetLite, an increase of more than 50 round trip flights per day. Jet Airways’ move gives it the potential to pick up a lot of full service passengers turned off by Kingfisher; an essential move for a carrier who slid to a domestic EBITDAR loss due to substantially lower fares in Q2.
All in all, Kingfisher’s move could have a severely negative effect on their future business prospects. Cancelling all of those flights on such short notice may have provided the spark to rally the banks to aid Kingfisher, but at what cost?
From a customer service perspective, pushing those cancellations to begin in late November might have allowed them to ameliorate their troubles. The damage has been done.
While are are not too sure if Kingfisher Airlines will manage to obtain an equity deal and re-float a sinking ship, we are almost certain that it has forever lost the crown of “The King of Good Times”.