Technoglitch
Core Member
As chatter around his retreat to the UK and inability of India’s public sector banks to recover monies lent to him forKingfisher Airlines grows, here’s a question that begs answers: Could a more benign policy and regulatory environment have helped arrest the steep decline of Kingfisher Airlines, perhaps prevented its demise?
1) During the UPA regime, there were several discussions within the government over doing away with the 5/20 restriction but nothing came of these talks; this rule is applicable till date. The 5/20 restriction did not permit airlines to fly overseas unless they had completed five years of domestic operations and had a fleet of 20 aircraft. A dream to launch overseas flights pushed Mallya to make the disastrous acquisition of Air Deccan in 2007-08. Air Deccan would have become eligible to fly overseas in 2008.
After the acquisition, Mallya made strategic mistakes which further hurt the combined airline entity. Air Deccan was the pioneer of ultra low fares but once Mallya acquired it, he altered its pricing structure. Passengers, instead of flocking to the higher priced Kingfisher brand, chose other LCCs. This acquisition and its incompetent handling is largely responsible for the ruin of KFA. Had the 5/20 restriction been restricted or relaxed, perhaps Mallya may not have considered Air Deccan and the KFA saga may have ended differently.
2) The UPA rule also saw much discussion over allowing foreign airlines to invest in Indian carriers but this was eventually permitted only in September 2012. At that time, the government allowed foreign airlines to pick up no more than 49% stake in Indian carriers. Kingfisher had to shut operations in December 2012 – had this restriction been lifted earlier, KFA may have been able to get critical funding from a foreign partner.
Several people aware of developments at that time say that Mallya was shocked when a Gulf based prominent airline signed up with a large Indian airline in 2013 despite holding extensive talks with him for funding KFA and picking up some equity in his airline. These people say Mallya was close to signing the term sheet for this deal when his Indian rival steered the Gulf airline and swung the deal away from KFA, in a matter of hours.
3) Several industry experts had wondered at the swift action by the NDA government during December 2014 which helped another Indian airline going belly-up, SpiceJet, to be rescued in the nick of time. It was no secret that the government was behind the bail out of SpiceJet, which had run out of cash to pay oil marketing companies for jet fuel and whose promoters had indicated they would have no choice but to shut down the airline.
But by 2009-10, continuous fleet expansion by LCCs put further pressure on airlines like Jet and Kingfisher so that the share of the top three players (Jet Airways, Kingfisher and merged Air India) dropped to around 60 per cent in 2009-10. To sustain and expand their market share, Jet Airways and Kingfisher introduced low-fare operations under the Jet Konnect and Kingfisher Red brands, respectively. For both airlines, this further complicated matters and worsened their balance sheets.
Mismanagement killed Kingfisher but policy, regulatory hurdles also hastened its demise - Firstpost
1) During the UPA regime, there were several discussions within the government over doing away with the 5/20 restriction but nothing came of these talks; this rule is applicable till date. The 5/20 restriction did not permit airlines to fly overseas unless they had completed five years of domestic operations and had a fleet of 20 aircraft. A dream to launch overseas flights pushed Mallya to make the disastrous acquisition of Air Deccan in 2007-08. Air Deccan would have become eligible to fly overseas in 2008.
After the acquisition, Mallya made strategic mistakes which further hurt the combined airline entity. Air Deccan was the pioneer of ultra low fares but once Mallya acquired it, he altered its pricing structure. Passengers, instead of flocking to the higher priced Kingfisher brand, chose other LCCs. This acquisition and its incompetent handling is largely responsible for the ruin of KFA. Had the 5/20 restriction been restricted or relaxed, perhaps Mallya may not have considered Air Deccan and the KFA saga may have ended differently.
2) The UPA rule also saw much discussion over allowing foreign airlines to invest in Indian carriers but this was eventually permitted only in September 2012. At that time, the government allowed foreign airlines to pick up no more than 49% stake in Indian carriers. Kingfisher had to shut operations in December 2012 – had this restriction been lifted earlier, KFA may have been able to get critical funding from a foreign partner.
Several people aware of developments at that time say that Mallya was shocked when a Gulf based prominent airline signed up with a large Indian airline in 2013 despite holding extensive talks with him for funding KFA and picking up some equity in his airline. These people say Mallya was close to signing the term sheet for this deal when his Indian rival steered the Gulf airline and swung the deal away from KFA, in a matter of hours.
3) Several industry experts had wondered at the swift action by the NDA government during December 2014 which helped another Indian airline going belly-up, SpiceJet, to be rescued in the nick of time. It was no secret that the government was behind the bail out of SpiceJet, which had run out of cash to pay oil marketing companies for jet fuel and whose promoters had indicated they would have no choice but to shut down the airline.
But by 2009-10, continuous fleet expansion by LCCs put further pressure on airlines like Jet and Kingfisher so that the share of the top three players (Jet Airways, Kingfisher and merged Air India) dropped to around 60 per cent in 2009-10. To sustain and expand their market share, Jet Airways and Kingfisher introduced low-fare operations under the Jet Konnect and Kingfisher Red brands, respectively. For both airlines, this further complicated matters and worsened their balance sheets.
Mismanagement killed Kingfisher but policy, regulatory hurdles also hastened its demise - Firstpost
