We all know that in the recent past, Kingfisher airlines and Air India have been in the news for obviously all the wrong reasons. As far as Air India is concerned, it is nothing but government's vested interests to make as much graft as possible with all tenders, leases and of course, there is a huge union as well that can make or break the vote banks. So tax payers money will continue to be swindled to a point when there probably won't be a revolution [and let us not forget here that the same applies for most state carriers globally like Air France, Lufthansa, Iberia, British Airways etc etc etc and the list is endless]
As far as Kingfisher is concerned, it was not meant to be a company fit for aviation in the first place. I see no reason why an Indigo manages to run an airline effectively and pay creditors in time whilst Kingfisher cannot. Have to admit here that the Indian government definitely has made the life of airlines difficult by not moderating the taxes and duties on ATF in comparison to most countries [even in developed countries, ATF is on an average at least 10% lower than in India]
Kingfisher has itself to blame for the woes it is going through; first of all, it by itself had no competence whatsoever to enter the aviation business. After the take-over of Air Deccan, it had the good fortune of an able operations leader Capt Gopinath who should ideally have been allowed to run the airline. If costs on the fuel aspect alone were not enough, the airline also got into trouble with a lot of bloated direct/indirect fixed costs.
Frequently trying to change the makeover of the aircrafts, shifts in identity / cluelessness in vision and mission[first it wanted to be a premium air carrier like what the UB Group is always meant to be; then suddenly it decided to have a stripped down version as well with Simplifly and Kingfisher Red only to reverse them later!! These have huge implications on cost over-runs] Has the management of Kingfisher ever looked at the basic aspect of standardizing fleet and operations to deliver synergies? [This is one of the most crucial aspects of Indigo - of course Indigo borrowed its best practices from the western world]
The Plain Vanilla Indigo Model
Standardized aircraft i.e. the technical crew at all stations need to be trained on a single kind of aircraft engineering. This itself is a major cost saver in hiring technical crew, the most important aspect of safe aviation and of course turnaround time.
A standard KPI of turning around an aircraft in 25 minutes [of course delays do happen but that is the KPI Indigo follows and most of the times achieves it] If one is wondering why is this so critical - picture this
An average flight duration is 120 minutes in India and an aircraft needs to rest for about 6 hours each day.
By ensuring a KPI of 25 minutes, Indigo ensures that its total time per flight is 145 minutes and this allows Indigo to make 7 fllights per aircraft per day [24 hours - 6 hours of rest = 18 hours; 18 hours x 60 minutes = 1080 minutes / 145 minutes = 7.44 and the 0.44 will have to be kept aside as buffer for operational constraints] The marketing budget is kept limited, the booking system is kept as simple as possible and of course the system is priced with dynamic pricing concepts. The break-even load factor is about 65% to 70% but the key thing to note is that they do 7 trips per flight per day by and large!
Contrast this with Kingfisher that tried all permutations and combinations of aircraft and that brings the average turnaround time to 40 minutes making the average time per flight 160 minutes i.e. 6.75 trips per aircraft per day [some will be doing only 6 whilst others may manage 7 as well] Each additional trip per aircraft is 'Additional Revenue' and Lower costs as every minute an aircraft is grounded at the airport, it owes money to the terminal. So in the process of creating a premium King of Good Times airline, the company has totally messed up the operations.
Not to mention the bloated costs of maketing and wasteful expenditure by not following basics. Moreover, Indigo is one of the only airlines that I am aware of that keeps a provision for hedging risks in oil price shocks thereby having as much control as possible on the total costs of fuel for a particular year.
Jet Airways has also been largely successful if we cumulate their performance since inception. The current times are turbulent for aviation and all are aware of it. Spicejet too is going through the same problems.
What makes the Kingfisher story so blood boiling is blatant violation of rules and regulations. TDS deducted from employees' salaries but not deposited with the exchequer! Non-payment of debts to Oil Marketing Companies, Airports for amounts rightfully due to them. Cancellation of flights at their own whims and fancies and then claiming once that the cancellation was planned and once saying that it was unforseen circumstances. If the flight cancellations were planned, the customers should have been notified well in advance or bookings should not have been issued at all!
Now, they are at a stage where they are reneging on employees' salaries and aviation staff are as middle class as any of us are and have their obligations to fulfil. The government is talking double standards by saying no bailout in front but forcing state lenders like SBI to do the needful backdoor and forcing Oil Marketing companies to supply fuel to the airline!
Diversification is good, Di-Worsification is not; the Kingfisher story does not end with airlines alone; the company has flushed money down the drain through cricket teams, formula one, yatches, all at the expense of shareholder money but when it comes to money for creditors - 'Sorry!!' The founder company i.e. the UB Group is undoubtedly very good in the business of spirits and recently, displayed strength in the real estate segment as well. I think it is a fair point to own up and say - perhaps certain businesses are not our cup of tea and give it up to able leaders and players in the industry.
I keep repeating the theme of diversification v/s diworsification as time and again we can see this. Kingfisher is not the only example - same is the case with Bharti Group; apart from the core competency of telecom, the business has ruined shareholder value in the form of shipping, retail, insurance and what not!
The Tatas and Birlas are running diversified businesses but not just by inheritance alone; they have identified their core strengths in each business; by and large knowing what is the Weighted Average Cost of Capital in each venture and then targetting a Return on Equity / Assets greater than cost of capital. The leaders are well educated and groomed from grass root levels despite having the silver spoon from the beginning.
To summarize, aviation business like any other business needs good operations and finance management and not everybody's cup of tea. Darwin's law must be followed and survival of the fittest must be allowed rather than backdoor financing bailouts and pressurizing oil marketing companies to fuel airplanes even if there are amounts outstanding for more than 180 days [even that is honest tax payer's money]
Simplify and Simplify Mr Mallya - please don't take tax payers and parent company shareholders for your royal ride!
As far as Kingfisher is concerned, it was not meant to be a company fit for aviation in the first place. I see no reason why an Indigo manages to run an airline effectively and pay creditors in time whilst Kingfisher cannot. Have to admit here that the Indian government definitely has made the life of airlines difficult by not moderating the taxes and duties on ATF in comparison to most countries [even in developed countries, ATF is on an average at least 10% lower than in India]
Kingfisher has itself to blame for the woes it is going through; first of all, it by itself had no competence whatsoever to enter the aviation business. After the take-over of Air Deccan, it had the good fortune of an able operations leader Capt Gopinath who should ideally have been allowed to run the airline. If costs on the fuel aspect alone were not enough, the airline also got into trouble with a lot of bloated direct/indirect fixed costs.
Frequently trying to change the makeover of the aircrafts, shifts in identity / cluelessness in vision and mission[first it wanted to be a premium air carrier like what the UB Group is always meant to be; then suddenly it decided to have a stripped down version as well with Simplifly and Kingfisher Red only to reverse them later!! These have huge implications on cost over-runs] Has the management of Kingfisher ever looked at the basic aspect of standardizing fleet and operations to deliver synergies? [This is one of the most crucial aspects of Indigo - of course Indigo borrowed its best practices from the western world]
The Plain Vanilla Indigo Model
Standardized aircraft i.e. the technical crew at all stations need to be trained on a single kind of aircraft engineering. This itself is a major cost saver in hiring technical crew, the most important aspect of safe aviation and of course turnaround time.
A standard KPI of turning around an aircraft in 25 minutes [of course delays do happen but that is the KPI Indigo follows and most of the times achieves it] If one is wondering why is this so critical - picture this
An average flight duration is 120 minutes in India and an aircraft needs to rest for about 6 hours each day.
By ensuring a KPI of 25 minutes, Indigo ensures that its total time per flight is 145 minutes and this allows Indigo to make 7 fllights per aircraft per day [24 hours - 6 hours of rest = 18 hours; 18 hours x 60 minutes = 1080 minutes / 145 minutes = 7.44 and the 0.44 will have to be kept aside as buffer for operational constraints] The marketing budget is kept limited, the booking system is kept as simple as possible and of course the system is priced with dynamic pricing concepts. The break-even load factor is about 65% to 70% but the key thing to note is that they do 7 trips per flight per day by and large!
Contrast this with Kingfisher that tried all permutations and combinations of aircraft and that brings the average turnaround time to 40 minutes making the average time per flight 160 minutes i.e. 6.75 trips per aircraft per day [some will be doing only 6 whilst others may manage 7 as well] Each additional trip per aircraft is 'Additional Revenue' and Lower costs as every minute an aircraft is grounded at the airport, it owes money to the terminal. So in the process of creating a premium King of Good Times airline, the company has totally messed up the operations.
Not to mention the bloated costs of maketing and wasteful expenditure by not following basics. Moreover, Indigo is one of the only airlines that I am aware of that keeps a provision for hedging risks in oil price shocks thereby having as much control as possible on the total costs of fuel for a particular year.
Jet Airways has also been largely successful if we cumulate their performance since inception. The current times are turbulent for aviation and all are aware of it. Spicejet too is going through the same problems.
What makes the Kingfisher story so blood boiling is blatant violation of rules and regulations. TDS deducted from employees' salaries but not deposited with the exchequer! Non-payment of debts to Oil Marketing Companies, Airports for amounts rightfully due to them. Cancellation of flights at their own whims and fancies and then claiming once that the cancellation was planned and once saying that it was unforseen circumstances. If the flight cancellations were planned, the customers should have been notified well in advance or bookings should not have been issued at all!
Now, they are at a stage where they are reneging on employees' salaries and aviation staff are as middle class as any of us are and have their obligations to fulfil. The government is talking double standards by saying no bailout in front but forcing state lenders like SBI to do the needful backdoor and forcing Oil Marketing companies to supply fuel to the airline!
Diversification is good, Di-Worsification is not; the Kingfisher story does not end with airlines alone; the company has flushed money down the drain through cricket teams, formula one, yatches, all at the expense of shareholder money but when it comes to money for creditors - 'Sorry!!' The founder company i.e. the UB Group is undoubtedly very good in the business of spirits and recently, displayed strength in the real estate segment as well. I think it is a fair point to own up and say - perhaps certain businesses are not our cup of tea and give it up to able leaders and players in the industry.
I keep repeating the theme of diversification v/s diworsification as time and again we can see this. Kingfisher is not the only example - same is the case with Bharti Group; apart from the core competency of telecom, the business has ruined shareholder value in the form of shipping, retail, insurance and what not!
The Tatas and Birlas are running diversified businesses but not just by inheritance alone; they have identified their core strengths in each business; by and large knowing what is the Weighted Average Cost of Capital in each venture and then targetting a Return on Equity / Assets greater than cost of capital. The leaders are well educated and groomed from grass root levels despite having the silver spoon from the beginning.
To summarize, aviation business like any other business needs good operations and finance management and not everybody's cup of tea. Darwin's law must be followed and survival of the fittest must be allowed rather than backdoor financing bailouts and pressurizing oil marketing companies to fuel airplanes even if there are amounts outstanding for more than 180 days [even that is honest tax payer's money]
Simplify and Simplify Mr Mallya - please don't take tax payers and parent company shareholders for your royal ride!
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