1.0 Introduction

Kingfisher Airlines, an Indian private airline based company, was carved in 2003, Bangalore. It is owned by Vijay Mallya of the United Beverages Group. Its business operations were started in 2005 with a fleet of 4 A320. Domestic airline industry had grown nearly five times in terms of passenger volume since 1990s. In 1997-98, Indian domestic passengers were just 115 lakhs or 11.5 million. It grows to 606.63 lakhs within five years. However, according to the financial audit report of DGCA, due to the global economic downturn, the domestic airlines has a “combined loss” of approximately $2.5 billion in 2011-12. It seems that all most all airline companies in India except unlisted Indigo airlines are suffering from financial problems. In this case analysis, Porter’s Five-force model will be used to under how each force may influence Kingfisher’s business operations(Dobbs, 2014). Besides, stakeholder analysis will also be performed to assess whether Kingfisher has upheld a balanced and satisfying stakeholder strategy.

2.0 Porter’s Five Force Analysis

2.1 Threat of New Entrants

Threat of New Entrants is high. According to the case study, originally high capital investment requirement and fixed cost may act as a potential barrier which bars new or foreign airline company from entering the local market. However, due to the global economic downturn, it seems that the capital requirement and fixed cost such as labor, airplanes and maintenance fees, service infrastructures, etc, are going down dramatically. In other words, it will cost much less to start business operations in India’s market for new entrants. However, it can also be observed that India’s aviation industry may be easier to enter but difficult to exit. It is largely because almost all airline companies there are not making a profit loss.

Generally speaking, if the threat of new entrants is very high, inevitably airline companies may have to lower their cost in order to secure their market share. The risk of price competition is very high. So far, low-cost airlines are competing vigorously with full-service airlines. They can provide much cheaper flights for customers and meanwhile the quality of services does not comprise too much.

2.2 Threat of Substitutes

The threat of Substitutes is very high. There is almost no switching cost in the India’s aviation industry. If passengers are traveling or going on a business trip domestically, there are many potential substitutes such as high-speed train, high-tech buses or other means of transportation. Airplane is only used for distant journey. Budge airlines or low-cost airlines are also a potential substitute for full service airline services. As mentioned in the case study, not all services on the full-service airplanes are appreciated by customers. The major strategy of low-cost airlines is to remove unwanted or unfavorable services from the whole air journey. For instance, they do not offer food to customers. It will not only reduce the cost of travelling but also reduce the load of food and cutlery. But the overall service quality has not been affected too much.

The emergence of alternative means of transportation and the low-cost airlines services are potential substitutes for full-service flights. In order to compete with the low-cost airlines, Kingfisher and other full-service airlines may stop offering redundant services such as “fancy seats, comely cabin crew”, etc. Even though Kingfisher is offering world-class services but those services may not work in India’s market. India’s aviation industry may gradually move toward the direction of low-cost airlines.

2.3 Bargaining power of Suppliers

The bargaining power of suppliers is high. The major suppliers in the Indian Airline Industry are basically fuel suppliers, aircraft suppliers and banks. So far, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation are the key fuel supplier of Kingfisher. However, sometimes the two companies may have legal disputes with Kingfisher and even refuse to supply fuel. As the fuel suppliers are quite limited, it is very difficult for Kingfisher and other local airline companies to find an alternative fuel provider. Besides, there are also very limited aircraft suppliers. For instance, when Kingfisher is unable to pay for the rentals, it has to return aircraft to GE Commercial Aviation Services. Even worse, Kingfisher and other airline companies heavily rely on the financial resources and support from the State Bank of India. With the financial resources, Kingfisher is unable to pay for fuels and aircraft rentals in time.

Suppliers have very strong bargaining power. It means that Kingfisher and other airlines in the Indian Airline industry have to maintain very good relationship with the suppliers otherwise it will be difficult for airline companies to sustain business operations and activities.

2.4 Bargaining Power of Customers

The bargain power of customers is relatively low. One critical element of the force is the service standard. Previously, Kingfisher is providing world-class service quality which other companies cannot easily compete with. It creates very strong customer loyalty. Kingfisher is designed to meet the total comfort and value of the money.

High service standard does affect India’s airline industry. For instance, Kingfisher’s lounge facilities at various airports create very new and high standards in services which have not been seen in India before. However, the bargaining power of customers may change if the service quality of Kingfisher is worsening. According to the case study, Kingfisher is often criticized to postpone or cancel a flight at the very last minute. Loyal customers are very angry with such irresponsible behaviors. When customers are switching to Kingfisher’s potential competitors such as low-cost airlines, the bargaining power of customers may become stronger in the longer term.

2.5 Competitive Rivalry

The force of competitive rivalry is also very high. In order to secure market share, major competitors in the market are now involving price competition. In other words, all airlines have to lower the price of air tickets.

The current competitive status of the whole industry is attributed to three major factors, including cut-throat fares, high fuel prices and high taxes. Cut-throat fares start the price competition which literally forced all airlines to lower prices. High fuel price does increase the passenger volumes but it hurts the finances of all airlines. As a result, all airline companies have to reduce the cost of production and meanwhile make sure that the price of tickets is also low for all customers. Last, the repeated government bailouts for Air India make it a challenge for all private sector airlines. In other words, all airline companies have to compete fiercely in order to survive in the market.

3.0 Stakeholder Analysis

3.1 Employees

Employees are one of the major internal stakeholders of Kingfisher Airlines. In 2011, Kingfisher is reported to have staff strength of 6,000. However, since 2011, delay salaries have occurred almost every month. The consequence is that 24 pilots had left the company during Nov and Dec in 2011 according to the DGCA report. Besides, employees also have to face irate customers due to the cancellations of flights. The cancellations devastatingly affect employees’ confidence and moral toward Kingfisher. Many staffs and pilots are looking for jobs in other company. It all shows that Kingfisher has not upheld an effective and balanced stakeholder strategy. On one hand, the basic needs of staffs such as salaries are not satisfied. On the other hand, Kingfisher Airlines also fail to improve the morale of its employees. According to the case study, employees have very severe conflicts with customers with respect to flight cancellations. Kingfisher should at least make sure that the problems of delayed flights or cancellations are well addressed. Otherwise, both employees and customers will lose confidence about Kingfisher’s services.

3.2 Owners

Business owners and shareholders are also internal stakeholders of Kingfisher. According to the case study, Kingfisher shares that had traded at INR 48 per share were traded close to INR 20 per share in Nov 2011. The shares of UB group, the major shareholder of Kingfisher, that were traded at about INR 315 were reduced to INR 82 per share. In other words, Kingfisher led to tremendous profit loss of its major shareholders. Currently, it seems that Kingfisher fails to address the basic needs of its shareholders. If the share price continues to drop, UB might even desert the airline company in the future. Therefore, Kingfisher should implement stakeholder strategy to restore the shareholder’s confidence.

3.3 Customers

Customers are external stakeholders. Previously, the demand of customers are well addressed. It is largely because Kingfisher is providing world-class services which have never been seen in the Indian market. It provides best services such as food, entertainment system, king club services, lounges at airport, etc. It thus creates very high customer loyalty and manage to make profits in the airline industry.

However, due to the recent cut-throat prices, high fuel prices and high taxes, it is very difficult for Kingfisher to provide services with equal standards as before. It starts to delay or cancel flights. In the case study, rumors say that the company may even remove the entertainment system installed on the seats. In fact, there is no conflicts among customers, employees and business owners. When the needs of customers are addressed, they will continue to purchase the services of Kingfisher and meanwhile it will create profits for the company as well. Shareholders and employees can enjoy benefits from the increasing profits of the company. But if customers are switching to competitors, employees and shareholders will also suffer from the profit loss. Therefore, Kingfisher should stop delaying or cancelling flights as they the major concerns of the existing loyal customers at the present.

3.4 Suppliers

Suppliers are also external stakeholders. Like the aforementioned, the bargaining power of supplier is very strong. But apparently, Kingfisher does not have a good relationship with its major suppliers. SBI stopped providing essential financial resources to Kingfisher. GE commercial aviation services took away the aircrafts since Kingfisher did not pay for the rentals. Fuel suppliers also started dealing on cash basis due to the delayed payments. All of the above-mentioned show that Kingfisher fails to address the needs of suppliers. If the company does not repair the relationship with suppliers, it cannot pay for the high fuel costs. It will also become problematic for the company to rent aircrafts and sustain its businesses in the market. Even worse, more delayed flights or flight cancelations may take place since there is not sufficient fuels or aircrafts. Loyal customers will be the primary victims as they will directly face the problems and inconvenience. In order to secure the cash flow, it is more advisable for Kingfisher to revise its business model. For instance, unfavorable services should be removed in order to save costs.

3.5 Society

Society is also very important external stakeholder. Several agencies of the government were extremely unhappy with Kingfisher. As Kingfisher is facing financial pressures due to the high fuel prices and taxes, it started to beg support from the government. However, financial suppliers such as All India Bank Employees Association strongly oppose the bailouts of private airlines by the government. In fact, private companies should operate businesses based on free market mechanism. They should feed themselves or otherwise quit the market. Government cannot simply use taxpayers’ money to save these private companies. Financial institutions are also not obliged to support the companies which do not have good business performance.

Conclusion

In conclusion, it is indisputable that Kingfisher is currently facing very severe financial and management crisis. Through analyzing the different forces and stakeholder’s interests, it can be further concluded that Kingfisher should revise its stakeholder strategy. Even though customers have relatively low bargain power, it does not mean that Kingfisher should continue to have delayed or cancelled flights especially at the very last minute. If customer’s satisfaction is low, loyal customers will switch to other potential competitors especially low-cost airlines. It is true that the problem of delayed flights or flight cancellations is attributed to the fact that Kingfisher is unable to pay for the high fuel costs, taxes or reducing prices in the competition. As such, one possible solution is to reduce its unfavorable and unnecessary services. Besides, Kingfisher should repair its relationship with suppliers and restore the confidence of internal stakeholders in the future.

Reference

Dobbs, M. E. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review