Kigfisher is grounding its low cost operation 'Kingfisher Red' as it wants to focus on its full service model. After a little over four years, Kingfisher has realized the bitter truth that LCC and full service cannot co-exist. Big carriers like British Airways and Delta have tried LCC operations and have failed. In the FMCG market, a company like Unilever can produce and succesfully market both Lux and Lifebuoy brands. But, in the aviation market, LCC and full service are different beasts and it requires different DNA to manage altogether.
However, there are a few important lessons to learn from this failure. Generally a low cost airline make money by cutting cost whereever possible. Hence, they do not provide any in flight entertainment, in flight meal and loyalty program. Also, most of the successful low lost airlines, such as Ryan air, have extensively used a single aircraft model strategy. For example, all of Ryan air's fleet comprises of B737 type aircraft. So, Ryan air only requires only one pool of pilots who are trained to fly B737. This applies to cabin crew, maintenance staff and load controllers, who only require training and license for a single aircraft type. A lot of money can be saved in MRO (maintenance, Repair and Overhaul) area. In the case of Kingfisher Red, they operate ATR42, ATR72, Airbus A319 and A320. So, Kingfisher Red was unable to take advantage of the cost synergies a single aircraft type can provide.
All the established low cost carriers make it clear that the more they fly, the more money they make. Hence, it is very important to utilise the aircraft efficiently. Kingfisher airlines have a bad on-time performance record and hence the aircraft utilisation is not as per the industry standards for a low cost carrier.
The average age of Kingfisher fleet is atleast two times more than that of Easy Jet and Ryan Air. With ageing fleet, the cost of maintanence is high. Most importantly, these aircrafts are average on fuel efficiency. With low aircraft utilisation and fuel efficiency, Kingfisher struggled to break even due to high operating costs.
The time between an aircraft touching down, deboarding passengers and baggages, boarding new passengers and taking off is called tuenaround time. If the turnaround time is lower, and on-time performance is higher, the aircraft utilisation is better. SouthWest airlines, the most succesful LCC, has the best turnaround time of all airlines. Hence, SWA enjoyed the best aircraft utilisation. Kingfisher was unable to turn its aircraft around like the way SWA did.
Kingfisher was also largely working on a hub and spoke model even for its low cost operation. LCC generally do not use hubs as they travel point to point across several cities within a day depending on the demand.
One of the most surprising piece of data is that the load factor in Kingfisher full service economy was better than the load factor in Kingfisher Red class. This fact is amusing because not a lot of people would buy tickets in full fare airline when they have the low cost option. For most of the domestic routes operated by Kingfisher airlines, there is pressure from LCC airlines such as SpiceJet and IndiGO. If Kingfisher airlines can compete with LCC better, why not Kingfisher Red compete in the same market ? There should be some other factors that should have influenced the poor performance of Kingfisher Red, such as poor selection of routes and timetables. Better routes and timetables could have saved Kingfisher Red from being in red since inception.
Kingfisher Red has mulitple aircraft types, uses old leased aircrafts which are low on fuel efficiency, got a bad turnaround time and on-time performance. Running a low cost model calls for higher proactiveness and sadly KF had to exit from LCC market. The combined losses over the years have eroded the company's equity completely. It requires immediate cash injection, better aircraft utilisation, capacity cuts, closure of non-profitable routes among many other initiatives.
The demise of Kingfisher Red could be a great news for SpiceJet and IndiGo. Especially IndiGo is the airline to watch. It has brand new highly fuel efficient A320 fleet, operates on a point to point model with low turnaround time, high on-time performace and better Debt to Equity ratio among all Indian carriers.
Moreover, it uses only one type of aircraft. Indigo has a great vision for expansion. It ordered 180 A320 aircrafts last year, which was a record at that time.
The flamboyance of Vijay Mallya and miserness of LCC do not match. It was indeed a sad day for Indian LCC market. Focusing on full fare service is probably best suited for the airline for now. However, a better understanding of LCC could have saved Kingfisher Red. SpiceJet and IndiGo could do well in the near future to capture the additional market share.