Presentation on Kingfisher Airlines Acquisition of Air Deccan: Reasons for failure

2.  Before 1953: 9 airlines existed
 1953: Nationalization- Air Corporations Act
 1994: ACA Repealed- Private Airlines can
operate scheduled services
 2003: Air Deccan starts as 1st LCC of India
 2005: Kingfisher, Spice Jet, Indigo, etc. start
operations
 2007: Industry Consolidation

3.  Entry of more players
 Growing Economy
 Rising Disposable Incomes
 Low Overall Penetration Levels
 16% CAGR growth in Passenger Traffic in past
decade
0%
10%
20%
30%
40%
50%
2003-04 2004-05 2005-06 2006-07 2007-08
LCC Market Share

4.  Reducing Yields
 Aggressive fleet expansions: Affects
Profitability and Capital Structure
 High Taxes
 Congestion

5. Revenues
Domestic Revenues
International Revenues
Other Operating Income
Sub-Lease of Aircrafts
Cargo, Auxiliary Revenues etc.
Non-Operating Income
Aircraft Sale & Lease back
Cost Structure
Fuel Cost
Employee Cost
Aircraft Maintenance Expenses
Landing, Navigation & Airport
Charges
Other Expenses
Selling & Distribution Expenses
General & Administrative Expenses
EBITDAR
Aircraft Lease Rental
Depreciation
Interest Expense
PBT

6.  Assets
 Market reports
 Approvals and licenses
 Financial reports
 Customer profile
 Break up of revenue w/ margins

7.  2 Models of Aircrafts
 Operating on secondary airports
 Single Class Configuration
 No In-flight Services
 Lower employees per aircraft
 Outsourcing of ground operations

8.  Sale of food inside the aircraft
 Advertisement Rights
 Differential Ticket Pricing
 Non Refundable Tickets
 Paid Initial Training to staff

9.  Niche in short span of time
 Only domestic airline offering premium 1st
class domestic service
 Extendable Footrests: Less number of seats
 Personal Valet Assistance
 Personalized in-flight assistance

10.  Market Share (2007):
Kingfisher: 11%; Air Deccan: 14%
Combined: 25%
 EV: Rs. 2115 crore
 Initially acquired 26% equity for Rs. 550
crores
› Rs. 155 per share (10% premium over CMP)
 Bought another 20% stake for Rs. 418
crores (Open Offer)

11.  Increasing Costs
 Difficulty in maintaining brand image
 Competition from LCC
 5yr Ceiling of International Operations
 Access to new routes

12.  Increasing costs
 Brand not synonymous with quality
 Prices too low to be profitable
 Competition from emerging LCC
 Reprieve from cash crunch
 Better utilization of existing resources

13.  Largest fleet of aircrafts- 71
 41 Airbus + 30 ATR
 Maximum number of flights and connections
 Low Fare Segment + Business Segment
 Common Fleet
 High market share
 Engineering costs to come down

14.  Airport Infrastructure sharing
 Airline spares sharing
 Manpower utilization

15.  Style: Friendly
 Company Status: Public
 Intention: Opportunistic
 Purpose: Defensive
 Predictability of Value: Calculative

16.  Mars vs. Venus
 Dilution of the ‘Air Deccan’ Brand
 Both entities highly leveraged
 Both loss making entities
Losses 06-07
Kingfisher Airlines Rs. 577 Crores
Air Deccan Rs. 418 Crores

18.  LCC Customers – High price elasticity
 Rise in fares
 Other LCC picked up the market share lost
by Air Deccan
 High gestation of overseas routes
 High service expectation
 Wrong signals to lenders, investors and
employees