The high-profile businessman is the chief protagonist in the failure of Kingfisher Airlines. But he should be seen as more of a tragic actor than an outright villain. Government policies that were not business-friendly and detrimental to the aviation industry, hit him hard
This past week, the fifth edition of the India Aviation Summit was held in Hyderabad. The summit highlighted India’s potential in the civil aviation market — a market that feels a bit calmer now after the heady days in the middle of the last decade. Back then, Vijay Mallya was ‘the man’ — the poster child of civil aviation in India. He had taken on the establishment and upended the airline market in India.
Make no mistake, despite all the outrage today, Mallya has built an amazing brand. Yes, it was built on the back of bank loans, but in 2008, Mallya was flying high at the very first India Aviation Summit. Ultimately, the disastrous acquisition of Air Deccan was completed and Mallya acquired his first wide-body Airbus A330 aircraft, one of which was proudly on display at the summit, and he was due to receive five of the gargantuan A380 aircraft from Airbus by 2010.
He had rattled the established airlines so much that a few days before the first summit, Jet Airways, the sole survivor from the first phase of private Indian air carriers, had been forced to lay-off several cabin crew members. This became a massive media issue, with television news frightfully unclear about how businesses were run (something they still do not understand), and being on the side of the laid-off employees.
Mallya then stepped into the issue and assured his ‘rival’ Naresh Goyal, the usually reticent chairman of Jet Airways, of a potential Jet-Kingfisher alliance. At the first summit, the then Civil Aviation Minister, Praful Patel, climbed into a golf cart with Mallya and Goyal, and the media, with this writer who was then a civil aviation beat correspondent for a business magazine chasing them.
Mallya was his usual boisterous self when the media caught up, but suddenly, snapped at a reporter who asked him a simple question: Where was the money to back up all those ambitious growth programmes because Kingfisher was burning through almost Rs100 crore every monthIJ “Don’t teach me how to run an airline, I know how to run an airline and I have the best professionals”, Mallya snapped at the reporter. That reporter was this writer, and there is a certain perverse satisfaction that one has been proven right. Mallya clearly did not know how to run a profitable airline. His ego got in the way of sensible decision-making. He was a media darling, after all.
Mallya made massive mistakes in running his airline. While the service standards were from another planet, his cabin strategy was confused. There was no clear strategy on aircraft types and he went ahead and ordered wide-body aircraft to start international operations just two years into his flight operations, knowing it well that Government regulations, then like now, prevented airlines from flying abroad until they achieved five years of flying experience with at least 20 aircraft in their fleet.
Mallya, who counted on Patel and his party leader Sharad Pawar as close friends, fully believed that the policy would change. After all, he argued, correctly, if airlines such as Air Arabia and Air Asia are given flying rights to India after weeks of establishment, why should Indian carriers need to waitIJ
The policy was not changed. But Mallya, who had impetuously ordered big planes, needed to deploy them. Denied international flying rights, he set about acquiring them. He first forced Jet Airways into a defensive acquisition of Air Sahara in 2005. In 2007, Mallya bought Air Deccan which had just turned five-years-old and acquired flying rights. Air Deccan, celebrated as India’s first low-cost carrier was founded by former Army Captain and helicopter pilot GR Gopinath. It had gained a modicum of success but was bleeding money; in a deep financial hole, it was selling most of its tickets well below costs.
It can be fairly argued that the acquisition of Air Deccan is what sealed the fate of Kingfisher Airlines. The multiple cabin strategies was another nail in the coffin. Was Kingfisher a full-service carrier or a low-cost carrierIJ Nobody knew. Still, until 2010, things were relatively smooth, as the cracks could be papered over, and after all, Jet Airways was confused too. And Air IndiaIJ Well, some suspect they still do not know what sort of airline it is. But had the Government policy changed to become more rational, maybe Kingfisher would have survived.
Yes, two other airlines with equally horrible financial track records — Air Deccan and Air Sahara — would have possibly collapsed, and there would have been an outcry. Yet, business failures are part and parcel of life. And several airlines have folded in the past, some rather dramatically in the mid-1990s with allegations of the Mumbai underworld being involved. A year before Kingfisher shut shop, Chennai-based Paramount Airways too had shut down. Other airlines collapsed as well; detritus from those failures such as broken aircraft and other equipment still litter some Indian airports today, as do several Kingfisher ATR aircraft at Chennai, now probably flood-damaged and likely unable to fly.
And it did not stop there — Mallya had wanted to fly to San Francisco via Dubai to offset India’s massive fuel costs. Aviation fuel in India was the only fuel the Government allowed the oil marketing companies to sell at cost, as global crude prices shot up. Permission was never given to that flight, and permission for Kingfisher to hedge on global fuel prices by importing its own fuel was also denied, as oil marketing companies, which were bleeding by selling massively subsidised fuel, refused to play ball.
Mallya was also refused permission to fly the lucrative routes to Arab countries and his appeals for the Government to allow international airline investors in Indian airlines was only accepted just as Kingfisher was failing. The only one to benefit from this decision then was Mallya’s rival Naresh Goyal, whose Jet Airways effectively sold itself to Abu Dhabi’s Etihad Airlines.
There is another chapter in the Mallya tale: Wherein Mallya is probably guilty of colluding with bank officials. However, that will have to be proven in court. In 2012 and 2013, as Kingfisher Airlines was imploding due to a combination of the factors listed above, crippling debt, massive aviation fuel prices and, of course, Mallya’s own ineptitude in running the airline, there were some banks, particularly Government-owned that not only forwarded him more money but also willingly took over clearly over-valued equity in exchange for that debt. This, while it was obvious for all (and not just beat civil aviation correspondents) to see that Kingfisher Airlines was crashing.
Mallya is guilty of a business failure, one that could well have been avoided had he run his business better and if he had put his love for the front pages aside. How ironic it must feel to him that today, in failure, he is getting more primetime coverage than ever. But blaming Mallya alone for the failure of Kingfisher Airlines is disingenuous. Do keep in mind that as a result of the Kingfisher Airlines failure, Mallya lost control of United Spirits and will likely soon become a minority shareholder in United Breweries as well. His dream of being an airline magnate has ended in total failure.
The number of people flying domestically in India is still abysmally low, with an estimated 100 million passengers expected to fly this year with the industry helped along with low-cot fuel. Once accounting for multiple trips that most flyers make, it can be safely assumed that optimistically only 20 to 25 million Indians actually fly on airplanes. That number can only grow.
Maybe, had Kingfisher not been crippled by the Government’s indifference and the weight of Mallya’s ego, the airline might have survived and we would be singing a different tune today. We celebrate our rail networks, and rightly so, but we must also remember the vast distances in our country. And while flying is only restricted to India’s ‘One Percenters’ today, it must reach more people, as the economic benefits of air travel are manifold. Either that, or Kingfisher Airlines will not be an isolated story.