Kingfisher Airlines Case Study
Introduction
The case study is based on the incidence that happened to Kingfisher Airlines in November 2011. The case describes the situation the airline industry was facing in India that led to an increase in passenger volumes but with no profits, with the exception of IndiGo Airlines. Besides Air India, the government-owned airline, Kingfisher Airlines, was in the worst shape being close to bankruptcy. Inadequate cash made the AirlineAirline cancel 35 flights in a single day, an event that brought the Airline industry under investigation. This incidence disappointed its customers who were the only stakeholder group that was disappointed with the AirlineAirline. Using the perspective of the stakeholders, the case suggested that because of the focus towards a single stakeholder group, i.e. the customers, and neglecting other major stakeholder groups, i.e. the employees, suppliers, society and the community including government agencies, the AirlineAirline nearly went bankrupt.
Porters five analysis of the Indian Airline industry based on Kingfisher Airlines
The porters five forces framework was developed by M. Porter to assess an industry’s competitive environment. This framework has five driving forces that are essential in influencing the position of a firm in an industry. It analyzes the industry’s attractiveness and finds out the position of a firm in an industry. Furthermore, it assesses as to whether an industry is attractive and helps an organization in making up a decision as to whether it is going to invest in the market (Dess, 2013).
- The threat from new entrants
- The threats of substitutes
- Supplier’s bargaining power
- Buyer’s bargaining power
- Competition in the industry
The threat from new entrants
This refers to the potential organizations that have not managed to enter the industry yet but can manage to do so if they wish. The existing organizations often attempt to make it difficult for other organizations to enter the industry since more competitors makes it hard for the present organizations to thrive (Dess, 2013). The threat of new entrants depends on the attractiveness of the market and the barriers present. For the Indian Airline Industry, it was easy for new entrants to enter the industry but difficult for them to exit or make profits.
Earlier, it was difficult for new entrants because of the high capital costs, but with the downturn in the worldwide airline industry and the availability of leasing aircraft, the cost of capital dropped drastically making it easy for new entrants to enter the industry. However, with the cutthroat fares, high taxes and high fuel prices would make potential entrants from entering the market because of loses that they would have expected. The impact of the threat of new entrants towards Indian airlines is LOW.
The threat of substitutes
A substitute product/item is one that can provide the same benefits to a company as another product from a different. The threat of substitutes is the risk level that an organization faces when it is replaced with substitute products (Luenendonk, 2014). An organization that has a number of possible substitutes products that can be switched to has little control over how it sells its products to its consumers. In relation to the Indian Airline Industry, consumers can choose from several substitutes that exist within the industry.
Because of the country’s geographical size, most of the Indian population relies on the use of railway transport to reach their destination. The introduction of high tech buses has also encouraged some people to use buses for long-distance destinations. The presence of these substitutes means that people can choose the mode of transport other than airline transport depending on their need. The Indian airline industry has no cost to switch meaning that consumers can move to a different mode of transport at ease depending on their need. The impact of the threat of substitutes towards Indian airlines is MODERATE.
Supplier’s bargaining power
These are companies that supply inputs such as materials, labor and services to the company. Suppliers are critical as customers since they pressure the airline companies by increasing the price and lowering the quality of goods and services that they provide when they are strong enough. Too many suppliers and the availability of substitute products are essential factors when deciding supplier power (“Porter’s Five Forces”, 2016). The fewer they are, the more supplier power they have. When considering the main inputs that the Indian airline industry needs, we notice that the industry is largely dependent on aircraft and fuels.
In the manufacturing sector, only Boeing and Airbus companies supply India with Airplanes, and it is so hard for companies to switch suppliers. This is because of the long-term contracts that exist with their suppliers and the higher bargaining power that they have. The suppliers of the airplane industry India seemed to have more power as they could control the prices of most of its goods and services. For instance, because of the government restrictions, the petroleum industry, which was the supplier of fuel towards the Indian airlines, increased fuel prices forcing airlines to buy fuel at higher prices. The impact of the bargaining power of suppliers on Indian airlines is MODERATE.
Buyer’s bargaining power
The bargaining power of buyers examines to what extent can customers put an organization under pressure so that prices can be changed. Customers have higher bargaining power when they are less or when they are other options to buy from (“Porter’s Five Forces”, 2016). Buyers are often customers, and if they are powerful, then they have the ability to decrease process as well ask for products and services with high quality. The bargaining power of customers in the Indian Airline industry is high and has been increasing since there are a lot of airline companies to choose from. The cutthroat fares that Air India introduced led to price competition forcing all major airlines in the country to lower their prices hence increasing the bargaining powers of buyers. This was because buyers could choose from a variety of Airline Company because of the reduced costs. The impact of the bargaining powers towards Indian airlines is HIGH.
Competition in the industry
Every organization has a competitor, especially when the industry is highly attractive and on its expansion phase, which leads to stiff competition. The main competition is to become the market leader in the industry. In our case, the cutthroat introduced by Air India resulted in price competition forcing major airlines in the industry to cut down their prices to attract customers. The impact of the industry competitors towards Indian airlines is HIGH.
Kingfisher Airline stakeholder strategy
In its strategic plan, Kingfisher strategy tried to focus on all its major stakeholders to ensure that there is a balance and continued support from them. Therefore, the stakeholder strategy program was created to meet the expectations of the customers, keep a good relationship with the suppliers so that they can continue to do business with the company, meet the needs of its employees so that they can stay motivated, comply with the society’s expectations and satisfy the company’s owners (Ojha, 2012). With this strategy, the company is likely to get back at its feet and avoid going bankrupt.
Kingfisher Airlines focused more on one stakeholder, i.e. the customers and forgot to fulfill the interest of other major stakeholders such as the employees, suppliers, society and the community, including government agencies. The company tried so hard to reduce the prices of its air tickets to attract more customers but did not consider how the move would affect its other stakeholders. Kingfisher had failed to pay its employees for several months affecting the employees’ morale. Debts from its suppliers made the company take parts from its grounded planes to keep its flights operational, which made the community question their safety (Ojha, 2012). Kingfisher Airline needs to come up with a program that defines a series of steps and contingency arrangement that the company would use. This contingency plan would help the company to come out of a crisis to a position whereby it could meet the satisfaction of all its stakeholders and ensure their continued support and engagement. Thereafter, the stakeholders could then proceed in helping the company get to greater heights.
References
Dess, G. (2013). Strategic management: Text and cases. McGraw-Hill Education.
Ojha, A. (2012). Kingfisher Airlines: Managing Multiple Stakeholders.
Luenendonk, M. (2014). Threat Of Substitutes | Porter’s Five Forces Model https://www.cleverism.com/threat-of-substitutes-porters-five-forces-model/
Porter’s Five Forces. (2016). https://www.business-to-you.com/porters-five-forces/