How Not To Run A Service Business: Lessons From Kingfisher Airlines

Kingfisher has demonstrated that for all the front-end glamour, Indian businesses are still running on jugaad mode in the back-end. This damages not just the brand's image but also questions Indian companies' ability to run world class service operations that put customer above all.

Govindraj Ethiraj
Published: 20, Feb 2012

Govindraj Ethiraj is former Founder-Editor in Chief of Bloomberg UTV, a 24-hours business news service launched out of Mumbai in 2008. Prior that, he worked with Business Standard newspaper as Editor (New Media). Earlier, he spent five years with television channel CNBC-TV18 where he worked from near start-up point. Before CNBC-TV18, he worked with The Economic Times newspaper as Corporate Editor in Mumbai for five years, looking after the corporate and markets news bureau. He also worked with Business World for three years. He began his career with Business India magazine. He is a Fellow of The Aspen Institute, Colorado. He is presently co-authoring a book on India’s efforts to give over a billion residents a unique, biometric identity - after concluding a short, voluntary stint with the Unique Identification Authority of India (UIDAI) - before returning to full-time journalism shortly.

I think it was October 2011 when I first heard the “What if we run out of fuel mid-flight ?’ jokes about Kingfisher Airlines. A businessman I met at a gathering laughed at another prominent one: “Boss, think of your family, shareholders and company. Fly a proper airline.” The latter had just narrated how he boarded the 7 am Mumbai-Delhi Kingfisher with a newspaper that had a screaming headline about fuel supplies being aborted.

Kingfisher has been on a 'cash and carry' system for buying fuel for close to a year. In July 2011, the first signs of trouble surfaced when several Kingfisher flights were grounded after oil company HPCL apparently stopped supplying fuel over non-payment of dues. The airline had to, as reports have it, cough up sufficient funds for two days before supply was resumed.

The next round of news reports appeared in November 2011. This time, it was evident that the troubles were serious. The airline -  wisely in retrospect -  cancelled 175 of the 418 flights allotted to it for the Winter Schedule which came into operation on October 30 and lasts till March 31. Also came news that  130 of its pilots had quit.

Right now, which is mid-February, all hell appears to have broken loose. Reports say close to half of all flights are cancelled. In many cases, it appears passengers have been severely inconvenienced. Not to mention employees.

Last week, Kingfisher’s employees in Kolkata walked out protesting non-payment of salaries leaving several passengers and flights stranded. Two days before that, Kingfisher reported third quarter losses of Rs 444 crore. The Director General of Civil Aviation (DGCA) has said it is investigating the latest round of abrupt cancellations.

The Kingfisher situation raises some fundamental questions about customer-facing, service businesses. And whether there are lessons to be learnt from the way the airline has responded to its problems. And not so much about having them. Which many would understand.

It could be argued that there are precedents to such situations in the airline business. After all TWA owner Howard Hughes, the greatest aviator of them and Richard Branson of Virgin Airlines fought similar challenges.

But I'm not sure their financial trials & tribulations similarly inconvenienced their passengers. Or kept  them guessing every morning while running from pillar to post to solve a deep-rooted balance sheet mess.

And that’s why this is not about just Kingfisher. After all, five of India’s six airlines are reportedly in losses now, including rival Jet Airways which posted its fourth straight quarterly loss of Rs 101 crore last month.

This is about the nuances of running a customer-facing, service enterprise in a financially trying situation.  And recognising when and how to cut back. In the interest of the long term.

Look at it this way. Even the beer (parent brand Kingfisher is a spirits company) in lieu of fuel jokes are passé. Most frequent fliers have shifted loyalties, particularly the business kind who can't take chances with the erratic schedules, or the perception of them, which is equally bad.

That brings us to the next question. Kingfisher has been struggling with its finances for close to a year now. It must have been evident to the airline’s management all this while that they cannot buy time (or fuel) on a daily basis. If that’s the case, why have they been not planned ahead ?

The cynical view would be that they don’t care. That’s possible but not very logical because that’s not how most businesses are set up to run, at least in post-liberalisation India.

The only answer is that Kingfisher has been extremely confident of its ability to find fixes on the fly. Whether in persuading the banks to lend overnight or cajoling the oil companies to open the taps 'just this one time'. Or, the best Indian case, a phone call to the right person. To sum up, depend on jugaad to get the aircraft fuelled up and ready to push back on schedule at 7 am.

Which brings us to the next set of questions. Should service organisations run operations in such a touch and go manner? Or more fundamentally, how are service businesses run? Hint: not like manufacturing or trading operations. Second, would it not be better to take a 'ego hit' by proactively cutting back services to the bone and then restoring when the situation improves?

Had Kingfisher steadily phased down to a few dozen services a day which run well, most folks would understand. Particularly if they were informed in advance, tickets refunded or alternate bookings created.

But the current status only prompts greater concern, leading to question critical safety and engineering standards as well. Granted that a sharp pull back in capacity may trigger other problems but it surely can’t be worse than what it is.

It is also a fact that reputations so lost in this business can be salvaged with attractive incentives and schemes. Air-India offers them all the time. Kingfisher is too. Four weeks ago, it sent out a mailer to its frequent fliers offering one complimentary ticket to any destination for every three one-way tickets bought before 20 March 2012. I would admit that it’s tempting.

But betting a business on such strategies does not sound quite right.

Moreover, Kingfisher was created with much higher expectations. It was aimed at the swish set. Chairman Vijay Mallya’s video welcomes passengers over the aircraft's inflight entertainment system. For someone who took passionate ownership of the product and service – when the airline’s CEO could and perhaps should have done so – he is remarkably distanced now.

The other lesson is that good service experiences boost not just the airline but the country image as well. The reverse is true as well. India’s private sector has distinguished itself by offering world class services in airlines or hotels across the world. Particularly after the hiccups of the mid-90s when many start-up airlines struggled similarly and collapsed.

Now it seems like India’s private airlines - and by extension companies -  can run an efficient operation on the front-end but fail badly on the back-end. Worse, they are willing to hold their customers hostage while they try to figure it all out. Kingfisher may well find a solution to its financial woes in coming days. But it would have to work harder to prove that it's not running a Scotch-tape operation at HQ.

  • Gruhkhoj

    Nice blog and posts, people should learn from this..

    on Jan 21, 2014
  • james

    Air india and Indian Airlines have failed miserably for n number of times and every time the goverment wrote a bailout check of thousand of crores of tax payers money. Wonder why people have no problem with that, i guess its ok with goverment looting them everytime. Why don't Jokers like you make joke of goverment management and air india miserable performance over 5 decades.

    on Feb 24, 2012
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