Why Indian Airlines FAIL | Business Case Study

Summary

The Indian aviation market is experiencing rapid growth, yet many airlines struggle to survive. The script discusses the bankruptcy of Go First, attributing it to engine failures and management issues. It also explores the downfall of Kingfisher Airlines due to poor governance and strategy. Factors like fluctuating oil prices, currency devaluation, and the high cost of aviation turbine fuel (ATF) in India are highlighted as challenges. Despite these hurdles, the market's potential remains vast, with increasing demand and government initiatives like Udan aiming to connect small cities to larger ones. The script questions government intervention in airline bailouts, suggesting that efficiency improvements in the sector could be a better solution.

Takeaways

• 🌐 India's domestic aviation market is experiencing rapid growth, with 450,000 people taking domestic flights in a single year, marking an all-time high.
• 📈 Despite the growth, many Indian airlines are struggling financially, with Go First filing for bankruptcy in May, highlighting the challenges in the industry.
• 🛫 Aircraft and engine procurement is crucial for airlines, with Go First leasing from Airbus and buying engines from Pratt & Whitney, which later faced engine failure issues.
• 🔍 Engine failures led to significant operational disruptions for Go First, with half of its aircraft grounded by May, impacting the company's financial stability.
• 💼 Management instability and family disputes within the Wadia family, who owns Go First, contributed to the airline's failure, with key executives resigning and staff leaving for other airlines.
• 💡 Competitor IndiGo managed to mitigate engine issues by switching engine suppliers and seeking compensation, demonstrating a proactive approach to crisis management.
• 💸 Financial mismanagement and unpaid debts contributed to the downfall of Kingfisher Airlines, which despite its initial success, faced severe financial and operational challenges.
• 🌐 The Indian aviation market's unique challenges include high operational costs due to factors like expensive aviation turbine fuel (ATF) and fluctuating crude oil prices.
• 💼 Poor corporate governance has been a recurring issue in Indian airlines, affecting strategic decisions and financial stability, as seen in the cases of Kingfisher and Air India.
• 💡 The Indian government's policies, such as the National Aviation Policy and Udan scheme, aim to promote the aviation sector but also highlight the need for efficiency and self-sustainability in the industry.
• 🌟 Despite the challenges, India's aviation market continues to boom, with the potential for significant growth and contribution to the country's GDP, emphasizing the importance of addressing the sector's issues.

Q & A

What was the all-time high number of domestic flights taken in India this year according to the Aviation Ministry?

The all-time high number of domestic flights taken in India this year is 450,000.

Why did Go First file for bankruptcy in May of this year?

Go First filed for bankruptcy due to engine failures, which led to a significant portion of their aircraft being unusable, and despite this, they were still incurring costs for these aircrafts.

What was the main engine supplier for Go First and what was the issue with their engines?

The main engine supplier for Go First was Pratt & Whitney. The issue with their engines was that they started failing, which affected the operation of Go First's aircrafts.

How did IndiGo handle the engine issues with Pratt & Whitney compared to Go First?

IndiGo, upon noticing problems with their engines in 2016, changed their engine supplier to CFM International in 2019 and also sought compensation from Pratt & Whitney for the unusable aircrafts.

What is one of the main reasons for Go First's failure besides engine issues?

One of the main reasons for Go First's failure, besides engine issues, was management failure, including instability and family disputes over the management of the airline business.

What was the market share of Kingfisher Airlines at its peak?

At its peak, Kingfisher Airlines had a 26% domestic market share, making it the biggest airline in India at the time.

Why did Kingfisher Airlines start incurring losses from its premium segment?

Kingfisher Airlines started incurring losses from its premium segment because they acquired Air Deccan and rebranded it as Kingfisher Red, a budget airline, which led to a shift in their customer base towards the budget option.

What was the impact of the global recession on Kingfisher Airlines?

The global recession led to an increase in fuel prices, which had a devastating impact on Kingfisher Airlines, contributing to their financial losses.

How did the Indian government's National Aviation Policy of 2016 change the rules for domestic airlines to start international travel?

The National Aviation Policy of 2016取消了 the old 15/20 rule, which previously required domestic airlines to fly domestically for 5 years and have a maximum of 20 aircraft before they could start international travel. The new policy allows new airlines to take international routes as well.

What is the Udan scheme, and how does it affect air travel in India?

The Udan scheme, which stands for 'Ude Desh ka Aam Nagrik', is a government scheme that subsidizes some routes to connect many small cities to big cities, making air travel more accessible and affordable with ticket prices ranging from Rs 1,000 to Rs 2,500.

Why hasn't the Indian government bailed out struggling airlines, and what is the debate around this issue?

The Indian government hasn't bailed out struggling airlines because they lack trust in the airlines' management, especially after the Kingfisher Airlines incident. The debate revolves around whether the government should help by providing financial support or by creating sector reforms to improve efficiency and reduce costs.