Kingfisher airlines - What went wrong with the king of good times?

King fisher brand has always been synonymous with good times or so what we thought. As the Directorate General of Civil Aviation (DGCA) announced the suspension of flying license of Kingfisher Airlines on 20 October 2012, seven years after it commenced operation, the already financially crippled airline came to an abrupt halt.

The  good times can not last for ever. Can it? Once voted the best carrier in India, the business model of Kingfisher Airlines was always a recipe for disaster. At least that is what the media reports. Its flamboyant owner Vijay Mallya has been the target of media bashing ever since troubles surfaced in Kingfisher airlines.

KFA was an airline for people with a taste for luxury.  Fliers were treated to expensive wine, quality food and best entertainment facilities even on domestic flights. The airline staff were the best paid in the country until they stopped receiving their salaries from early 2012.

If everything about the airlines is so good, what could have gone wrong? Mr. Mallya wanted every one to have a good time. There is nothing wrong with that. Well, it would have been ok if the money splurged was from his own pocket. He borrowed money from the banks. The airline has never made profits to sustain in the business. No body is going to give Mr. Mallya a blank check to splurge forever. The airline’s in-flight service standards were set too high to maintain for a long time which made it out of bounds of the country’s biggest consumer section , the middle class.

When the going gets tough, the tough goes partying. Mallya, an industrialist and a liquor baron known for his flashy lifestyle and lavish parties,  is away jet setting in his private jet.  KFA is saddled with a loss of Rs.8,000 crore and a debt burden of another Rs.7,524 crore, a large part of which it has not paid since January. It was declared a non-performing asset (NPA) by bankers earlier this year. Kingfisher's lenders include banks such as SBI (State Bank of India), Bank of India, Punjab National Bank, IDBI to name a few.

Every individual is plagued by hard times, but how one goes about it is a matter of one’s position in the society. We begin with the aam admi who are identified as the ones who do their grocery shopping with ration cards instead of visa cards. These modest, hardworking people pray that they should be blessed to earn enough money to afford two square meals. Then you might belong to the class who constantly wail about their back-breaking work schedules, spend most of the days in a cubicle. These hard-working but not always modest people pray solemnly before an idol with several incense sticks: each stick denoting a 1000 rupee increment in their salaries. Next in line are the Page 3 elites whose idea of a prayer is to brainwash the Gods to take their side by offering golden doors to guard them at night in exchange of financial blessings. No wonder the incense sticks always take a back seat in front of god.

That is exactly what Vijay Mallya did recently to wave off his financial problems. His latest offering to god is a 2 kg gold-plated door for a temple of Lord Subrahmanya at a cost of a whopping Rs 80 lakhs.

After a bit of deliberation, one does feel regretful for Vijay Mallya. He had such a fine thing going. He was raking in billions from the liquor industry. And then he was an unfortunate victim of the ‘aviation virus’, infected by the bug that once bit Richard Branson of Virgin Atlantic. And then he met the perpetually unlucky Capt. G.R Gopinath. Anything Capt. G.R. Gopinath touches turns to dust. He palmed off his worthless Deccan Airways to Vijay Mallya.

Things took a new turn when Vijay Mallya squandered away some more money to buy IPL Cricket team called Royal Challengers. Whatever liquidity was remaining was sucked up by the IPL cricket team. Whatever money Vijay Mallya made out of the liquor business snatched away by Kingfisher and Royal Challengers.

But what is more worrying is that Vijay Mallya has become an “inspiration” for other businessmen as well and let to their ruin as well. The latest casualty is T. Venkattaram Reddy, who was such a successfull and sober businessman, who created the Deccan Chronicle empire. However, after he was bitten by the “Vijay Mallya bug”, and splurged millions on the “Deccan Chargers”, a motley team of cricketers. Money which ought to have been spent on expansion plan for Deccan Chronicle was spent on having late night parties with celebrities. To make matters worse, T. Venkattram Reddy even splurged money on an aviation company called Aviotech, a chartered flight service.

Well, the predictable happend. To tide over his liqudity problems, T. Venkattram Reddy allegedly committed fraud and forged share transfer documents, meant for pledging with the lenders. Lenders of Deccan such as Axis Bank, ICICI Bank, Canara Bank, Corporation Bank and Yes Bank stare at the spectre of losing a substantial part of their lending (as high as Rs 4000 Crores).

So what is next for Vijay Mallya and Kingfisher airlines? Would raising a few thousand crores rupees salvage the flawed business model?  A foreign partner taking a stake in the airline may not help matter much either unless the business model is overhauled. Kingfisher needs an able leader to fly the airlines and unfortunately that able leader is not Vijay Mallya.

The rise and fall of Nokia

Unless you have been living in a cave, chances are you would have used one of the above phones manufactured by Nokia.

Not so long ago, the 13-note ringtone of a Nokia handset was the de facto soundtrack of the mobile revolution. The world's largest cell phone maker for more than a decade, the company was a leading innovator in both design and technology that helped bring wireless life to the world.

Before it became a dominant player in mobile, Nokia was a shapeless conglomerate that had manufactured everything from paper pulp to rubber boots to cables. In the 1980s, its CEO decided to try and latch onto the boom in consumer electronics, including handsets, which led it to team up with a pair of Finnish telecoms on an undertaking that would change its fortunes, as well as the future of the cellular industry. 

That project was the first digital telecommunications network, known as the GSM. At the time, Europe was dominated by a balkanized mess of analog mobile networks that varied country to country. This setup presented a logistical nightmare for companies in the business of making phones, which would have to build different models to meet the specifications of each individual market. As far back as 1982, engineers had been trying unsuccessfully to unify the continent under a single system. Nokia and its partners managed to get the network up and running in Finland by 1991. That year, the country's prime minister used a Nokia phone to place the first ever call on a commercial GSM Network. 

GSM took off -- not only all over Europe but also in Asia, Latin America, and elsewhere.

All of this might just sound like neat history for tech nerds. But the change to digital had profound impact on phone technology. Perhaps most importantly: It enabled text messaging. Because Nokia had invested so much money and research into digital networks, it was ready to dominate markets where it was adopted. By 1998, Nokia was the leading handset maker in the world, with more than 22 percent of the global marketplace. It would peak at around 40 percent in 2008. 

Nokia won by offering customers phones that were more advanced and better dressed than their competition's. Unfortunately for them, they weren't ready to do the same when it came time for the next transformation of the mobile industry -- when Apple convinced customers they should all carry small computers in their pockets instead of boring handsets. 

It's tempting to try and characterize Nokia's failure as a classic instance  of the "innovators dilemma" -- the theory that path-breaking companies often focus so hard on protecting the market which made them successful that they miss the next big thing that will disrupt the market. And to some degree, Nokia was guilty of sitting on its laurels. For instance, it missed out on the flip phone trend that helped revive Motorola's fortune early in the aughts. But it wasn't late to the smart phone game. As early as 1998, the company was talking about "putting the internet in every pocket." And in 2007, the year Steve Jobs unleashed the iPhone on the world, Nokia fans lined up outside stores to buy the company's new N95 smart phone. 

The execution simply wasn't there. The design wasn't as appealing to shoppers. The operating system, Symbian, was clunky. Apple got the formula right, creating a phone that not only doubled as a fashion accessory, but also became the defining consumer item of its age. Samsung followed suit with its hot-selling Droid-powered models. Nokia, in turn, focused more and more on selling commoditized phones in developing countries, which increased their market share, but did little to improve their long-term outlook as more of the world embraced iPhone-style devices. 

Nokia's Lumia 900, which runs on Microsoft's Window's 7 mobile operating system, seems to have recaptured that combination of elegant function and design that once defined their best products. But sales have been slow, and it may not be enough to save the company from its immediate problems.

Can Nokia ever bounce back again? Some analysts believe yes.  Windows mobile operating system is projected to expand in market share more than any other. The Android system from Google is expected to decline the most. Samsung is reported to be looking at the Blackberry 10 from Research-in-Motion. Even with the manifold weakness of RIM, Samsung needs to look beyond the Android particularly after its recent loss in the Apple v  Samsung court case.

The table below lays out the findings from the research of the International Data Corporation

Worldwide Smartphone OS Market Data

Smartphone OS	2012 Market Share	2016 Market Share	2012 - 2016 CAGR
Android	61.0%	52.9%	9.5%
Windows Phone 7/Windows Mobile	5.2%	19.2%	46.2%
iOS	20.5%	19.0%	10.9%
BlackBerry OS	6.0%	5.9%	12.1%
Others	7.2%	3.0%	-5.4%
Total	100.0%	100.0%	12.7%

Secondly, Nokia still sells the second most mobile phones in the world.  Nokia feature phones sales are still very desirable in countries such as India and Indonesia.

Lastly, it is easier for companies at the lower levels of a sector to move up with new products than it is for the elite to begin to offer stripped-down versions at cheaper prices to the masses. The car industry demonstrates this: Toyota started off selling economical cars before introducing the Lexus. The same with Volkswagen. But efforts by BMW, Mercedes etc to sell cheaper models to a broader class of consumers have all flopped. It should be easier for Nokia to sell more advanced smartphones than it will be for Apple to market a low cost version of the iPhone, if it would even choose to go that route.

Will you ever buy a Nokia phone again? Who knows? Many mobile makers disappeared from the market as fast as they appeared. But Nokia stood the test of time. Nokia synonymous with popularity still stand a chance to stay afloat much longer.