Pricing Strategy of Airline Industry by Group - 1

We have summarized the airline industry pricing strategy in brief. Here we have considered the pricing strategy for Kingfisher airlines. Below, are some of the headings, which we have considered, while analyzing important facts about pricing of Kingfisher Airlines

Pricing Objective:

Kingfisher Red its low fare airline and adopts a low fare pricing. Some of the points which the company had kept in mind while deciding the objectives are,

Pricing Objective : Here the company is trying to target high profit return

Volume Objective : Here the company is aiming to achieve rupee or unit sales growth and to expand market share price

Other Objectives : To match competitors price

Analyzing Competitive Price mix:

The above bar graph clearly shows clearly shows that Jet Airways was in lead with the lowest expenses to income ratio at 117% up 16% from the same 9 month period from last year. The greater than 100% numbers indicate a loss. Kingfisher is spending 49% more than its income, up 10% from the same period last year.

This goes a little more in detail on the expenses of the airlines. Due to the differing heads of accounts, They were forced to do a little consolidation. They have also included interest and depreciation as part of the expenses, Kingfisher and SpiceJet have managed to bring down their operational expenses by about 5%, clearly it effected on the plunging jet fuel prices.

The above graph shows a break up of the operational expenses as a percentage of total expenses including interest and depreciation. Kingfisher still leads the pack with the highest OpEx of 81.2%. Again Jet Airways has gone against the trend and increased its OpEx by a whopping 8% thanks to those empty international flights

Both Jet and SpiceJet have brought down their employee costs by about 2.5%. Something Kingfisher has not yet been able to achieve, and desperately needs to.

Select Pricing Method:

The company had announced in its annual general meeting in Bangalore that it will be discontinuing the low-cost service.

Kingfisher, which holds a 18.8 per share of the domestic market, also announced it would reduce the number of business class seats on many of the aircraft on its full-service fleet and add seats to the economy section. The airline claims the two moves will increase its capacity by around 10 per cent.

More recently, it announced it would try to raise around $250 million in global depository receipts. But its performance continues to be mixed. Though its first quarter results for the current financial year showed net sales increasing by 14.7 per cent to Rs 1,881.64 crore, its losses continued to mount. The loss for the first quarter was Rs 263.54 crore against Rs 187.35 crore in the same period last year. Kingfisher has attributed the decline to the rise in the price of aviation turbine fuel.

Selecting the Final Price:

The two far-reaching decisions are part of the airline's continuing efforts to reduce its staggering total debt burden of around Rs 5,500 crore. In April this year, it allotted around 11 per cent stake to State Bank of India and ICICI Bank in a debt restructuring exercise.

Financial strategies:

KFA came up with many new financial strategic moves that made it one of the leaders of aviation industry the company had adopted following strategies:

It purchased brand new A320 aircrafts powered by the cockpit that was a paperless environment.

In June 2005 KFA planned to order US$5 bn at the Paris Air Show, for 5 new A350-800 aircraft, and five A330-200 aircraft.

KFA was first Indian carrier to place an order for A380s.

In November 2005 it placed an order for 30 A 320 and 20 ATR72-500 aircraft at the Dubai Air Show. This ATR72-500 was worth US$750.

To further its expansion plan KFA put in its bid to buy Sahara in November 2005.How ever negotiation came to a standstill when KFA felt the valuation of Sahara Airlines of around US$750mn to US$1 bn. was too high.

KFA has plans to make an Initial Public Offer (IPO) and raise around US$200 mn that would be used for its fleet acquisition and route expansion activities.

Overview of Problems faced by Kingfisher Airlines:

Debt crisis faced by Kingfisher Airlines(Red):

Kingfisher Red was formed by acquisition of Air Deccan since it was facing losses billions of Rupees.

So all liabilities of Air Deccan were carried towards Kingfisher Airlines(Red).

After that Kingfisher Red also inherited strategy of penetration pricing which was being used by Air Deccan. So Kingfisher also could not able to convert situation in their favor.

In September 2008 Kingfisher took loan against their brand from association of 11 banks of India which they defaulted, so the credibility of its brand went down in the Airline Industry. Recently it was in news as many of its pilots left the job due to irregular salary payments. This issue is still pending and a decision is yet to come with government of India.

Participants -

Deepti Anand (066)

Kanad Kale (101)

Rajesh Karia (102)

Vinayak Chauhan (111)

Gurtej Oshan (116)

Saurabh Dubey (120)