‘I was told not to downsize’: Vijay Mallya recounts Kingfisher Airlines’ fall after nine years

In 2003, the Damania brothers, Parvez and Vipsi, showed a presentation to Ravi Nedungadi, the then CFO of the UB Group and Vijay Mallya’s key adviser. The Damania brothers said that the time was ripe to start an airline. Nedungadi then went to Mallya, asking if he was interested in seeing the Damania brothers’ proposal, to which Mallya agreed. After reviewing their proposal, Mallya looked at the proposal and decided that it was indeed opportune to foray into the airline business, leading to the conception of Kingfisher Airlines.

“That’s how the idea of an airline was born,” said Vijay Mallya, explaining how Kingfisher Airlines came about on Raj Shamani’s podcast, Figuring Out. The four-hour-long, tell-all, no-holds-barred podcast is Mallya’s first media appearance in nearly nine years. When asked the rationale behind an alcohol company foraying into the airline business, Mallya said that diversification in the UB Group was not unheard of, and the company was already into businesses like food processing, petrochemicals, and electromechanics. “Diversification was nothing new to us.”

On May 9, 2005, Kingfisher Airlines was launched, which also coincided with Mallya’s son Siddharth’s 18th birthday. This led many to believe that Mallya launched the airline as a birthday gift to his son, which Mallya vehemently denied. “I think my son would be embarrassed, and even I would be embarrassed to say that I’m launching an airline as my son’s 18th birthday gift. It’s utter nonsense,” he said.

According to Mallya, Kingfisher began its journey as a low-cost airline, but “with a difference”. “We were the first airline in India to offer in-flight entertainment and good food. Everything else, down to the intricacies, was similar to that of a low-cost airline,” he said. His marketing experience taught him that there were two things Indians loved, entertainment—which led to in-flight entertainment being offered on flights—and good food, which led to on-board meals.

When the market evolved subsequently, Mallya said, Kingfisher Airlines felt the need to introduce Kingfisher First—its business class offering—on certain routes. “There were certain people who would not fly Kingfisher Airlines at all, but would fly Jet [Airways], only because we didn’t have a business class,” he said. Mallya adds that now IndiGo, the largest low-cost carrier in India, is also venturing into business class with its IndiGo Stretch. “So it’s not such a dumb idea,” he said.

The period till 2008 is described by many as Kingfisher’s halcyon years—when it became the largest airline in India with a 27% market share. The airline also stood out in the service it provided on board. “We spent a lot of time and expended a lot of energy in training,” he said, adding that effective communication was pivotal to the service standards set by Mallya. “During the first year of operations, all airport managers across the country had to send an SMS to my personal mobile number with the flight number, the scheduled time of departure, and the actual time of departure. I used to personally monitor the on-time performance of the airline.”

When asked why things started to go wrong at Kingfisher, Mallya pointed to the 2008 global financial crisis. “Not just aviation, every sector was affected by the financial crisis. The value of the rupee was affected by the crisis,” he said, before recounting a meeting with then finance minister Pranab Mukherjee, where he told him that in the thick of the crisis, he had no choice but to downsize. “He said, No, connectivity is important. The jobs are important because those working for airlines aren’t classified as blue-collar workers. He told me to continue operations, and the banks will lend their support. That is how it all started. I was told not to downsize.”

Many also believe that Kingfisher Airlines’ woes were exacerbated by its acquisition of Air Deccan in 2007. “In the world of business, there’s a thing called consolidation of industry, and eliminating the disruptor,” said Mallya, before explaining how Air Deccan’s advertising of a ₹1 ticket disrupted the entire aviation industry in India, setting certain expectations in the minds of the consumers. “Air Deccan was Bangalore-based. It had the same aircraft, the pilots were trained similarly, so there were a lot of synergies, and the scale and size of the airline.”

Hence, Mallya said that consolidation, eliminating the disruptor, and the commonality of equipment were the underlying logic behind the acquisition. “The majority of India prefers a single-class product, and Air Deccan fitted the bill fantastically. We opened up many routes that were not previously available,” he said. “Kingfisher’s sad demise had nothing to do with our acquisition of Air Deccan.”

Mallya then went on to list why Kingfisher Airlines failed. “The cost of the international crude [oil] went to $140. The price of aviation turbine fuel in India was directly related to the price of international crude oil. So, from an average of $60 a barrel, crude oil went to $140 a barrel, with the resultant and equivalent increase in the price of aviation turbine fuel. The state governments levied an ad valorem sales tax on aviation turbine fuel. Now begin to imagine the financial impact on airlines operating, where fuel costs are the single-largest component of cost.”

He wrote to the government to give aviation turbine fuel ‘declared goods’ status, “so that it attracts central sales tax and not this punitive, ad valorem states’ sales tax, because the state governments were making windfall profits. That the government did not do,” he said. Mallya also claims that he had reached an agreement with the CEO of Etihad Airways in Geneva for an investment in Kingfisher Airlines, which the government did not allow. “Only six months after Kingfisher shut down, the government allowed FDI in the aviation sector. So we couldn’t capitalise on the opportunity.”

“Had events not conspired against us, you can imagine where Kingfisher could potentially have been today,” Mallya said on the podcast.