How Icarus Paradox Doomed Kingfisher Airlines

Introduction

The paradox of Icarus, which has its origins in Greek mythology, is now repeatedly being used in business literature (Amason & Mooney, 2008; Miller, 1990, 1992). In the mythology, Icarus is fabled to have plunged to death in the Aegean Sea due to his own greatest asset—his artificial wings made of feather and wax. The mythology goes that Daedalus, father of Icarus and the builder of the Labyrinth, made wings of feathers and wax, so that both of them could escape from the island prison. The wings needed to be used with great care and caution, as flying too high would risk the wings being melted away by the heat of the sun, and flying too low would weigh it down by the dampness of the ocean. Icarus, not heeding to his father’s advises and warnings flew too close to the sun, resulting in the melting of the wings and he plunged into the ocean. He did so despite his father’s warning. Icarus believed in the power of his wings, which he used to sour up the sky. Since he was overconfident and arrogant, and did not use his wings and its powers wisely, it ultimately doomed him. It was Miller (1990) who is credited with the application of Icarus factor on certain companies that far-stretched their success strategies and sounded their own death knell. He even compared the example of Icarus with the once ‘high-flying’ airlines—Eastern and Pan Am, who thought that their past would ensure their future.

This paradox has been found applicable to many outstanding companies around the world. Their past victories and perceived strengths provided them with a false sense of security, belief and élan, which lured them to tread paths that ultimately resulted in downfalls. As early as in 1976, Hedberg, Nystrom, and Starb provided vivid pictures of how these misplaced beliefs turn out to be liabilities in the face of highly volatile business environments. They opine that sustained successes often dull the senses of managers that once helped them to achieve success. A false sense of confidence builds in them about the present course of action, which biases their decision-making process. Due to this, the organization ‘gradually slide so far out of touch with what is happening … that a potentially fatal disaster develops unseen’ (p. 50).

Management literature is replete with stories of successful organizations taking their success for granted, and squandering their resources through questionable and dubious decisions (Fredrickson, 1985). This occurs due to rationality, prudence and specialization giving way to a form of gullible confidence and complacency which reduces decision-making to rituals based on anecdata. This pattern, followed by many organizations, has been compared by Miller (1990, 1992) to the mythic story of Icarus, who flew too high with utter disregard to the aspect that it was these artificial wings made of wax that enabled him to fly. It is indeed ironic that many iconic and considerably successful organizations have been prone to such failures and even collapsed.

History repeats itself! Even famed and superior organizations which had once succeeded merely due to hard work and determination, and stayed focused and galvanized against the onslaught of time, have been prone to this ignominious and exasperating fates (Amason & Mooney, 2008; Sulphey, 2019). The Icarus paradox that the owner of an organization maintained about his glittering and sterling past performances often triggered him a form of defensive mindset (Kahneman & Tversky, 1979; Tversky & Kahneman, 1983). This flawed mindset manifests as multiple biases (Sulphey, 2014) and results in sowing the seeds of collapse of the organization; and the honour and dignity of the promoter who would have taken generations to build.

The present article sheds light on how past performance made Mr Vijay Mallya, the owner of Kingfisher Airlines (KFA), to take decisions that affected its performance and existence, and its ultimate disgraceful demise. A close parallel can be drawn between the paradox of Icarus and the doom of KFA.

Review of Literature

The complex relationships between managerial thought process and organization performance have been a matter of deep empirical examination (Amason & Mooney, 2008; Audia & Brion, 2007; Miller, 1990). A number of theories such as the prospect theory (Kahneman & Tversky, 1979; Tversky & Kahneman, 1983), categorization theory (Dutton & Jackson, 1987) and strategic reference point theory (Fiegenbaum, Hart, & Schendel, 1996) have provided insights in this direction.

A strong and successful organizational performance often boosts the confidence in the strategies practiced by their leadership (Hambrick, Geletkanycz, & Fredrickson, 1993). Successful organizations are those which are ambidextrous (Sulphey, 2019; Sulphey & Alkahtani, 2017), and fervently align their ‘strategies, structures, and cultures around a central theme to create powerful, cohesive, brilliantly orchestrated configurations’ (Miller, 1990). Often good performance is considered as absolutely normal, with no special attention attributed to its reasons and causes. Poor performances, on the other hand, invite undue attention from all quarters and often calls for renewed efforts and an altogether different direction (Audia & Brion, 2007). However, poor performances often make decision-makers to be receptive to change (Amason & Mooney, 2008). While good performances would be reflective of the organization’s quality intent and effort, poor performance could be as a result of external causes that are uncontrollable in nature (Meindl & Ehrlich, 1987).

That ‘success breeds complacency and arrogance’ is now a universal truth—especially so for businesses. However, of paramount importance are the links that the dynamics of early success have with subsequent failures. Evidences show that the commitments, dexterity and agility that brought the initial successes for the organization, often slowly harden due to arrogance and complacency, and become constraints to change adaptation process. Such organizations often find it hard to adapt to competitive environmental shifts and fault lines in the market. This dynamics, according to Sull (2005), can lead exceedingly good organizations to turn bad in no time.

Miller (1990), who introduced Icarus paradox in management literature, divided companies into four interesting categories: craftsman, builders, pioneers and salesman. A brief description of the categories is presented in Annexure 1. According to him, in the initial stages, companies in each category achieve fairly high levels of success through pursuing a well-defined strategy. As time progress, the initial strategies falter due to the lack of required flexibility, openness and ingeniousness. Miller (1992) states that

[f]irms perpetuate and amplify one particular motif above all others …. They choose one set of goals, values, and champions and focus on these more tightly (p. 27).

This rigidity leads the organizations to a form of retrograde position, or towards a negative momentum, which later induces ‘trajectories of decline’. Thereafter, the conclusion can well be foretold!

Miller’s categorization has the required fecundity to help business strategists and planners to crystallize their thinking and arrive at appropriate decisions. The following sections explore how these aspects hold good for the protagonist company.

Kingfisher Airlines Ltd

To have a fair backdrop of how KFA came into being, it would be imperative to have a cursory look at the Indian aviation history. Prior to 1990, the Indian skies were nationalized under the provisions of The Air Corporations Act, 1953. As per the provisions of the Act, Indian Airlines Corporation was authorized to serve the domestic sector and Air India International the international passengers.

The ‘open-sky’ policy was adopted by the Government of India in 1990, and air taxies were permitted to operate from any airports in the country. By 1995, a large number of airlines were operating in the Indian skies. Some of them include East–West, NEPC, Jet, Sahara, Jagsons, ModiLuft, Continental Aviation, Damania, etc. Buoyed by the overall economic growth rate, the beginning of the century (mostly between 2005 and 2011) saw the explosive growth of air industry. For instance, in 2008 alone, the airlines industry witnessed a compound annual growth rate (CAGR) of around 18 per cent (Srinivasan Prasad, 2014).

KFA started in Bangalore in May 2005 under the Chairmanship of Mr Vijay Mallya, the owner of United Breweries (UB) Group. In fact, this was not his first tryst in the aviation industry. Earlier in 1990, Mallya launched U B Air, which conducted ‘scheduled operator’ services between Bangalore and Mangalore. However, it had to be abandoned immediately, as he thought that the market ‘was not ready’. Two years after promotion of KFA, in May 2007, the company (through UB group) bought 26 per cent stake (at the cost of around ₹1,000 crore) of the Bangalore-based budget airline Air Deccan. At this time, Air Deccan was making losses to the tune of around ₹419 crore (Sharma, Dixit, & Karna, 2016). However, the Deccan brand had vital importance to KFA for circumventing government regulations regarding flying on international routes. The government policy permitted only those airlines having five years of operation to fly in international routes. Without Deccan, KFA would not be able to operate international services until 2010. Though the merger had its own basket of problems (with a combined loss of ₹1,602 crore), it made KFA the largest player in the Indian skies, and also helped it to fly in international routes. KFA also expected to retain Deccan brand for high volume, price-sensitive international markets like Middle East, which were monopolized by Air Arabia and Air India Express.

The Heydays

KFA, from its inception, was able to successfully differentiate itself in the market by offering many unique state-of-the-art facilities in flight and on ground. As on early 2012, the company was operating a fleet of 55 aircrafts. This included Airbus 330, 321, 320 and 319, ATR 72–500 and 42–500. At its heydays, the company was operating full service airlines offering a variety of services, the details of which are presented in Table 1.

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Table 1.

Services Offered by KFA

No.	Service	Details
1	Kingfisher First	Premium business class services
2	Kingfisher Class	Premium economy services
3	Kingfisher Red	Low cost services
4	Kingfisher Elite	Charter services
5	Kingfisher First Lounges	Exclusive airport services
6	Kingfisher Holidays	Travel packages such as honeymoon trips, adventure, sports and wildlife.
7	Kingfisher Cargo	Cargo services
8	Kingfisher Xpress	Online cargo booking

Source: World Market Intelligence/Kingfisher Airlines Ltd (2014).

Laptop and mobile charging on every seat, entertainment systems which provided live channels and radio, cup headphone, pre-requested meals, etc., were a few of the many facilities provided by it. In addition to these, KFA had multiple code-share agreements. Some of them included Asiana Airlines, South Korea; American Airlines, USA; British Airways, UK; and Philippines Airlines, Philippines. The company had 36 interline partners and 80 interline e-ticketing partners. This facility permitted two carriers to sell e-tickets as a single document. It also became a member elect in Oneworld, an association of 12 airlines that served over 150 countries and had over 9,000 flights per day. The association also helped members to share best practices among members through minimization of expenses and improved customer experience. Other prized agreements entered into by KFA include those with Marriott International, Hilton Worldwide, etc. (World Market Intelligence, 2014). All these facilities prompted Skytrax, a UK-based agency involved in airlines rating, to rate KFA as ‘five-star’—a fete that no other airlines in India could achieve at that point of time.

Fall from Grace

Mallya was definitely a success in building a lifestyle airline, where customer service took the prime position. Even critics agree that the customer service levels at KFA were exceptional. However, this exceptional customer service levels were at the cost of compromising on profitability. Since inception, KFA failed to make profit for even a single year (Table 2). Though revenue peaked in 2011, it declined thereafter until it crash-landed by the end of 2013.

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Table 2.

Revenue and Operating Profit for Five Years Starting 2009

Year	Revenue	Operating profit
2009	1,085	–50.66
2010	1,147	–44.87
2011	1,387	–23.41
2012	1,089	–59.17
2013	128	–629.31

Source: World Market Intelligence/Kingfisher Airlines Ltd (2014).

Note: Revenue and operating profits are US$ in millions.

Within a short duration of its promotion, troubles propped up for the company. This aggravated with the merger of Air Deccan. The biggest problem faced by KFA was the cultural mismatch between the two entities. This put cold water on Mallya’s effort to rebrand the erstwhile Air Deccan as Kingfisher Red. During 2012–2013 the revenue was a mere ₹683.4 crore (US$128 million), with the loss being ₹4,301.2 crore. Even at this stage, Mallya kept pumping in money, borrowed through pledging his holdings in various other companies of UB Group. KFA was in fact ‘bleeding money’ and paucity of funds led to default in salaries to employees and pilots. Even at this point of time, his liquor business had a turnover of ₹9,187 crore and gross profit of ₹1,060 crore. His beer business brought home a turnover of ₹5,800 crore and gross profit of ₹465 crore. Thus, all his problems were due to his ill-conceived foray into aviation.

By February 2012, the accumulated problems of KFA led the fleet to be grounded. In the same month, the International Air Transport Association (IATA) suspended KFA. On 5 October 2012, the Directorate General of Civil Aviation (DGCA) suspended the Scheduled Air Operator’s Permit (SOP) of the company. This was followed by the withdrawal of flight entitlement by the central government in February 2013, which officially grounded the airlines. Soon, thereafter, the financial institutions and leasing firms initiated actions to take custody of the planes.

Even at this point of time, Mallya was hoping to revive the company and was trying all tricks at his disposal to keep the company afloat. He even filed a suit in the Hon’ble High Court of Bombay (Suit No. 311/2013) against his lenders (a consortium of 17 banks whom he and his companies collectively owe ₹ 9,091 crore) seeking:

[a]n order and declaration that the transfer of 26,46,155 and 1,00,00,000 equity shares in United Spirits Limited and Mangalore Chemicals and Fertilizers Limited respectively held by UBHL, from its DP Account to the DP Account of SBI Capital Trustees Limited done pursuant to the impugned Notices is without the authority of law and void (p. 19).

He did not give up even at this stage and was approaching various business houses and conglomerates in India and abroad to find potential investors to revive the biggest folly he has ever done in his life. This is clearly evident from the following excerpts of the 2012–2013 Annual Report of the company:

Nevertheless, your Company diligently continues its efforts to bring in fresh infusion of funds into your Company and discussions with various prospective investors are underway, despite the persistent negative media statements being made by the Lenders about your Company as well as the hostile recovery action initiated by the Lenders proving to be a major concern for these investors. (Kingfisher Airlines Ltd, 2012–2013, p. 2)

After the closure of KFA, everything went wrong for the flamboyant industrialist who proclaimed himself as ‘King of good times’. The lenders and leasers started taking actions after actions to recover their money, and ultimately Mallya had to flee India—the rest is history!

Discussion

The flamboyant Mr Mallya had been successful with his liquor business, which he inherited from his father. He had multiple bungalows in different continents, a fleet of vintage cars, a number of personal jets, prized race horses, luxury yachts that only royal families could afford and many other assets that no other business person possessed. He had successfully acquired whichever companies he had set his eyes on, and added them to his UB ¹ Group (Berger Paints, Mangalore Chemicals and Fertilizers, Shaw Wallace, etc., were only a few of them). Since in India, liquor companies were not permitted to advertise, he tactfully used his foray into multiple other unrelated ventures as brand-building exercises. Be it starting KFA, acquisition of IPL cricket team—the Royal Challengers, conducting Formula One racing, etc., his intension was to promote his liquor brands. Through his shrewd business acumen, he succeeded in enhancing the heights of his liquor brands. In fact, he himself became the brand ambassador of his companies and products. ‘I live my brand. I’m the best ambassador for my brand. It doesn’t matter which one works as long as the brand works.’ This was what Mallya told in an interview with the magazine India Today in 2006.

His capability to manage situations with élan and be successful created in him a sense of vanity and audacity, reminding us of the mythological Icarus. It is this thought pattern that made Mallya to take his ill-conceived foray into airline industry which proved to be his nemesis. Added to this was ‘his obsession to vanquish Jet Airways at any cost’. This ‘vanity management’ of his was the main reason for his debacle, and which has cost the creditors and shareholders of UB Group very dearly. Thus, all the problems of Mallya were of his own making.

The main reasons behind the issues of KFA were structural, operational and strategic in nature. Table 3 presents the reasons behind the problems faced by KFA.

It can be seen from the Table 3 that the attempt of Mr Mallya to foray into aviation sector was without any specific business model, and was fraught with ill-conceived notions from day one, for which doom was the only inevitable logical conclusion.

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Table 3.

Problems Faced by KFA

No.	Reasons	Description
1	Structural	KFA acquired most of the airlines through a ‘buy-and-leaseback’ system (63 leased and only 3 owned). This was against the norms followed by other international companies, which followed a leaseback and self-owned aircraft model. Further, all the fleet of KFA were purchased or leased in 2005, while the other companies had a mix of both old and new planes.
2	Operational	KFA, from the very beginning had to face problems associated with high operational costs. Their route rationalization was highly ineffective. Further, with the merger, KFA had to, by default, acquire the business model borrowed (and possibly flawed) by Air Deccan from the Western Airlines. This became a big drag on the resources. Though in October 2007, KFA rebranded Air Deccan and announced higher ticket rates, and in September 2008 converted it into ‘Kingfisher Red’, all these steps were ‘too little, too late’.
3	Strategic	KFL, from the beginning lacked a clear business model or strategy. The made ad hoc strategies based on requirement, which caused much harm to the company. The Chairman, Mr Mallya had no experience in the industry. His decision to acquire the loss-making Air Deccan for ₹1,000 crore seemed to lack any business prudence. It is even stated that no due diligence audit (let alone simple audit) was done to arrive at the purchase price. Further, even when Mallya was setting up the company, the constraints and problems associated with high aviation fuel cost, heavy user charges at airports, need to compulsorily fly on certain unprofitable routes, etc., were affecting the existing airlines. Even though these constraints were in the public domain, Mallya made no attempt to tailor a business model that could address them.

Source: The author.

Conclusion

An analysis of the history of Mallya and his UB Group shows that the description of the ‘builder’ by Miller (1990) perfectly fits. According to him, builder is an expansion-minded and strategically growth-focused company, which is driven by strong entrepreneurial skills. They create ventures to pursue the opportunity and succeed in producing a ‘strong, unified enterprise’. They attempt to achieve growth and prosperity through intelligently laid foundations and acquisitions. This was what Mallya did in the initial stages. The empire he inherited and which he expanded through his sweat and blood was once considered impermeable and wrecked fear in the minds of his competitors. Though his flamboyance was making heartburns in the minds of other businessmen, he was literally ‘minting money’ out of his liquor and beer business. However, like the mythical Icarus, the increased revenues, power and profits made Mallya overconfident and cynical and created in him an insatiable urge for more. Mallya’s unquenchable urge for being in the limelight and his idiosyncrasies overtook prudence and strategic thinking. That once he was a shrewd businessman did not make him to mull over as to whether he needs to enter unchartered territories like aviation. He was even blind to advises given by a number of his friends and acquaintances (Babu, 2016). His mad race to over-expand his business to domains hitherto unknown to him resulted in severe strains across the resources of his UB Group companies. This resulted in his losing control of the once-thriving business. This overzealous and, to a certain extent, gibberish venturing in airline business eventually made him to crash-land! He burdened himself and the companies held by him with heavy debt. As Miller (1990) states, he transformed himself into ‘imperialist’ and the outcome was just waiting to occur—doom. The inevitable happened—he melted his very wings that helped him to fly high and ‘plunged to the Aegean Sea’—definitely not a hyperbolic statement, considering his current state of affairs.

How can business houses be free of such follies? It would be ideal to consider Miller’s (1990, 1992) advice:

It would be wise to have an insatiable urge to expand the business or acquire new opportunities, but it should not be after neglecting of operational details of running the business. Appropriate business models based on sound prudence should be in place. One should not indulge in having ephemeral business model(s) that are changed based on whims and fancies.