Last week, Kingfisher’s head Vijay Mallya announced that the airline would get out of the low-cost-business and focus on the premium flyers. He also said things that were as optimistic as chief executive officer’s (CEO’s) public statements tend to be. The equity markets’ response was to drag the airline’s price even lower than it was. If you were to do some googling to find out as to what is wrong with Kingfisher, you would find a lot of equity researchers analysing the airline’s long decline. The focus of all the analysis, with no exceptions that I can find, is the airlines high indebtedness and parent UB’s financial troubles.
However, stepping out of the dominant paradigm of equity research, its puzzling that these reports never talk about a businesses’ customers.
My colleagues and I travel a great deal, a lot of it on low-cost airlines. Last week, while discussing Kingfisher’s travails, we came to the following conclusion. If an airline analyst started off in Mumbai in the morning and took a round trip around India, successively taking a flight each in the six major airlines that operate in India, he would have significantly augmented his understanding by the time he reached back in Mumbai . He would understand perfectly which of them is an investment-worthy business and which is not.
Even a cursory evaluation of the customer satisfaction levels of India’s airlines would precisely mirror the relative market-share changes over the last few years, and I would venture to say, their financial prospects over the next few years. Over the last five years, if every passenger on Deccan/Kingfisher Red had alighted from his journey wanting to travel by the airline again, then these financial troubles would have been far less severe and its prospects far better.
It’s strange that Indian equity researchers and investors pay so little attention to customer satisfaction. After all, this is not a new idea, it’s all there in Peter Lynch’s classic book, One Up on the Wall Street.