Branding issues:
Once the merger comes through and Air Deccan becomes a Kingfisher division (rather than a different company), the highly benchmarked Kingfisher brand could be crucified on the altar of consumer perception. A fear much real now as there have been confirmed reports of Air Deccan passengers who, after their flights have got cancelled, were given tickets on Kingfisher. With horror tales all abound about LCC flights being cancelled at the drop of the hat, Kingfisher’s pristine brand value is bound to start falling alarmingly if consumers cannot differentiate between the two brands in the coming months.
Operational dis-synergy: One logic of the merger could have been that after the merger, Vijay Mallya, without being questioned by shareholders, could have easily utilised all the capacity of Air Deccan – from pilots (which Kingfisher requires by loads), to maintenance infrastructure, to parking bays, to airplanes themselves! Though Vijay Mallya has mentioned that there would be one management team for both airlines, with a Wall Street Journal publication now reporting that Captain Gopinath has confirmed both airlines would be kept operationally separate, even this concept of synergy falls down!
Shareholder value decimation:
This factor is the most important for any CEO. It was perceived that the merger announcement could reduce the Kingfisher share worth, but would necessarily improve Air Deccan’s share value as shareholders would feel their brand image is being catapulted into the big league. Let’s see what really happened! Well, on December 18, 2007, Air Deccan’s share was trading at around Rs.316. With the news of the merger, Deccan’s share price plunged by almost 15% in a single trading session; and continues to languish! By the last closing of trade on December 26, 2007, Deccan Aviation had already lost a huge Rs.5.7 billion in stock value on the bourses!
Once the merger comes through and Air Deccan becomes a Kingfisher division (rather than a different company), the highly benchmarked Kingfisher brand could be crucified on the altar of consumer perception. A fear much real now as there have been confirmed reports of Air Deccan passengers who, after their flights have got cancelled, were given tickets on Kingfisher. With horror tales all abound about LCC flights being cancelled at the drop of the hat, Kingfisher’s pristine brand value is bound to start falling alarmingly if consumers cannot differentiate between the two brands in the coming months.
Operational dis-synergy: One logic of the merger could have been that after the merger, Vijay Mallya, without being questioned by shareholders, could have easily utilised all the capacity of Air Deccan – from pilots (which Kingfisher requires by loads), to maintenance infrastructure, to parking bays, to airplanes themselves! Though Vijay Mallya has mentioned that there would be one management team for both airlines, with a Wall Street Journal publication now reporting that Captain Gopinath has confirmed both airlines would be kept operationally separate, even this concept of synergy falls down!
Shareholder value decimation:
This factor is the most important for any CEO. It was perceived that the merger announcement could reduce the Kingfisher share worth, but would necessarily improve Air Deccan’s share value as shareholders would feel their brand image is being catapulted into the big league. Let’s see what really happened! Well, on December 18, 2007, Air Deccan’s share was trading at around Rs.316. With the news of the merger, Deccan’s share price plunged by almost 15% in a single trading session; and continues to languish! By the last closing of trade on December 26, 2007, Deccan Aviation had already lost a huge Rs.5.7 billion in stock value on the bourses!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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