Jet Airways: Going, going, gone

April 17 will mark a year since the full-service carrier Jet Airways stopped flying in what was then called a “temporary suspension of operations.” A year later, the temporary suspension has become more permanent. Various attempts have been made, meanwhile, to revive the airline but with little success (see accompanying story).

What went wrong with an airline that flew in both Indian and domestic skies and was the preferred choice of many? Analysts say the airline started at a time, 25 years ago, when the industry was waiting for a full-service player as Indian travellers were becoming more discerning and demanding. At that time, the only full-service choice they had was Air India.

Jet Airways provided this alternative. Its promoter Naresh Goyal was clear that the airline had to have Swiss precision, with planes flying on time, along with German engineering, American technology and Indian hospitality. The airline started with brand new Boeing 737-400 aircraft that provided economy and business class seats. It used imported cutlery in business class and was the first to print passengers’ names on their boarding cards.

During the 25th anniversary celebrations of Jet Airways in May 2018, Dinesh Keskar, then Senior Vice-President, Asia Pacific and India Sales, said, “This aircraft had new engines, bigger cabins and more seats and the airline started by leasing three aircraft from Ansett Worldwide. This was a risk then as the rent was higher, which meant that the airline had to ensure that it got more revenue.”

At the time Jet began operations foreign airlines were allowed to buy a stake in domestic airlines, so Kuwait Airways and Gulf Air invested in it.

This was a smart move as, back then, international flights landed in very few Indian cities. Passengers flying to Mumbai from the Gulf on Kuwait Airways or Gulf Air would automatically board a Jet flight to their final destinations within the country.

The airline had a dream run till about 2006, when there was the first hint of low-cost airlines entering the market. Goyal wanted to cash in on this new trend and, in an attempt to take on the competition, Jet acquired Air Sahara in 2007 at a cost of over ₹1,450 crore.

Many believe this was the beginning of the end for Jet Airways. Says Nripendra Singh, Industry Principal, Aerospace, Defence & Security Practice, Frost & Sullivan, “Jet Airways’ management acquired Air Sahara hoping to increase its domestic market share and thereby be in a better position to shape policy decisions by having the regulatory body’s ears. But the acquisition not only affected Jet Airways’ liquidity but also left the market and investors unsure whether Jet Airways was a full-service or low-cost airline, hence diluting the established brand identity.”

Decline begins

Singh divides Jet’s journey into two phases — pre and post-acquisition of Air Sahara. “Before Jet acquired Air Sahara it was the preferred airline for corporates and enjoyed a large market share. While it was a near-monopoly, with just two other carriers present, its decision to try and beat the emerging competition by buying Air Sahara backfired,” he says.

In hindsight, people who worked with Goyal talk about other mistakes as well. When the government again allowed foreign airlines to pick up a stake in domestic airlines, Jet was the first off the block. In 2013, it entered into a strategic alliance with Abu Dhabi-based Etihad Airways, which picked up a 24 per cent stake for ₹2,050 crore.

Then, there were decisions like moving its hub to Amsterdam in 2015 from Brussels, where it had established a base 10 years earlier, or Goyal getting involved in negotiations with various stakeholders, including pilots and cabin crew, directly rather than through senior management, and going for a multi-aircraft fleet.

According to Jagannarayan Padmanabhan, Director, CRISIL Infrastructure Advisory, competing for market share by keeping prices low and not sticking to the core value of the product led Jet airways to incur operating losses. Older fleet and higher fixed costs didn’t help as this was in the backdrop of high crude prices, a significant contributor to the operating cost of any Indian airline.

The airline listed on the exchanges in 2005. In the initial years, Jet’s net worth doubled to more than ₹4,000 crore as of March 2008. This was the time when Jet enjoyed the advantage of being an established brand even as other players were trying to expand and establish presence. However, Jet suffered in most of the years after it listed. On a consolidated level, Jet posted losses in ten out of the 15 fiscal years since listing — FY 2014 being the worst, with a loss of over ₹4,000 crore. In FY 2019, when it shut operations, the airline posted consolidated losses of ₹3,300 crore in the nine months ended December 2018.

So serious was the airline’s financial state that, on February 14 last year, its board approved a bank-led Provisional Resolution Plan to convert lenders’ debt into equity shares, as a result of which the lenders would become the largest shareholders in the company. Naresh Goyal, his wife Anita and the Etihad representative stepped down from the board, a pre-condition for lenders providing a lifeline by infusing ₹1,500 crore. But the promised funding did not materialise and the management decided to temporarily suspend operations on April 17.

Uncertain future

One year on, Singh believes it is unlikely Jet will make a comeback, for many reasons including the fact that its slots have been taken up by other carriers. “More importantly, Air India represents a better investment option for an investor looking to invest in the Indian airline industry.”

Further, market dynamics have changed. Airlines around the globe are not doing as well as earlier and with Covid-19 the industry, as a whole, is looking at losses of $250 billion, according to IATA, which predicts that many smaller airlines may have to shut shop after the pandemic. In this scenario, it is virtually impossible for Jet to make a comeback.