Grounding of East West (1996), Damania (1997), Air Sahara (2007), Air Deccan (2007), Paramount (2010), Kingfisher (2012), and now Jet Airways may have different reasons but they commonly point out that the aviation sector is cyclical in nature. Although, small airlines fail to draw much attention, but a debacle in case of revered airlines ignite a debate among all sections of society due to the associated interests of different stakeholders. The grounding of Kingfisher Airlines and now of the Jet Airways has turned out to be the talk of the town.
Both the airline giants have also shown similar symptoms ahead of getting decimated. Few months before its extermination, Kingfisher Airlines struggled to run its full fleet of airbuses, pay salaries to its nearly 7000 employees and faced net losses of `754 crore besides an outstanding debt of ` 7000 crore.
Almost same is the fate of Jet Airways today, of course, the nightmare is bigger here. Vijay Mallya, the owner of Kingfisher owned multiple profitable businesses like United Spirits Ltd., United Breweries and Mangalore Chemicals & Fertilizers, was also a prominent real estate player. Further, loans to Mallya were secured as he pledged assets to the banks in many cases. After a lawsuit, most of his assets can be monetised, but in case of Naresh Goyal (Jet Airways), bankers cannot recover any money (unless some buyer/s takes over Jet Air) as he has no other business. It becomes important here to understand the chinks that led to the downfall of the uncrowned czar of the travel industry having 120 aircrafts in its fleet.
The downfall is analysed from different dimensions to have an explicit view of the factors culminating into the disaster.
Jet Airways launched its operations in 1993 backed by Gulf Air and Kuwait Airways, having 40% stake and by operating four leased aircrafts. But due to strong political lobbying, Naresh Goyal succeeded in getting the government policies in favour of Jet Air. In 1997, government announced a policy prohibiting Indian Airlines from having foreign partners which led to the Gulf Air and Kuwait Airways selling their stakes to Naresh Goyal. With extraordinary services and a fleet of Boeing 737NG airplanes, Jet Airways overtook Air India to become India’s largest private airline in terms of market share by 1998. Government policies further helped Goyal in 2004 when 5/20 rule got introduced by the then Civil Aviation Minister, Praful Patel which entailed an Indian airline company to have an experience of five years of flying domestically with 20 aircrafts before it qualifies to fly overseas. Similarly, in 2008 when oil prices shot up to almost $120 per barrel, Jet Airways opted for easy mediums of borrowing from banks and a bailout package from the union government. In 2011-12, when the interest rates in India were rallying, the government allowed Indian aviation companies to raise working capital through external commercial borrowings which implicitly denoted cheap loans from foreign lenders at low rates. Pertinently, Naresh Goyal on the premise of being a Non-Resident Indian secured cheap loans from 26 domestic as well as international banks. Not only this, when Jet Air struggled in 2013, government cleared decks for 49% FDI in airlines sector. Goyal’s joy of flying got wings and the company sold its 24% stake to Etihad Air for $379 million in 2013. When low cost carriers like Go Air, Spicejet and Indigo entered the aviation industry, Goyal purchased Air Sahara for `1450 crore in 2007.
Takeover of Air Sahara added 27 more aircrafts to the fleet of Jet Airways which equipped the airlines to seize more share in the market. But Goyal felt that the quality of acquired aircrafts was not as good as the aircrafts of Jet Air. Hence, a new brand named JetLite was coined to beat the low cost carriers. Goyal priced JetLite’s tickets in between the low cost and regular airlines prices. But India being a price sensitive country, the move failed to bring required outcomes.
Hence, another tweak in the business took place in 2009 in the form of introduction of Jet Konnect which aimed at pricing the tickets as per other low cost airlines. But the marketing team failed to convey to the customers the distinction in services being offered in its three brands. Also, at times, due to heavy demand, the prices of Jet Konnect (without additional amenities) dominated over JetLite or Jet Air, which the marketers failed to justify. Ultimately, in 2012, JetLite got merged with Jet Konnect before Jet Konnect merged with Jet Air in 2014. The operations and cost controlling in case of JetLite/Jet Konnect was different from Jet Airways and the merger compounded the existing problems. It eventually led to the escalation of per kilometre cost to `3.17 in case of Jet Airways, vis-à-vis ` 2.53 in Spicejet and ` 2.04 in Indigo.
Human resource perspective
Imprudence to continuously project in national and international media that Jet Airways is expanding day and night and calling for more crew members actually turned out to be suicidal. When there was a dire need for downsizing the operations, the company advertised for new personnel. Though in majority of the cases candidates were not selected or very few got selected, yet it led to the incurrence of additional costs in terms of advertisement in major newspapers and other associated expenses. The myth that Jet Airways pays better than the national average succeeded in attracting employees from other aviation companies.
Rampant increase in costs without a sound revenue generation mechanism has led to this crisis. About 22000 jobless employees are now demanding an intervention from the government which in the past had taken steps to safeguard the interests of the management.