Avoid market leader's curse: Management lessons from the Jet Airways crisis

Notwithstanding the bailout package that was stitched together earlier this month, the ongoing crisis at the debt-ravaged Jet Airways is a classic case of how to have avoided some of the very troubling air pockets it went through or have softened the continued blows on the airline. The lessons from this situation – of which four are most important -- are useful reminders for the troubled yet growing civil aviation industry in India.  What are these lessons?

Maintain higher standards of corporate governance: From its very early days, the airline founded by ticketing agent-turned-entrepreneur Naresh Goyal has demonstrated a lack of good governance practices. Initially, they related to ownership transparency. The more recent crisis in Jet is at least five years old, triggered by a host of factors including rising debt, growing losses, reluctance to dilute promoter’s equity holding and inability to build greater trust and stronger bonds with its equity partners. In such a cocktail of troubles, the board could have been proactive in various ways which could have stemmed the tide of decline. Two areas stand out in particular. It should have influenced the promoters in diluting their stake much earlier to bring in more funds and perhaps managed better the relationship with its alliance partner Etihad so that issues did not come to a head till the very last.    

More sophisticated communication: The aviation industry world over is a high profile one and draws a disproportionate share of attention compared to other sectors. Therefore it is more important than ever that messaging and communication are transparent, sincere and consistent. This communication should be both internal and external targeting all the stakeholders including employees, customers, media, regulators, government, investors and lenders. In fact, communication should also be inclusive – taking stakeholders as a whole – and exclusive, targeting specific groups as the developing situations demand. Rumours and unsubstantiated information does deeper damage to the institution and it takes a long while to emerge from the crisis. Till a few years back, former executive director at Jet Airways, Saroj K. Datta was the go-to person at the airline especially in government and media relations. An affable, civil aviation industry veteran, he managed to control the narrative of the airline. However, after he retired from the airline in 2011, story-telling for Jet has never been the same. Perhaps, much of the communication was in the hands of Datta, based on his personal relationship and goodwill. It should have been institutionalised better. In the last few years, when news of salaries being delayed and debts piling up, Jet went into a classic response of keeping quite more often than having its side of the story out. Compare that to the emotional communication which struck a chord with employees in particular sent out by Naresh Goyal after he decided to step down earlier this month. Perhaps a case of good communication too late in the day. Says Dilip Yadav, co-founder, First Partners, a leading communication agency, “There should always be a connect between business decisions and communication responses. This could be a three-step process of communicating the management concerns, understanding the various perspective and finding solutions.”  

Avoiding the market leader’s curse: After India ended the state monopoly in aviation in the early 1990s, Jet was one of the early private sector players to have entered the sector and it soared high. Till the budget carriers came and established themselves as serious players in the 2000s, Jet was the market leader and customer favourite for many years consistently. However, various management case studies have often shown that this phase of market leadership is often fraught with the danger of the market leader’s curse where the leading player takes its eyes off the customer, exhibits corporate arrogance and demonstrates complacency. This is exactly what happened in the case of this airline and once its market decline happened, it was never able to fully reverse that situation. Says Sapna Popli, Professor of Marketing, IMT Ghaziabad, “Jet had very loyal customers over the years as it was a market pioneer. But when the crisis hit, it was not able to convert those loyal customers to advocates of the company who continued to stay loyal to them. This was in part a communication and market disconnect with its customers.”

Business model innovations: A recent FICCI-Deloitte study concludes that with the  introduction of the Low-Cost Carrier (LCC) model where newer airlines established their market by providing point-to-point connections, single-aisle fleet, short-haul flights, low airfares, and limited onboard services, it helped the LCCs to become the predominant model of operation in the country with approximately 70 percent of market share. It also argues that in the future, it is expected that few airlines would even try out the newer Ultra-Low-Cost Carrier (ULCC) model that has seen some traction in the USA. They could offer absolute stripped-down travel, itemising ticket prices to the services included. Industry experts are even talking about Hybrid and Low-Cost Long-Haul (LCLH) business models. With a lower cost of operations due to the waiving off of most airport charges on RCS (Regional Connectivity Scheme) routes, the ULCC model may be the newest paradigm for the industry in India.

But in such an evolving situation as above, Jet failed to transition successfully with the times. One important fallout was on its finances. It has been losing money in all but two of the past 11 years and till about two months back had about Rs 70 billion ($1 billion) of net debt.  Lack of funds at the right time and continued losses over the years resulted in non-payment of fuel bills, airport charges, vendor payments, servicing of interests on loans and bills of the crew. This led to a spiralling situation where it had to borrow more debt resulting in a debt trap.

Furthermore, Naresh Goyal’s traditional ways of working often clashed with the need to be agile in a highly competitive business. For example, the company did hire McKinsey and Company in the past to cut costs, but it did not yield the desired results.

The paradox of the civil aviation industry is that while it has emerged as one of the fastest growing industries in the country, it is notoriously known for its cut-throat competition. Regional airline companies in many parts of Europe and USA are going belly-up. In such a landscape, the management lessons of Jet Airways can be useful lessons in India.

The author studies management issues and is a former editor of Indian Management.