Jet may cut distribution costs, focus on web sales

Jet Airways is pushing web sales to increase its revenue and cut distribution costs. The airline is selling 100,000 seats at a discount to drive this strategy.

"The second quarter is the weakest season for domestic airlines. Loads, too, have been declining. Jet may have launched the sale in anticipation of the holiday rush around Diwali,'' an aviation source said. Another reason could be to control distribution costs. An airline has to pay travel agents and online portals commission for each transaction cost, which it can avoid if the booking is done from its own website. Travel agents are paid three per cent commission on the basic fare and fuel surcharge.

In 2010, the airline spent Rs 1,261 crore, which was 28 per cent higher than previous year on sales and distribution and costs. In its latest annual report, the airline attributed the increase in these costs to the rise in commission cost, an impact of the rise in revenues and increase in advertising cost due to launch of new international routes.

On a standalone basis, the airline earned a profit of Rs 9 crore in 2010. But the last three quarters have been negative for the airline in the backdrop of rising crude prices and weak yields. The airline made a loss of Rs 128 crore in the first quarter of 2012.

Company executives admitted aggressive pricing by rival carriers was impacting its low-cost brand JetLite. Air India, too, came out with an unlimited travel offer on economy and business class routes and this has led to the airline increasing its revenue and loads.

"Jet's decision to offer discounts looks to be a marketing gimmick but it will have an impact. They have lowered the business class fares, too,'' said an executive from the rival airline.

Last month Jet's chief commercial officer Sudheer Raghavan told media persons the airline will embark upon cost saving measures as it looks to compete with low cost airlines. Typically, low cost airlines sell tickets through their website or through online portals and do not sell through global distribution channels which charge transaction fee to the airline for tickets booked on their system.

Raghavan said the airline was focused on improving employee productivity, reducing cost overheads and reducing ticket distribution costs.