No more free food: India's 'cheap' airfares force airlines to change

Jet Airways' decision to make passengers pay for meals signals that full-service airlines will struggle in India in the near future

One of India’s first international airlines, Jet Airways, has been forced into a corner with an impending income tax probe, mounting bank debts and reports of bleeding passengers on one of its aircraft. Now, the airline has decided that its passengers who book the cheapest economy class tickets won’t get complimentary meals on its flights starting September 28. A Jet Airways representative confirmed that the decision to make passengers pay for their meals is dictated more by international norms than by the behaviour of its domestic competitors.

The airline has as many as five separate categories in its economy class alone, which in a typical Boeing 737, account for 156 seats or around 93 per cent of the total capacity. Jet has reportedly announced that two of these five categories won’t get complimentary meals. Jet isn't the only one -- even Vistara recently announced it wouldn’t be serving meals to its lowest category economy passengers.

“There is no distinction between economy class passengers even though airlines may have separate categories. Many passengers choose their own seats and others are allotted while checking in. I think this decision to stop complimentary meals will be across the board in the economy class,” said Harsh Vardhan, aviation expert.  

There is logic in Jet Airways' decision to discontinue free meals for passengers on board. In 2017-18, the airline spent Rs nine billion on ‘inflight services’ for passengers, which was four per cent of its total expenses. This might be unpardonable for the Naresh Goyal-owned carrier if its turnaround planners were comparing themselves to Indigo, India’s most profitable airline not so long ago. Indigo, which offers no business class seats or complimentary meals to its passengers, spent eight times less, or about Rs one billion on inflight services that included the food and the merchandise it sells to passengers mid-air. While Jet Airways earned nothing by offering free meals, Indigo earned Rs 1.5 billion on food and beverages sales and other inflight services to its passengers. This may not be an eye-popping figure, but it nevertheless constituted six per cent of Indigo’s revenues in 2017-18.

The significance of the absence of an expense on free meals and an additional revenue stream becomes apparent when one considers the slim profit margins of India’s airlines and their dependence on global fuel prices and susceptibility to exchange rate volatilities. Even Spicejet, an airline that went through a turbulence similar to the kind being faced by Jet Airways currently, earned almost Rs 400 million from the sale of food and beverages to passengers on board its aircraft, or about Rs 231 from every passenger on board its planes.

Jet Airways, meanwhile, spent almost Rs 300 feeding every domestic and international passenger on its flights in 2017-18. The airline has become conservative in incurring expenses on complimentary meals, lately. In 2015-16, it spent more than Rs 400 on inflight services to passengers. What perhaps hits Jet Airways much harder is the fact that the amount of money it spends on inflight services, such as complimentary meals, rose by 42 per cent from 2013 to 2017. Its overall expenses on running the airline, meanwhile, grew by just about four per cent. Even its aircraft lease expenses grew at a much slower pace than its passenger feeding costs. The growth in Jet Airways passenger traffic was almost the same as the rise in its inflight services cost and its passenger revenue during the same period.

The cost of providing meals becomes apparent when one takes into account the expenses of Indigo and Spicejet, who unlike Jet Airways, provide complimentary food only to international passengers. Indigo and Spicejet spent Rs 528 and Rs Rs 397, respectively, on feeding every passenger on international routes in 2016-17.

But then Jet Airways, whose fares were much higher than other low-cost airlines on most routes, hasn’t been able to attract more passengers with its free-meal programme, unlike its competitors who have got more people to fly domestically with lower fares and no freebies on board. While Jet's passengers have grown by just about 42 per cent, Indigo increased its base one-and-a-half times from 2013 to 2017.  In 2013-14, Indigo was flying just two million more passengers than Jet Airways on almost the same number of aircraft. As of date, Jet Airways has carried 22 million fewer passengers and operated 47 less aircraft than Indigo. Clearly, the airline’s free meals that came with higher ticket prices than Indigo, don’t seem to have earned it greater passenger loyalty. Jet Airways says that the airlines ticket prices have been much cheaper over the last year and will continue to be among the most competitive in the times to come, with meals now becoming paid and optional. The airline seems to have realised that air passengers prefer cheaper tickets than pre-decided meals, and if cheaper tickets are getting more business, then it is better to work out the cost calculations around that. 

Does Jet Airways' decision signal that full-service airlines with complimentary meals and business class seats won’t survive in a ‘cheap ticket’ market like India? After all, the only other airlines offering business class and complimentary meals are the debt-laden loss-making Air India and Vistara, the newest domestic airline in Indian skies whose business model of offering three layers of non-economy class higher priced tickets is yet untested in the country. The airline’s cost-cutting objective and given its understanding of the ‘cheap ticket’ Indian market could also necessitate doing away with its highest priced business class (called Premiere by Jet Airways).

The airline keeps almost seven per cent of its seats in its Boeing 737 aircraft, or around 12 out of 168 seats as Premiere. However, even in the most promising sectors, these highest fare seats account for less than one per cent of its total capacity sold or revenues generated. For instance, DGCA information shows that in July 2018, the airline sold just about 0.3 per cent of its seats in the highest fare bucket, earning just 0.5 per cent of its revenues on the high volume Delhi-Mumbai route which is generally used by a lot of business flyers.

Undoubtedly, there are and will always be discerning Indians with a taste for wider cushioned airplane seats made more comfortable with a welcome drink, a complimentary cleaning of travel-weary spectacles, warm gourmet meals served on fancy cutlery and the privilege of boarding and de-boarding without suffering the ignominy of rubbing shoulders with economy class passengers. But then financial troubles seem to be teaching Jet Airways that it isn't these people but the ones with lesser legroom who give better business.