Almost everyone knows that the airline business does not yield great returns in competitive market conditions. Specific players in niche segments make good money, but the majority of airlines don't. And so it is that Air Deccan is stretched and has seen share prices fall, and Indian Airlines avoids the red ink only because it has depreciated aircraft (thus reducing capital charges), while Jet Airways has reported a loss of Rs 45 crore in the last quarter. Fierce competition and rising fuel prices have resulted in higher cost per available seat kilometre, lower revenue per passenger kilometre and lower seat occupancy. But that was to be expected, and Jet's market share could only go down with the launch of each new airline""almost all of them LCCs (low-cost carriers), while Jet remains an FSC (full-service carrier). The situation will become even more competitive as more new airlines join the race (like Indigo), and older ones add more aircraft to their fleet. | |
| Now, there are ways that an established airline with a creditable record can counter such threats. But what might prove more costly for Jet is to repair the damage caused by what looks like lack of foresight and a general lack of direction. To begin with, quality management time was spent on the Air Sahara deal, which eventually collapsed and has now ended up in the courts of law. This was a time when the airline's managers should have been working out ways to counter the aggressive LCCs, which are desperate for more market share and have already made allocations for huge losses, at least for the initial years. Players like Kingfisher, Air Deccan, SpiceJet and GoAir have cashed in on the trunk routes, which used to be milked by Jet Airways for almost a decade in a duopolistic market. |
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| Experts think it would have helped Jet if it had acquired aircraft from the same stable, thereby reducing operating costs in a big way. Instead, a feeder route programme that uses turbo-prop aircraft (ATRs), a domestic jet fleet that is made up of Boeing 737s, and an international operation that uses medium-capacity long haulers from Airbus (A340 and now A330) mean money disappearing under avoidable accounts. A tie-up with a start-up to ensure healthy feeder route support and lease/purchase of aircraft from the Boeing stable for the (again, very competitive) international routes are moves that can help Jet in the medium term. What is worrying is the lack of a sound strategy to cement the leadership position in the domestic market - the airline offers heavy discounts to fend off competition and hence is not in any position to pass on increased costs to customers. |
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| Jet's strength in such a market is its sterling brand equity amongst the frequent flying population, especially those from the business community, who tend to fly more often than others. With capacity outgrowing passenger traffic, Jet needs to work very hard to keep its core customers happy before staging a counter. With better synergy with Air Deccan, those vacant seats in Jet aircraft might just be filled up. Meanwhile, Jet can only hope that the consolidation game works in its favour""as and when the inevitable shakeout happens. The problem of course is that there is no shake-out visible on the horizon, even as most players keep expanding their fleet. |
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