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Jet, Etihad alliance working, slowly

As partnership completes two years, Indian carrier is yet to achieve strong profit

Aneesh Phadnis  |  Mumbai 

The second year of the Jet Airways-Etihad partnership led to an expansion of services between India and Abu Dhabi, $150 million debt infusion in the Indian carrier, and enhanced co-operation in marketing and the cargo business.

Jet, however, is yet to achieve strong profitability.

The two airlines signed a deal on April 24, 2013, for equity infusion by Etihad, loan guarantees, purchase of Jet's slots at London’s Heathrow airport, investments in Jet’s frequent flyer programme, and cooperation in commercial, engineering and operational areas.

The Rs 2,057 crore investment for a 24 per cent stake in Jet concluded in November 2013 and the Rs 900 crore investment in Jet's frequent flyer programme was completed last March.

The Securities and Exchange Board of India granted its approval last May after the two airlines diluted their commercial co-operation agreements to ensure control remained with the Indian management.

Jet still has to appoint two board members because the sanctioned board strength according to its agreements is 14.

“Most of the last two years have gone in dealing with regulatory, legal and strategic issues, including changes in management and the business model. Capitalisation issues and and an inability to deliver viable domestic business have been areas of concern,” said Kapil Kaul of the Centre for Asia Pacific Aviation.

Jet made a consolidated net profit of Rs 3 crore in the third quarter of 2014-15, its first profit since December 2012.

The airline posted a standalone loss of Rs 84.7 crore in the nine months ending December and a consolidated loss, including JetLite, of Rs 297 crore.

In the first nine months of 2013-14 Jet had made a consolidated loss of Rs 1,630 crore.

“In the next 18 months, we simply have to see some profitability, otherwise questions will be asked to why its taking so long. The connection options out of India via Abu Dhabi are increased, but that has to translate into black ink, too,” said aviation expert Saj Ahmad.

As a result of increase in cash from operations and the fund infusion, the airline has been able to reduce its debt. “Dues have now reduced to a very acceptable level,” the airline's chief executive officer Cramer Ball told research analysts in February.

Jet and Etihad have added flights between India and Abu Dhabi and expanded their code sharing partnership to include routes in Europe, the US and Africa.

Codeshare traffic surged by 93 per cent from 162,476 passengers in the third quarter of 2013-14 to 314,351 in the third quarter of 2014-15, the airline said. “The alliance allows Jet to maintain its international routes and utilise greater traffic flows via connections in Abu Dhabi. Etihad's fleet allows for greater codeshares and reduces the need for Jet to fly the same routes that overlap from India,” Ahmad pointed out.

The alliance has also benefited Jet in marketing and the cargo business.

Etihad and Jet jointly sponsor the Mumbai Indians IPL cricket team and it would have been difficult for Jet to commit funds on its own. “Etihad is flush with funds,” a Jet source said.

Etihad is wet leasing its Airbus A330 freighter aircraft to Jet Airways and it will operate cargo flights to a number of international and domestic destinations, including Bengaluru, Hong Kong, Hanoi and Singapore.

“Since last December clarity on key strategic issues is visible and management focus on improving service levels is a positive outcome. Management stability is leading to confidence among stakeholders,” Kaul added.

“If we look at the alliance between Emirates and Qantas, which also started roughly two years ago, Qantas' international business has turned a corner. From making heavy losses and it is now showing small profits, which will get bigger as their partnership develops,” Ahmad added.


TURNING THE TABLES
  • As a result of increase in cash from operations and the fund infusion, Jet Airways has been able to reduce its debt
  • Jet and Etihad have added flights between India and Abu Dhabi and expanded their code sharing partnership to include routes in Europe, the US and Africa
  • The alliance has also benefited Jet in marketing and the cargo business

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First Published: Wed, May 06 2015. 00:40 IST
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