Jet's blues

The crisis reflects a deeper strategic weakness

The scale of the crisis at Jet Airways caught everyone unawares, more so because the airline — India’s second-largest by market share — appeared to have been cruising on steady profits in 2016-17, its first in eight years, and appeared headed the same way for 2017-18. An astounding Q4 loss of Rs 10.4 billion was largely attributed to the spike in oil prices, which has affected all airlines. But the problems were clearly deeper, as the deferred Q1 filing has indicated, requiring the top management to take a pay cut. With the airline reportedly losing Rs 50-100 million a day, and banks declining to extend further credit, Jet Airways looks set to fly straight into the turbulence of a non-performing asset. Small signs of the gathering clouds were evident earlier too: The airline has been the worst performer in terms of punctuality for some months. Also, an analysis in this paper indicates, Jet Airways’ profits were based not on its core operations but on other income — sale and leaseback of aircraft, real estate sales, spin-offs from its loyalty programmes, and so on. “Other income” is by its nature a short-term booster: By Q4 of FY18, it had fallen 84 per cent even as the airline’s costs per passenger km soared above those of its competitors.

The airline’s strategic weakness is embedded in these numbers. It is no secret that the Indian aviation industry is among the world’s fastest-growing principally on the back of low-cost fares, and this configuration is unlikely to change in the near future. The government’s Ude Desh Ka Aam Nagrik, or the Udan scheme for regional connectivity, launched last year, was a recognition of the potential of this market segment (its underwhelming performance is a factor of poor design, not demand). But Jet Airways, with the full-service model in its operating DNA, has been unable to take advantage of this model, even after it acquired Air Sahara, which became Jet Lite. In a low-cost business paradigm, the scope for service differentiators is limited. For instance, low-cost airline IndiGo, the market leader, which used on-time performance as a unique selling point, now finds that other competitors have caught up. This means that cost efficiencies remain paramount and the airline that succeeds is the one that records the best financial housekeeping.

An airline that opts for full service — on-board meals, business class, and so on — has to offer travellers a significantly superior experience. In an acutely competitive market, this is a risky model to have. Kingfisher Airlines remains a cautionary tale and Vistara is yet to show a profit to justify the model. Jet Airways, like its other full-service counterpart Air India, has no clear differentiating characteristic from the low-cost airlines, and the inflexible pricing model locks it into a high-cost model. The airline that once set the standards for service in Indian aviation may need to go back to the drawing board.