Jet crisis: From takeoff to turbulence

10 September 2009

NEW DELHI: Every time an angry passenger goes on a TV channel to narrate his ordeal due to the pilots’ strike, Jet Airways chief Naresh Goyal immediately calls up senior Jet officials from his “war room” — a suite in a Delhi five-star hotel — and demands an explanation.

Clearly, he is battling to save the image of his 16-year-old airline that has set high standards in passenger service. But some costly ‘misadventures’ in the past few years, along with the current downturn — and now this pilot revolt — mean that the 59-year-old Goyal has a big battle ahead.

Jet Airways was founded in 1993 and over the next few years established itself as a leading Indian player, becoming a case study for inflight excellence. Possibly excited by this euphoria, industry insiders say, the management made its first big gamble by eying Air Sahara in 2006. Apart from Jet and Air India, Sahara was among the only three Indian carriers that flew abroad during that period. Goyal moved in to buy Sahara a year later for a whopping Rs 1,450 crore. Jet fulfilled its desire to be the only private Indian carrier to fly abroad in 2006 but it also flew into a financial air pocket.

Acquiring Sahara meant a huge drain on Jet’s resources, both on financial and management fronts. All this happened at a time when the concept of low-cost carriers was completing two years in India. The domestic aviation market was growing at 30-40% and players like Air Deccan were challenging the might of full service carriers. Not surprisingly, Jet has been constantly incurring losses since 2007-08.

"Buying Sahara was a big strategic mistake by Jet. This happened at a time when Jet was growing aggressively internationally and facing tremendous competition in local market," Centre for Asia Pacific Aviation (CAPA) India head Kapil Kaul says. With domestic market getting new players, Jet focussed on international expansion and lost nearly 10% market share in two years. For instance, the international departures rose from 1,731 in October-December 2006 period to 3,198 for same quarter next year.

The first sign of real trouble in Jet became apparent exactly a year ago when Goyal did the unthinkable by entering into an operational tieup with arch rival Vijay Mallaya’s Kingfisher. This step was followed by Jet sacking 1,900 cabin crew. Following the political uproar, Jet had to reverse the order. But in the past one year it has gradually retrenched close to 2000 employees.

Possibly, Jet could have weathered this crisis had the global economy not gone into a tail spin. The full service model virtually became redundant in the domestic market and Jet responded by launching Konnect this April and shifting most of its domestic operations to LCC section. Over 20% domestic capacity has been cut and today the airline has 280 daily flights within India and 100 overseas.

Saddled with losses and a debt burden of nearly $3 billion, Goyal embarked on an ambitious saving programme of nearly $600 million that saw staff being retrenched; loss-making flights withdrawn and salaries of senior officials slashed by up to 25%.

This cost-cutting meant giving up things that Goyal fought for dearly. For instance, he tried hard and finally got clearance to operate a Mumbai-Shanghai-San Francisco flight. But with this flight’s loss meter clocking up $57 million, this flight was stopped. Similarly, several loss-making domestic flights facing overcapacity were diverted to nearby international routes.

But the high-profile labour unrest in the form of pilots reporting sick en masse could not have come at a worse time for the airline. Cost-cutting could entail pay cuts and possible retrenchments in the 13,000 employee-strong airline. “Having a belligerent union at this time means trouble. Moreover, the airline is also looking at raising $400 million from the market. Investors also don’t like to put in money with troubled labour relations. Most airlines across the world have not had a good fate ever since unions became strong. Air India and Alitalia are classic examples,” says an industry insider.

Goyal’s fight to take the airline to its old position of strength will no doubt be an uphill task. Jet shares were first listed in 2005 for Rs 1,100. The scrip has never touched that level and closed at

Rs 262.55 on Wednesday. Its high and low price in past year has been Rs 551 and Rs 115. Interestingly, during the pilot stir, Jet shares have risen marginally, lending credence to the current aviation wisdom — airlines lose more by flying than by having planes parked at airports.

On his part, Goyal admits that the industry and his airline are facing the toughest challenge ever. “But along with my employees, I will weather the storm and Jet will remain the one company that had made India proud. For me, Jet is a symbol of Indian excellence and it will remain that. If anyone tries to change the core belief of the airline on excellence, I will not hesitate to close it down,” he said.