A turnaround story: How Jet Airways is slowly regaining the lost plot
With Jet posting a net profit of Rs 467.1 crore in the December 2015 quarter, the highest ever since the airline’s inception, the turnaround strategy seems to be working faster than anticipated.business Updated: Mar 28, 2016 10:29 IST
Mid-2014 was a turbulent time for the Naresh Goyal-led Jet Airways, one of the country’s first private airlines.
Jet was bleeding heavily — it had posted a loss of Rs 3,667 crore in 2013-14, followed by a loss of Rs 217 crore in the April-June quarter of 2014-15.
Operationally, the airline was pursuing a complex business strategy — running a low-cost and a full-service carrier. It left customers unsure at times about what to expect on a Jet flight — whether the meal would be complimentary or they would have to pay for it.
The seat configuration wasn’t uniform across the fleet — the number of business-class seats varied from 8 to 16 — and it became an operational challenge for the management on how and where to deploy which aircraft.
It was in the middle of all this that Cramer Ball, a turnaround specialist heading Air Seychelles, was picked to lead Jet. “We plan to reduce losses in 2015, consolidate in 2016 and turn profitable in 2017,” Ball, who left Jet to join Italian airline Alitalia as its CEO last month, had said then.
With Jet posting a net profit of Rs 467.1 crore in the December 2015 quarter, the highest ever since the airline’s inception, the turnaround strategy seems to be working faster than anticipated.
The first part of the turnaround strategy was to disband the low-cost model. A full-service brand across the business translated into a huge improvement in the corporate customer base, and led to higher yields.
The next step was to standardise the seat configuration on the domestic fleet with 12 business and 156 economy-class seats. It gave the airline the flexibility to use its aircraft both on domestic and international routes. “We have generated additional capacity equivalent to nine B737s without any addition to the fleet,” said Amit Agarwal, Jet’s acting CEO and chief financial officer.
“Since the seat configuration was different (some planes have higher or a lower proportion of economy seats), we couldn’t easily move one aircraft to another route. But now, an aircraft that operates a domestic service can be used across the network,” Agarwal said.
“Jet’s turnaround is visible from the quarterly results,” said Kapil Kaul, South Asia CEO of aviation consultancy Centre for Asia Pacific Aviation.
Experts, however, feel Jet needs a strong and stable management for the turnaround to continue. Ball was the airline’s fourth CEO since April 2013.
“I remain concerned with instability at the top and its impact on Jet’s turnaround,” Kaul said.
The airline’s wholetime director, Gaurang Shetty, however, does not see much of an impact. “An entity grows on its own. In every industry people leave and go.”
TIE-UP WITH ETIHAD
The partnership with Etihad Airways, which picked a minority stake of 24% in Jet in 2013, also seems to have paid rich dividends. Jet, along with Etihad, has the largest share of international traffic from India.
A focus on joint contracts with Etihad, some 1,600 of them, has helped reduce costs. By combining the “ground handling contracts with Etihad and partners we have been able to save $1.5 million in Bangkok alone. We apply that across the business,” Ball told HT.
“The strength with which you sit on the negotiating table is completely different... When we are buying the fuel alone for, let’s say, 100 aircraft compared to at present when we sit with the strength of more than 650 aircraft with Etihad and its alliance partners,” Agarwal added.
Many, however, believe the partnership with Etihad has reduced Jet to a “feeder carrier” – a regional airline that feeds into the broader network of a bigger airline.
“It’s all rubbish,” Ball said.
INCREASING COMPETITION The competition in the business-class segment has grown with the entry of Vistara and expansion of other carriers.
However, Agarwal said: “We offer a network no one else does. The corporate traveller believes in frequency.”
The airline will need Goyal much more in the changing domestic aviation market, experts said. “It’s Goyal’s unmatched ability to adapt and change is what makes him so special,” said Rajji Rai, chairman, Swift Travels.
First Published: Mar 28, 2016 08:49 IST