Just over five years after Etihad Airways saved Jet Airways from an acute financial crisis, Naresh Goyal’s airline is once again on the brink.
After spending about INR2,000 crore to buy 24% control of Jet Airways in 2013, and making some initial efforts to turn the Mumbai-based carrier leaner, both Etihad’s efforts and equity seem to have been squandered.
Jet, which has been a loss-making airline for most of the last decade, could only announce two fiscals of profits since Etihad’s entry. That too on the back of a record drop in fuel prices that helped airlines globally book billions in profits.
Mild tweaks have done little to revive Jet’s fortunes or beat back fierce competition from low-cost carriers IndiGo, SpiceJet, and GoAir, leaving the airline to again hunt for funds, seek meetings with already-concerned bankers, and attempt yet another reboot.
In essence, the airline has sucked in INR333 crore annually to operate in what were good years for the industry. This begs the question how it will function with the cycle turning gloomy.
It also makes one wonder whether Jet’s model — unlike major airlines such as British Airways and Lufthansa which dominate their hubs — has become unviable.
Even if the airline is able to tide over the short-term cash crisis by selling some of its planes or some stake in its frequent-flyer unit, how will it survive the year ahead?
Jet right now is like a deer caught in the headlights.
“Poor management and interference are the main issues with the present situation at Jet Airways,” says New York-based former Jet Airways CEO Steve Forte. “Naresh Goyal can only blame himself for the unfortunate mess he created, thanks to his historical meddling in the affairs of the day-to-day running of the airline. The sad result is that no matter what actions are taken to bring Jet Airways out of debt, Mr. Goyal will keep his wealth while many employees and their families will end up on the streets, without enough food on the table. That is unforgivable.”
In an e-mailed response to ET Prime's questions, a Jet Airways spokesperson refuted this criticism.
Jet Airways is India’s second-largest full-service airline with 16,500 employees, a domestic market share of about 16% and an international market share of about 14%.
Legacy of pain
At the Jet Airways annual general meeting at Mumbai's YB Chavan Auditorium, steps away from the iconic Air India building, the airline’s chairman Naresh Goyal and senior management were present in a show of full strength.
The line-up of BMWs and Mercedes-Benzes outside was in sharp contrast to the sombre mood inside the auditorium, after talks of a pay cut and hints that the company had just enough money to operate for two more months.
A lady with a Parsi accent caught hold of a Jet Airways executive.
“You haven’t got your salary?” she asked the loyal executive who has been with the company for years.
“No, we have, it’s all wrong information,” the executive said.
“But you don’t have money to last more than 60 days. You haven’t got it, no?” she again asked.
“[The] media is all wrong. Jet Airways frequent flyers only fly Jet, they never believe what is written.We have the best service and the best programme,” the executive said.
The lady kept staring at her and walked out unconvinced.
The fact is, Jet’s market share has dropped from about 40% at the start of the last decade — even as the market itself has expanded several times. That dominant share is now with IndiGo.
The airline did delay salaries at one point this year and announced a shocking INR1,036 crore loss in the quarter ending March.
Two news reports this week quoting unnamed officials said the airline was being investigated by the Ministry of Company Affairs for siphoning of funds. An airline spokesman said on Tuesday it had not received any such communication from the ministry.
While the airline may be in denial mode or putting up a brave face on the financial picture, ratings agency Icra downgraded Jet soon after the results, saying the “credit profile of the company has deteriorated, characterised by an increase in debt levels and weakened liquidity”.
“The debt levels are further expected to increase because of the ongoing stress on profitability. Overall, till the company starts reporting profits on a sustained basis, the debt levels are expected to continue to remain high,” it warned.
The rating can be further downgraded if the June quarter numbers are disappointing.
To be sure, Jet has been able to pare some of its debt, which stood at a whopping INR14,500 crore in 2009-10. Still, it has a debt of INR8,400 crore on its books. The airline repaid INR1,650 crore in 2015-16, INR1,580 crore in 2016-17, and INR1,850 in 2017-18.
Jet is feeling particularly uneasy this year not just because oil has soared and the rupee has depreciated, but because from this fiscal onwards, its debt-payment obligations will almost double to INR3,100 crore, followed by INR2,400 crore next fiscal and INR2,168 crore in 2021.
This is just the principal alone. If Jet is unable to repay these amounts from internal cash accruals — which looks tough — it would be drawing on additional debt, trapping it in a vicious cycle.
On top of this, the airline has other contingent liabilities, including letter-of-credit outstanding of around INR3,150 crore, bank guarantees of INR1,400 crore, and service-tax demands and appeals worth INR1,660 crore. Bank guarantees are typically given against payments the airline may have to make, and letters of credit are likely to go towards fuel purchases.
State Bank of India (SBI) this month disclosed it has exposure to the airline's loans and has marked it as a potential bad loan. This, even as the airline has again approached the bank for help.
State-owned banks led by SBI were part of a consortium that had given loans to Kingfisher Airlines. They are still chasing Goyal’s arch-rival Vijay Mallya in London for hundreds of crores.
Axis Bank and HSBC are also said to have exposure to Jet Airways, according to Bloomberg.
The Jet spokesperson says, “over the last several years, there has been no instances of default in meeting its debt obligations”.
Tough international market, no premium in domestic market
Jet gets almost half of its revenue from international operations and the other half from its domestic flights. While the airline has been hit hard by a slowdown in West Asia and fierce competition on other international routes, in the domestic market it has been unable to charge a premium for its services, which have deteriorated.
Even after Etihad’s entry, which was also meant to polish the product and service, Jet’s average airfare fell 17% — from INR8,499 in 2012-13 to INR7,080 in 2017-18, while in the same period, its cost per average seat kilometer (CASK) changed only marginally, from INR4.3 to INR4.2. The airline's spokesperson says its non-fuel CASK fell from INR 3.26 in FY16 to INR 3.12 in FY18.
However, in the last fiscal alone, its CASK jumped about 8%, as fuel prices surged after a record dip. IndiGo’s cost increased 7% and SpiceJet’s by 6% during the same period.
While it may appear that all these airlines are pretty close in cost terms and so Jet’s losses should also have been mirrored by the other two, the fact is IndiGo’s cost base is 23% lower than Jet Airways’ at INR3.2. SpiceJet’s costs at INR3.6 are also 16% lower than Jet Airways’. This means Jet needs to get more revenue from passengers to operate the same flight compared with its competitors.
A Jet Airways executive who did not wish to be named says it is not easy to bridge that difference. A few years ago, Southwest Airlines too created a similar cost difference by hedging fuel that led to the legacy airlines bleeding for many years. At one point, when fuel cooled off, things changed, he adds.
Jet cannot wait for the macro environment to turn to its advantage.
“While it is not correct to compare a full-service carrier’s cost structure to low-cost operators such as IndiGo and SpiceJet, the fact is that low fares have become the reality of the Indian market. You cannot change a full-service carrier’s structure to low-cost, but it is possible to increase efficiency to remain competitive, and to institute a strategic route structure to maximise revenues,” says ex-Jet CEO Forte.
Another operating parameter critical for an airline is on-time performance. Jet hit a major low last year in this area. On several occasions, it even went below state-run Air India.
In December, its on-time performance hit the lowest among all airlines, at 52.2%, whereas IndiGo’s flights were 81% on time, SpiceJet’s 78%, Vistara’s 75%, Air India’s 70%,and GoAir’s 68%.
While the performance has since improved (in the first quarter of FY19, on-time performance was approximately 82%, says the spokesperson) the bad patch lasted very long, especially since corporate traffic is critical for its flight economics.
To its credit, however, the airline has been able to improve its aircraft utilisation, sweating its assets to earn a little more.
An expensive top rung
It has to take tough decisions, but as most parameters show, the airline finds it difficult to act when push comes to shove — like now.
Human resource is one area that calls for attention. Airlines tend to expand their workforce based on the planes they receive. Jet’s fleet grew by about 2%, from 108 planes in 2014-15 to 110 in 2017-18, but its headcount increased from 13,500 to 16,500 in the same period — a jump of 22%. However, the Jet Airways spokesperson says the number is in the region of 15%.
“The airline grew in terms of both available seat kilometres (up 30%) as well as seats (up 22%), without incurring incremental capex,” the spokesperson says, adding that the increased headcount was needed to support the growth.
That said, a section of insiders believe the airline is facing people challenges that are partly of its promoter’s making.
Goyal, 69, has retained most of the people who have been with him for years. While this is good from a human angle, with an approach like this it is difficult to compete with low-cost rivals who allow top management to leave when their experience is not in tune with changing demands that come with scale.
“Jet is like a Mexican Army, too many generals at the top, too top heavy,” says a former Jet Airways executive who did not wish to be named.
Gaurang Shetty, 61, a science graduate, joined Jet in 1996 as general manager (marketing) and was promoted to vice-president marketing in 2004 and is now on the airline’s board. Shetty's salary of INR60 lakh in 2013-14 surged to INR1.16 crore the next fiscal. By 2017-18 it almost doubled to INR2.16 crore.
The airline's CFO Amit Agarwal's annual salary of INR1.23 crore in 2015-16 more than tripled to INR4.20 crore in 2016-17. He was also made the acting CEO as the newly appointed CEO Cramer Ball quit abruptly.
Agarwal is now a deputy CEO and drew INR5.75 crore as of March 2018.
Ball, who came in after Etihad’s entry, drew INR7.15 crore, but last year, Jet brought in Vinay Dube as its new CEO at a record salary of nearly INR10 crore. Dube came from Delta Airlines in Hong Kong, where he was senior vice-president – Asia-Pacific, handling the commercial portfolio. This is his first job as a CEO.
Jet does not disclose the salaries of all its top officials, except for those like Shetty, the CEO, and the CFO.
Goyal has also brought in several former senior employees to cut costs and improve the airline. This has created its own set of overlaps.
“I think there were two big mistakes that happened over the last few months. The new dispensation spoke to employees in a way that was very avoidable and sparked off anger. This 60-day deadline — whichever way it was said — should not have been said,” says a person close to Goyal who declined to be named. “There was a race to show, ‘we can cut costs’. See what happened — it backfired. Now Goyal is trying to cool it off.”
To be sure, big salaries are not unheard of in the airline industry. Loyalties are often rewarded in other sectors too.
But, for an unprofitable airline, asking its employees to take a pay cut when top-level officials — who are responsible for ensuring profitability — have seen their salaries double makes tempers soar.
Jet’s pilots have gone on strikes in the past and its crew has also taken to the streets against being sacked, causing a national furore and immediate reversal of those orders.
While Jet says the senior management has taken a pay cut this year, the actual quantum has not been made public. Even a 25% cut at the top is unlike to reduce its INR3,000 core annual wage bill drastically enough to make the airline profitable.
The airline’s senior pilots, who are paid the best salaries after senior management and also have a welfare body, are unlikely to accept any pay cuts as they can easily switch to fast-growing IndiGo, Vistara, or SpiceJet, crippling operations.
“It’s a very different style of management. It’s about saying that even if it costs more, I would rather keep that person than let go to the competition because he or she may start sharing secrets about the organisation,” a former top executive at the airline says asking not to be named.
“At some point, you need to realise that there is a shelf life for everyone. Unfortunately, Mr. Goyal doesn’t.”
More trouble in the offing
The next wave of headwinds for Jet Airways are likely to come from the European and North American markets.
The Tata and Singapore Airlines-owned Vistara has announced it will launch its long-haul international operations soon. It might use its brand-new, fuel-efficient Boeing 787-9 planes on prime routes such as London and New York.
This would hurt Jet Airways not only because a new operator with perhaps a better level of service and deep pockets will enter its domain, but also because Jet flies Boeing 777s and Airbus A330s, which are a generation behind the Dreamliners.
The upcoming launch of ultra-low-fare India-US flights this winter by Wow Air will also make a dent on fares. IndiGo, too, has said it will fly long-haul soon — perhaps on the lines of Wow Air — but hasn’t provided a timeline.
“The impact of last year’s Air India expansion to Stockholm and several other European destinations will also be seen over the coming months,” says a second person who has known Goyal closely but did not wish to be named.
This strain will come at a time when Goyal may find it difficult to woo international airlines to invest in Jet, and Etihad’s strategy of investing in Alitalia, Jet, Virgin Australia, and Air Berlin has already flopped.
“He has done too many somersaults. He had said Jet will not join an alliance. Then Jet created trouble for Air India when it was trying to join the alliance. He had said he did not want foreign airline investment, but then sold stake to Etihad. I feel his deal with Etihad compromised a lot of his old relationships with other airlines. Then he went to SkyTeam, wooing Delta and Air France-KLM. The impression is that he can switch to anyone for short-term gains,” this second person says.
“And how do you explain his statement a few months back that Jet can even look at [buying] Air India when Jet’s [own] financial situation was so bad?”
While airlines do seek to collaborate, there is fierce rivalry between international alliances. The rivalry between West Asian and western airlines has played out publicly in courts too.
Perhaps Goyal knows what he is up against this time. Some of his replies at the annual general meeting, where he tapped his desk multiple times to add that extra effect, were very combative.
“There are a lot of people talking [about Jet’s services] …there was a feeling services have gone down. I can tell you with pride, we can show you data that airport services have improved tremendously. Cabin-crew services have improved tremendously. We are further going to improve. We are not going to be inferior in terms of service than Asian carriers,” he told the audience.
He did accept that the pay-cut push had given the airline a “lot of negative publicity” and announced the creation of a “welfare group” and a marketing and public relations group and promised to push the airline forcefully on social media.
Goyal has also brought in two bureaucrats who have earlier worked at the aviation ministry — Nasim Zaidi and Ashok Chawla — and a former SBI senior executive Srinivasan Vishvanathan.
“We follow total compliances. The feeling is [Jet is family run] … all these perceptions created in the marketplace are going to be corrected,” Goyal said.
As the two-hour AGM drew to a close, Goyal, wife Anita, and other directors left the podium to finalise the first-quarter results. Hours later, the airline announced that the results had not been approved and have been cancelled — perhaps a first for the 25-year-old airline.
This led to Jet’s share price crashing even further on the Bombay Stock Exchange. It is now trading at around INR292 — nearly half the price when Etihad entered.
“The real issue is that Jet is struggling to avoid a collapse by taking tomorrow’s revenue today without doing anything to change the actual economics of the airline,” says the second person quoted earlier. “There is a serious problem, and it is only set to get worse.”
The fate of the deer frozen in the headlights is still up in the air.
(Disclaimer: The writer holds one share of Jet Airways.)
After spending about INR2,000 crore to buy 24% control of Jet Airways in 2013, and making some initial efforts to turn the Mumbai-based carrier leaner, both Etihad’s efforts and equity seem to have been squandered.
Jet, which has been a loss-making airline for most of the last decade, could only announce two fiscals of profits since Etihad’s entry. That too on the back of a record drop in fuel prices that helped airlines globally book billions in profits.
Mild tweaks have done little to revive Jet’s fortunes or beat back fierce competition from low-cost carriers IndiGo, SpiceJet, and GoAir, leaving the airline to again hunt for funds, seek meetings with already-concerned bankers, and attempt yet another reboot.
In essence, the airline has sucked in INR333 crore annually to operate in what were good years for the industry. This begs the question how it will function with the cycle turning gloomy.
It also makes one wonder whether Jet’s model — unlike major airlines such as British Airways and Lufthansa which dominate their hubs — has become unviable.
Even if the airline is able to tide over the short-term cash crisis by selling some of its planes or some stake in its frequent-flyer unit, how will it survive the year ahead?
Jet right now is like a deer caught in the headlights.
“Poor management and interference are the main issues with the present situation at Jet Airways,” says New York-based former Jet Airways CEO Steve Forte. “Naresh Goyal can only blame himself for the unfortunate mess he created, thanks to his historical meddling in the affairs of the day-to-day running of the airline. The sad result is that no matter what actions are taken to bring Jet Airways out of debt, Mr. Goyal will keep his wealth while many employees and their families will end up on the streets, without enough food on the table. That is unforgivable.”
In an e-mailed response to ET Prime's questions, a Jet Airways spokesperson refuted this criticism.
Jet Airways is India’s second-largest full-service airline with 16,500 employees, a domestic market share of about 16% and an international market share of about 14%.
Legacy of pain
At the Jet Airways annual general meeting at Mumbai's YB Chavan Auditorium, steps away from the iconic Air India building, the airline’s chairman Naresh Goyal and senior management were present in a show of full strength.
The line-up of BMWs and Mercedes-Benzes outside was in sharp contrast to the sombre mood inside the auditorium, after talks of a pay cut and hints that the company had just enough money to operate for two more months.
A lady with a Parsi accent caught hold of a Jet Airways executive.
“You haven’t got your salary?” she asked the loyal executive who has been with the company for years.
“No, we have, it’s all wrong information,” the executive said.
“But you don’t have money to last more than 60 days. You haven’t got it, no?” she again asked.
“[The] media is all wrong. Jet Airways frequent flyers only fly Jet, they never believe what is written.We have the best service and the best programme,” the executive said.
The lady kept staring at her and walked out unconvinced.
The fact is, Jet’s market share has dropped from about 40% at the start of the last decade — even as the market itself has expanded several times. That dominant share is now with IndiGo.
The airline did delay salaries at one point this year and announced a shocking INR1,036 crore loss in the quarter ending March.
Two news reports this week quoting unnamed officials said the airline was being investigated by the Ministry of Company Affairs for siphoning of funds. An airline spokesman said on Tuesday it had not received any such communication from the ministry.
While the airline may be in denial mode or putting up a brave face on the financial picture, ratings agency Icra downgraded Jet soon after the results, saying the “credit profile of the company has deteriorated, characterised by an increase in debt levels and weakened liquidity”.
“The debt levels are further expected to increase because of the ongoing stress on profitability. Overall, till the company starts reporting profits on a sustained basis, the debt levels are expected to continue to remain high,” it warned.
The rating can be further downgraded if the June quarter numbers are disappointing.
To be sure, Jet has been able to pare some of its debt, which stood at a whopping INR14,500 crore in 2009-10. Still, it has a debt of INR8,400 crore on its books. The airline repaid INR1,650 crore in 2015-16, INR1,580 crore in 2016-17, and INR1,850 in 2017-18.
Jet is feeling particularly uneasy this year not just because oil has soared and the rupee has depreciated, but because from this fiscal onwards, its debt-payment obligations will almost double to INR3,100 crore, followed by INR2,400 crore next fiscal and INR2,168 crore in 2021.
This is just the principal alone. If Jet is unable to repay these amounts from internal cash accruals — which looks tough — it would be drawing on additional debt, trapping it in a vicious cycle.
On top of this, the airline has other contingent liabilities, including letter-of-credit outstanding of around INR3,150 crore, bank guarantees of INR1,400 crore, and service-tax demands and appeals worth INR1,660 crore. Bank guarantees are typically given against payments the airline may have to make, and letters of credit are likely to go towards fuel purchases.
State Bank of India (SBI) this month disclosed it has exposure to the airline's loans and has marked it as a potential bad loan. This, even as the airline has again approached the bank for help.
State-owned banks led by SBI were part of a consortium that had given loans to Kingfisher Airlines. They are still chasing Goyal’s arch-rival Vijay Mallya in London for hundreds of crores.
Axis Bank and HSBC are also said to have exposure to Jet Airways, according to Bloomberg.
The Jet spokesperson says, “over the last several years, there has been no instances of default in meeting its debt obligations”.
Tough international market, no premium in domestic market
Jet gets almost half of its revenue from international operations and the other half from its domestic flights. While the airline has been hit hard by a slowdown in West Asia and fierce competition on other international routes, in the domestic market it has been unable to charge a premium for its services, which have deteriorated.
Even after Etihad’s entry, which was also meant to polish the product and service, Jet’s average airfare fell 17% — from INR8,499 in 2012-13 to INR7,080 in 2017-18, while in the same period, its cost per average seat kilometer (CASK) changed only marginally, from INR4.3 to INR4.2. The airline's spokesperson says its non-fuel CASK fell from INR 3.26 in FY16 to INR 3.12 in FY18.
However, in the last fiscal alone, its CASK jumped about 8%, as fuel prices surged after a record dip. IndiGo’s cost increased 7% and SpiceJet’s by 6% during the same period.
While it may appear that all these airlines are pretty close in cost terms and so Jet’s losses should also have been mirrored by the other two, the fact is IndiGo’s cost base is 23% lower than Jet Airways’ at INR3.2. SpiceJet’s costs at INR3.6 are also 16% lower than Jet Airways’. This means Jet needs to get more revenue from passengers to operate the same flight compared with its competitors.
A Jet Airways executive who did not wish to be named says it is not easy to bridge that difference. A few years ago, Southwest Airlines too created a similar cost difference by hedging fuel that led to the legacy airlines bleeding for many years. At one point, when fuel cooled off, things changed, he adds.
Jet cannot wait for the macro environment to turn to its advantage.
“While it is not correct to compare a full-service carrier’s cost structure to low-cost operators such as IndiGo and SpiceJet, the fact is that low fares have become the reality of the Indian market. You cannot change a full-service carrier’s structure to low-cost, but it is possible to increase efficiency to remain competitive, and to institute a strategic route structure to maximise revenues,” says ex-Jet CEO Forte.
Another operating parameter critical for an airline is on-time performance. Jet hit a major low last year in this area. On several occasions, it even went below state-run Air India.
In December, its on-time performance hit the lowest among all airlines, at 52.2%, whereas IndiGo’s flights were 81% on time, SpiceJet’s 78%, Vistara’s 75%, Air India’s 70%,and GoAir’s 68%.
While the performance has since improved (in the first quarter of FY19, on-time performance was approximately 82%, says the spokesperson) the bad patch lasted very long, especially since corporate traffic is critical for its flight economics.
To its credit, however, the airline has been able to improve its aircraft utilisation, sweating its assets to earn a little more.
An expensive top rung
It has to take tough decisions, but as most parameters show, the airline finds it difficult to act when push comes to shove — like now.
Human resource is one area that calls for attention. Airlines tend to expand their workforce based on the planes they receive. Jet’s fleet grew by about 2%, from 108 planes in 2014-15 to 110 in 2017-18, but its headcount increased from 13,500 to 16,500 in the same period — a jump of 22%. However, the Jet Airways spokesperson says the number is in the region of 15%.
“The airline grew in terms of both available seat kilometres (up 30%) as well as seats (up 22%), without incurring incremental capex,” the spokesperson says, adding that the increased headcount was needed to support the growth.
That said, a section of insiders believe the airline is facing people challenges that are partly of its promoter’s making.
Goyal, 69, has retained most of the people who have been with him for years. While this is good from a human angle, with an approach like this it is difficult to compete with low-cost rivals who allow top management to leave when their experience is not in tune with changing demands that come with scale.
“Jet is like a Mexican Army, too many generals at the top, too top heavy,” says a former Jet Airways executive who did not wish to be named.
Gaurang Shetty, 61, a science graduate, joined Jet in 1996 as general manager (marketing) and was promoted to vice-president marketing in 2004 and is now on the airline’s board. Shetty's salary of INR60 lakh in 2013-14 surged to INR1.16 crore the next fiscal. By 2017-18 it almost doubled to INR2.16 crore.
The airline's CFO Amit Agarwal's annual salary of INR1.23 crore in 2015-16 more than tripled to INR4.20 crore in 2016-17. He was also made the acting CEO as the newly appointed CEO Cramer Ball quit abruptly.
Agarwal is now a deputy CEO and drew INR5.75 crore as of March 2018.
Ball, who came in after Etihad’s entry, drew INR7.15 crore, but last year, Jet brought in Vinay Dube as its new CEO at a record salary of nearly INR10 crore. Dube came from Delta Airlines in Hong Kong, where he was senior vice-president – Asia-Pacific, handling the commercial portfolio. This is his first job as a CEO.
Jet does not disclose the salaries of all its top officials, except for those like Shetty, the CEO, and the CFO.
Goyal has also brought in several former senior employees to cut costs and improve the airline. This has created its own set of overlaps.
“I think there were two big mistakes that happened over the last few months. The new dispensation spoke to employees in a way that was very avoidable and sparked off anger. This 60-day deadline — whichever way it was said — should not have been said,” says a person close to Goyal who declined to be named. “There was a race to show, ‘we can cut costs’. See what happened — it backfired. Now Goyal is trying to cool it off.”
To be sure, big salaries are not unheard of in the airline industry. Loyalties are often rewarded in other sectors too.
But, for an unprofitable airline, asking its employees to take a pay cut when top-level officials — who are responsible for ensuring profitability — have seen their salaries double makes tempers soar.
Jet’s pilots have gone on strikes in the past and its crew has also taken to the streets against being sacked, causing a national furore and immediate reversal of those orders.
While Jet says the senior management has taken a pay cut this year, the actual quantum has not been made public. Even a 25% cut at the top is unlike to reduce its INR3,000 core annual wage bill drastically enough to make the airline profitable.
The airline’s senior pilots, who are paid the best salaries after senior management and also have a welfare body, are unlikely to accept any pay cuts as they can easily switch to fast-growing IndiGo, Vistara, or SpiceJet, crippling operations.
“It’s a very different style of management. It’s about saying that even if it costs more, I would rather keep that person than let go to the competition because he or she may start sharing secrets about the organisation,” a former top executive at the airline says asking not to be named.
“At some point, you need to realise that there is a shelf life for everyone. Unfortunately, Mr. Goyal doesn’t.”
More trouble in the offing
The next wave of headwinds for Jet Airways are likely to come from the European and North American markets.
The Tata and Singapore Airlines-owned Vistara has announced it will launch its long-haul international operations soon. It might use its brand-new, fuel-efficient Boeing 787-9 planes on prime routes such as London and New York.
This would hurt Jet Airways not only because a new operator with perhaps a better level of service and deep pockets will enter its domain, but also because Jet flies Boeing 777s and Airbus A330s, which are a generation behind the Dreamliners.
The upcoming launch of ultra-low-fare India-US flights this winter by Wow Air will also make a dent on fares. IndiGo, too, has said it will fly long-haul soon — perhaps on the lines of Wow Air — but hasn’t provided a timeline.
“The impact of last year’s Air India expansion to Stockholm and several other European destinations will also be seen over the coming months,” says a second person who has known Goyal closely but did not wish to be named.
This strain will come at a time when Goyal may find it difficult to woo international airlines to invest in Jet, and Etihad’s strategy of investing in Alitalia, Jet, Virgin Australia, and Air Berlin has already flopped.
“He has done too many somersaults. He had said Jet will not join an alliance. Then Jet created trouble for Air India when it was trying to join the alliance. He had said he did not want foreign airline investment, but then sold stake to Etihad. I feel his deal with Etihad compromised a lot of his old relationships with other airlines. Then he went to SkyTeam, wooing Delta and Air France-KLM. The impression is that he can switch to anyone for short-term gains,” this second person says.
“And how do you explain his statement a few months back that Jet can even look at [buying] Air India when Jet’s [own] financial situation was so bad?”
While airlines do seek to collaborate, there is fierce rivalry between international alliances. The rivalry between West Asian and western airlines has played out publicly in courts too.
Perhaps Goyal knows what he is up against this time. Some of his replies at the annual general meeting, where he tapped his desk multiple times to add that extra effect, were very combative.
“There are a lot of people talking [about Jet’s services] …there was a feeling services have gone down. I can tell you with pride, we can show you data that airport services have improved tremendously. Cabin-crew services have improved tremendously. We are further going to improve. We are not going to be inferior in terms of service than Asian carriers,” he told the audience.
He did accept that the pay-cut push had given the airline a “lot of negative publicity” and announced the creation of a “welfare group” and a marketing and public relations group and promised to push the airline forcefully on social media.
Goyal has also brought in two bureaucrats who have earlier worked at the aviation ministry — Nasim Zaidi and Ashok Chawla — and a former SBI senior executive Srinivasan Vishvanathan.
“We follow total compliances. The feeling is [Jet is family run] … all these perceptions created in the marketplace are going to be corrected,” Goyal said.
As the two-hour AGM drew to a close, Goyal, wife Anita, and other directors left the podium to finalise the first-quarter results. Hours later, the airline announced that the results had not been approved and have been cancelled — perhaps a first for the 25-year-old airline.
This led to Jet’s share price crashing even further on the Bombay Stock Exchange. It is now trading at around INR292 — nearly half the price when Etihad entered.
“The real issue is that Jet is struggling to avoid a collapse by taking tomorrow’s revenue today without doing anything to change the actual economics of the airline,” says the second person quoted earlier. “There is a serious problem, and it is only set to get worse.”
The fate of the deer frozen in the headlights is still up in the air.
(Disclaimer: The writer holds one share of Jet Airways.)
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