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Jet Airways
1. GONE IN SIXTY DAYS?
Macro pressures, coupled with legacy
costs -fleet, maintenance, distribution
and salaries –seems to have led Jet
Airways into perfect storm
Source: The Economic Times | Lucknow| Gone in Sixty Days? | Tuesday | 7 August 2018
- Krishna Kumar Omer
3. Facts
• May’ 18, Jet Airways celebrated 25th
anniversary with cheer
• “The outlook remains bright”-
Naresh Goyal Chairman in Annual
report 2018
• Stock crashed to its 52 weeks low
• Out of Cash
– Barely a quarter after Annual
report, India’s 2nd largest airline
by market share, If not cutting
their expenses had cash
sufficient only to survive for 60
more days.
• Though Jet has denied about
any 60 days…
• Pay cuts
– of 25% to pilots, engineers and
technicians, announced
Issues
4. 18.0
17.5
17.0
16.5
16.0
15.5
15.0
2017 2018
Losing Attitude
Jet seen a drop in market share since mid 2017
(Fig in %)
Source: The Economic Times | Lucknow| Gone in Sixty Days? | Tuesday | 7 August 2018
Market share started
dropping (Mid 2017)
Prior to Jul’ 17
Further drop started
after Annual report of
Jet 2018
52 weeks low,
Aug’ 18
In %
5. Facts
• Impact on Pan Industry
– 97% decline in net profit of
Interglobe Aviation’s Indigo,
country’s largest airline
• Jet is short on time, Financials suggest
– Even when, 5 years before, Jet sold
it’s 24% stake to Abu-Dhabi based
Etihad Airways. Total cash and cash
equivalents at the end of previous
fiscal, stood at around Rs. 320
crores, which were levels of 2013-
14 and less than a 40th of it’s
closest rival Indigo at the end of
FY18.
• Net Debt thrice as Indigo
– Net Debt as on Mar’31, 2018, was
Rs. 8150 crore, it has come down
by 23% in half a decade, but still is
significant and thrice as Indigo.
• Pan Industry Impact, not exclusive to
Jet Airways?
– “Pan Industry headwinds impacting
profitability of whole aviation
sector, as:
• Rising fuel prices,
• Depreciating rupee,
– Compounded by
mismatch between high
fuel prices and low fares”
-Jet Spokesperson
• Turnaround plan by Jet
– “Jet is working on turnaround plan
• Several cost optimization
• Revenue enhancement
• Commercial initiatives” –Jet
Spokesperson
Issues
6. Facts
• Why Jet in Trouble
– Macro pressures,
– High Legacy cost, which is
• It’s Fleet,
• Maintenance,
• Distribution and salaries,
– This have have led Jet
into a perfect storm
• High Operational Expenses
– Jet airways, is bleeding, alone by
operational expenses of Rs. 5 -10
crore per day
• Tight Liquidity, Stretched Balance Sheet
– “Jet struggling with tight liquidity
and highly stretched balance sheet”
–Achal Kumar, Analyst, HSBC
• Trouble in working capital, Huge
repayment obligations
– Banks are reluctant to lend
additional working capital.
– Though Jet hasn’t defaulted yet, but
has build huge repayment
obligations in past three years,
• Hence outlook is very serious.
Issues
7. Facts
• Difficulty raising fund
– ”Jet having most negative net worth in
industry, hence will have more
difficulty in raising funds” – Mahantesh
Sabarad, SBI CAP Securities.
– Etihad, as some of its airline
investment had soured, has tigtened
its purse and not ready to cash more
fuel to Jet
• Rigid Processes and old People
– Naresh Goyal, Chairman, painstakingly
micromanaging company and refusing
to let go old processes and people.
Issues
8. Facts
• Turnaround not easy
– “Because Jet airways needed to invest
money, to refurbish its planes and
infrastructure and make the company
more agile.
– Turnaround of whole operations
needed” – Senior Jet Executive
• Rivals
– “Jet airways is a Service oriented
version of Air India, lacks new ideas and
innovation. Jet is a 1970s airline in 2000s
disguise” –Senior executive, rival airline
Issues
9. Facts
• High cost per available KM
– Jet’s current non-fuel Cost per
Available Seat Kilometers
(CASK) is 25-50% more than its
peers.
– Jet’s salary expenses rose by
53% in last five years, which is
it’s second biggest expense
after fuel.
• Cost cutting plans
– “Jet is making several measures –including
• Sales and distribution,
• Payroll and
• Maintenance,
– to reduce costs” -Vinay Dube,
CEO (previously, Sr. VP for Asia
Pacific at Delta airways)
Issues
10. Non Fuel CASK
RASK - CASK
Fuel CASK
RASK
CASK: Cost per available seat Km
RASK: Revenue per available seat Km
Spice Jet
Jet GroupIndigoSpice Jet
Jet GroupIndigo
Flying into air pockets
FY17 & FY18 cost/revenue comparison between airlines
Source: Co, DGCA, SSL
0.17
0.22
0.25
0.34
-0.11
-0.24
4.5
1.5
3.0
0
-1.5
4.5
3.0
1.5
0
-1.5
(Fig in Rs.)
RASK - CASK
RASK - CASK
FY17
FY18
11. Source: The Economic Times | Lucknow| Gone in Sixty Days? | Tuesday | 7 August 2018
12. Facts
• High Salary outflow, Expensive top management
– Jet still have 25 Vice presidents, Senior VPs and
Executive VPs who get annual salary starting from
Rs. 2 crores, even after reducing total senior
leadership to half in past two years.
• Workforce resisting paycut
– Pilots, Engineers refused to accept pay cut of 25%
• Unsatisfied Employees
– After 11 years of Jet acquring Air Sahara, Jet still
failed to bring complete pay parity between
employees of two companies, which often triggers
confilct.
– “Salary cuts ~10% after 9/11 attack and again
after 26/11 Mumbai terror attack, last year we
took cut in flight duty allowance 3-8% of salary,
which was promised to be restored but haven’t
yet” –Aircraft Engineer, Jet Airways
Issues
13. Facts
• Technology as replacement
– Vinay Dube said, if expansion of 2000
employees will be needed, Jet would
hire 1000 and rest with technology.
• High Fleet maintenance cost, fleet
simplification needed
– Fleet maintenance cost has increased
22% to Rs. 2538 crore, in last three
years, adding just four new plan.
• Under-utilization of flights
– Boeing 737 being utilized for average
13.52 hours per day (highest utilization
levels in world), whereas uses only 2 of
its 8 other Airbuses, flying average 4.3
hrs a day, half its range.
Issues
14. Facts
• Old contracts, complex machinery
– “Jet overspends and haven’t
renegotiated contracts for it’s complex
engineering and maintenance in years”
–Former Jet Executive
• Slow decision making
– No final decision in past few years for
makeover of inefficient configuration of
some fleets, which will require millions
of dollar.
– Pending plan, to lease out ATR turbo
planes, from past two years.
Issues
15. Facts
• Capacity cut
– Last year Jet cut down
10% capacity to Gulf, a
loss making sector due to
low demand and high
competition.
• Turnaround plans
– “Plans to increase haul (fly time) of
A330s, by reworking engine of existing
Boeing 737s, this will result in shaving off
$100 mn (Rs. 680 crores)” – Executive, Jet
Airways
– Plans to cut down frequencies of planes
on loss making routes and reduce
revenue concentration risks, by
diversifying overseas hubs (like by adding
Amsterdam, Paris, London, Singapore
through partnership), which will improve
load factor.
Issues
Load Factor = Actual result / Maximum possible result
16. Facts
• High selling cost of tickets, low revenue
from tickets
– Airline cost of selling tickets increased
by 84% to around Rs. 2538 crores,
whereas average Fare per passenger
declined by 17%, in last half decade.
Jet Airways, Pays $100 mn as
fees to use global distribution
system (GDS) for computerised
network of transactions, where
as low fare carriers Indigo and
Spicejet, don’t use GDS, and saves
majorly in Distribution
• “Jet lacks modern revenue management”
– “Jet has no appreciation of modern
revenue management . They think
only thing that matters is, in-flight
service” – Rival airline executive
Issues
17. Facts
• Premium branding, service orientation, are they
barrier?
– Goyal (Chairman) at times, has stall and evaded,
Management’s practical suggestions, reasons
include “airline premium branding will dilute”.
• Seeking cooperation
– Goyal (known for alliances and world’s best
networker) is reletlessly working to expand the
purview of Jet’s commercialities (like agreements
with Delta, Air France).
• Slow decision making
- “Delay, in recapitalizing, by decision for stakesale.
This is increasing the risk profile critically, with
continuous loss in FY-19” – Kapil Kaul, CEO South
Asia, CAPA Aviation centre, Sydney.
Issues
18. Jet, being full service airline needs a critical revamp to survive
- Author, Gone in sixty days?, The Economic Times
