Jet Airways is facing two key business problems - attaining profitability in the domestic market and finding new investors. In the domestic market, fuel costs form a large part of expenses and have risen significantly. The airline also operates less fuel efficiently on short haul flights. It is working below the break-even passenger load factor of 80%. The company also has a high debt to equity ratio and interest coverage ratio below 1, making it difficult to attract new investors. Analyzing the root causes, the airline industry has excess capacity and stiff competition. Solutions proposed include discontinuing unprofitable short haul flights, reducing debt, focusing on the break-even passenger load factor, and increasing international flights.

1. Jet Airways Problem
Identification and solution
By
Member : Ratan Kumar
College : IMI, New Delhi

2. Two key business problems in Jet
Airways
Attaining Profitability in domestic market
Jet Airways finding hard to get investors

3. Reasoning behind choice of problems
Attaining Profitability in domestic market
Fuel cost forms largest part of expense
Fuel cost rose to 33.71% of total Income in 2011
as compared to 29.67% in 2010
Short haul Airlines: Lower fuel efficiency as take-
offs and landings consume high amounts of jet fuel
Sudden Spur in Fuel prices towards end of 2011
Domestic market :Highly price
sensitive
Jet Airways working below
Break-even Passenger load
Factor of around 80%

4. Two key business problems in Jet
Airways
Jet Airways finding hard to get investors
Company working on high debt to equity ratio
of 4:1 - Highest in industry
Interest coverage ratio of company is 0.99,
Which is below 1
Company has not paid dividend from past 5
years
Not paying dividend has negative signaling
effect

5. Analysis of root cause
Airline industry in growth stage with excess capacity in
both domestic and international market
 Indian domestic traffic had a growth of 21% in 2011
 Foreign Traffic had a growth of 23.8% in 2011
 Stiff competition from Kingfisher, Spice Jet, Indigo and Go Air
 International Air Transport Association (IATA) downgraded the airline industry profit
forecast in 2011 by 54%
Threat of
Porters Five Forces Analysis: new
Entrants
Low
Bargaining
High Rivalry High Bargaining
among
Power of Power of
existing
Buyer Supplier
competitor
High
Threat of
Substitute
Product or
Services

6. Solutions to the two problems
Reassess all short haul flights, discontinue those where
load factor is much less than forecasted
Try reduce debt burden by selling off unprofitable assets
Concentrate more on attaining break-even passenger load
Factor
Introduce more International Flights
Financial Impact
Attaining Break-even Passenger load factor helps pay
Dividend which has positive signaling effect
International Flights helps increase profit and increase
interest coverage ration to acceptable limits

7. References
 http://www.jetairways.com/EN/IN/InvestorRelations/financials.aspx
 Annual reports
 http://economictimes.indiatimes.com/news/news-by-
industry/transportation/airlines-/-aviation/jet-airways-most-leveraged-in-indian-
airlines-sector/articleshow/10728294.cms
 http://articles.economictimes.indiatimes.com/2011-11-
12/news/30391209_1_kingfisher-airlines-international-routes-domestic-airline
 http://www.moneycontrol.com/
 http://money.rediff.com/