The inevitable has happened, though much sooner than one would have expected. Jet Airways joins a list of airliners biting the dust. The endgame was much faster than even the most pessimistic analyst and industry expert would have expected.
The writing was always on the wall, despite the brave face put up by founder Naresh Goyal and the various stories appearing in media of how the airline is looking for ways to stay afloat.
The irony is that India is one of the fastest growing domestic aviation markets in the world and yet airliners are falling out of the sky. The latest numbers for the month of February 2019 show that India has had double-digit growth in domestic air passenger traffic for the 54th consecutive month.
So was Jet Airways a victim of bad governance or is it a deeper structural issue that has caused the biggest private sector success story in the Indian airline industry to come crashing down?
In the case of Jet Airways, it was a mix of both internal and external issues that caused the airline to fail.
A part of the problem in the sector is strong competition, more often than not an unhealthy one that is to be blamed for the trouble. Be it preventing foreign airlines to invest in the country, snatching important high traffic routes from competitors or bringing in the 5/20 rule to prevent new airliners to fly international routes unless they have five years of domestic operations and 20 aircraft, competitors have used their proximity to the government to prevent other players from flourishing. The cat fights left everyone injured.
Those airlines that survived then had to face a structural problem. The airline sector internationally is divided between no-frill low-cost airlines and full-service airlines. India also has a similar bifurcation where full-service airlines are competing against low-cost airlines to woo the same passengers and improve their occupancy rate.
In shorter routes, as is the case with domestic air traffic where the average journey time is between 60-90 minutes, the game is tilted in favour of a low-cost airline. Few passengers are interested in being served food in the short duration of the flight and would willingly sacrifice it for a lower fare.
For a longer flight, passengers would prefer a full-service airline. A full-service aircraft has to sacrifice some seats to make room for food storage and has a longer turnover time at the airport as compared to a no-frills aircraft.
Kingfisher Airlines, Air India and Jet Airways are all full-service airlines that could not change with the times. Though Air India and Jet Airways have a low-cost division, they are restricted to certain routes and are not promoted.
Jet Airways along with Kingfisher Airlines was a victim of bad financial planning. Both the airlines preferred to buy aircraft by taking loans in their initial days, thus skewing their debt-equity ratio. It was only when the competition intensified with the entry of leaner low-cost airlines such as SpiceJet and IndiGo did the Jet Airways management realised that faster growth could be possible by leasing the aircraft.
Another instance of bad management is the use of multiple kinds of aircraft, which added to the cost of operation of Jet Airways. SpiceJet mostly operated one type of aircraft – the Boeing 737– before it added Bombardier to its fleet, while Jet Airways in its fleet had different types of Boeing, ATRs and Airbus aircraft.
Each type of aircraft requires a different crew that can only fly those particular aircraft. Having multiple set of crews for each type of aircraft increased the cost of operation for Jet Airways.
A look at the difference in the cost structure of a full-service airline compared to a low-cost one clearly shows the former is fighting a losing battle, especially if it is selling its ticket at the same price point.
Higher prices would mean lower occupancy rates which means flying around with more empty seats, thus serving no purpose. The lower cost structure allows a no-frills player some room to absorb a rise in oil prices which a full-service player like Jet Airways cannot.
Another reason for the downfall was the acquisition of Air Sahara by Jet Airways and Air Deccan by Kingfisher, both of which were too big to swallow for the respective airlines.
Finally, the government is to be blamed for imposing a high-cost structure on airliners. India with its high rate of taxation on fuel and various levies on using the airport infrastructure is one of the costliest places to operate an airline. Little wonder that most of the airlines are in losses and we are seeing more players go under.Which is why though Jet Airways operations are shut temporarily, there is little hope even if there is a buyer for the airline. Unless the airline changes the way it operates and the government recognises the lop-sided cost structure, full-service airlines like Jet Airways will continue to crash land.