Transport Airlines

Jet Airways Hopes Dumping Low-Cost Carrier Will Help It Focus Business

Aug 14, 2014 1:00 am

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Does this signal a nearing end to the shakeout in Indian airlines, or just the latest chapter?

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Punit Paranjpe  / Reuters

Jet Airways aircraft stand on tarmac at the domestic airport terminal in Mumbai. Punit Paranjpe / Reuters


In the span of a few hours, India went from having one real full-service airline to having three.

Soon after Tata Sons Ltd and Singapore Airlines Ltd launched Vistara, a new full service carrier, Jet Airways (India) Ltd said it was shutting its low-fare airline business and returning to its roots.

The state-owned Air India, which has seen its marketshare increase over the past 12 months to 19.2%, is currently the only completely full-service airline operating in the country.

Jet, India’s second largest airline by passengers flown, will soon have one single brand, founder and chairman Naresh Goyal said in Mumbai. The company will phase out its low-cost carrier brands Jet Konnect and JetLite by the end of the calendar year.

Jet’s move is as much a realization of the gap in the market, created largely by the grounding of Kingfisher Airlines Ltd and its own emphasis on its low-cost brands to the detriment of its full-service one, as it is an acknowledgement that a low-cost airline needs to be built from the ground up, with an emphasis on costs, not fares.

Most Indian airports — Delhi is an exception — do not have separate terminals for low-cost airlines.

“Costs are the same for all airlines,” in India, said Goyal in a press conference on Monday. “There is no low-cost airline in India. There are low-fare airlines.”

Goyal said he believes there is a market for “premium services” in India.

“It is like going back to the 1990s, where there is only one brand, a full service one,” said a Jet executive who spoke on condition of anonymity.

Interestingly, both Goyal and this person said that while the services would be “premium”, the full-service Jet would focus on keeping costs low, implying that its tariffs will be higher than those charged by low-cost airlines, but not disproportionately so.

The strategy could help Jet, which posted a loss of Rs.217.6 crore for the quarter ended 30 June — lower than the Rs.355.4 crore it posted a year ago — return to profit, said an analyst.

The move to shut JetLite was expected and Jet is now the only full service airline apart from Air India (Vistara begins operations in October), said Mahantesh Sabarad, deputy head of research at SBICAP Securities Ltd. That puts it in a position from where it can return to profitability in a couple of years, he added.

Jet has made losses for three consecutive financial years. It ended 2013-14 with Rs.3,667 crore.

Cramer Ball, chief executive officer (designate) at Jet Airways, said things have changed in the last few months, adding “we see demand for a full-service airline”. He added that it had become imperative for Jet to clear the confusion of multiple brands — JetLite and Jet Airways Konnect — and achieve brand simplicity.

After acquiring Sahara Airlines Ltd in April 2007, Jet Airways renamed the airline as JetLite (India) Ltd. In May 2009, Jet Airways introduced a new all-economy low-fare brand called Jet Airways Konnect. This was in response to a slowdown in passenger traffic in the wake of the slump of 2008 and to compete with low-fare airlines.

G.R. Gopinath, who founded India’s first low-fare airline Air Deccan and gained market share with tickets as cheap as Rs.1, said that Jet seemed to be having an “identity crisis”since Air Deccan was launched.

To add to the confusion, Jet Airways had introduced a new brand called Konnect Select in February 2011. It was priced slightly more than Konnect to woo business class passengers.

Despite all this, Jet Airways lost its number one position to low fare airline IndiGo , run by InterGlobe Aviation Ltd.

“There was a lot of confusion…JetLite, Jet Konnect. We want to clear this,” Goyal said.

Etihad Airways PJSC played a critical role in the decision to switch back to a full-service airline. Last year, Jet Airways sold a 24% stake to Etihad Airways, which is also a full-service airline.

“There is too much competition in domestic markets already and could increase more with AirAsia India,” said Nawal Taneja, professor and chairman, professor emeritus, at Ohio State University’s department of aviation. AirAsia India, a low-fare airline, started operations in June.

Sabarad of SBICAP said Jet Airways is emphatic about driving a strategy of ‘relevance’ than of ‘presence’.

“Moreover, they needed to integrate their operations with Etihad Airways so that they remain the preferred airline for West-bound traffic out of India. We foresee a fleet and product rationalization drive will raise their seat occupancy and drive more traffic through a combination of more seats flown and occupancy from current levels without addition of any more flights or destinations even as the JetLite brand winds down,” Sabarad said.

JetLite currently operates 11 aircraft under the Jet Konnect brand.

Still, while the move to a single brand could address Jet’s identity crisis, not everyone is convinced that it makes sense to revert to a full-service airline model when eight of every 10 passengers fly a low-cost airline.

Gopinath said the full service model is inherently flawed in the domestic market and Jet will continue to lose its economy passengers to low-cost carriers. “It is unlikely that Jet Airways’ experiment to go back to a FSC (full service carrier) model will be a grand success. While it may be more aligned with Etihad’s premium offering, (it) is not really in sync with the market realities and is unlikely to restore Jet to its past glory or market share,” said Hitanshu Gandhi, senior consultant, Strategic Decisions Group Llc.

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