If Indian carriers do not learn from the troubles of Jet Airways, there will be more airline failures to come in the near future, writes Lee Kah Whye
After almost 27 years in business, it looks increasingly likely that airplanes painted with the Jet Airways livery have made their final touchdowns.
On April 17, Jet Airways suspended all domestic flights following its inability to obtain interim funding necessary to continue operations. Just five days before, it announced the “temporary” cessation of its international routes as a stop-gap measure to give itself some breathing space from creditors which are owed some $1.2 billion.
In its heyday, it flew to 22 international cities and over 50 local airports. It was once India’s most valuable airline, had the largest market share in India and admired by Indians for breaking the monopoly of state-owned Air India and bringing into the market better services, reliability, and nicer airplanes.
Although there are talks of a rescue being mounted, led by SBI (State Bank of India), the longer Jet Airways stays out of operation, the more difficult it is for it to be revived. In the meantime, staff – pilots, aircrew and ground staff who have not been paid for months have been leaving and joining other airlines. Competitors like SpiceJet and Indigo have also been using the landing slots in airports that have been vacated by Jet.
So, is there something that Jet Airways and the airline industry in India can learn from Singapore? Following are some generic suggestions. It is not meant to be an analysis of how Jet Airways got into trouble.
DECIDE ON YOUR BUSINESS MODEL AND STICK TO IT
When budget carriers started to emerge in the early 2000s, Jet Airways flirted with the new business model. Initially acquiring Air Sahara for $200 million and re-branding it JetLite and later on merging it with another of its brands Jet Konnect. JetLite was positioned somewhere between a low-cost carrier and a full-service carrier. Jet Konnect had similar branding as its parent company but a lower level of service. This brought much confusion into the market.
In the aviation business, there is no mezzanine level of service, no middle ground. You are either a premium airline or a cost leader.
In 2004, when Singapore regulators approved the operations of budget airlines out of Changi, Valuair was one of the few who jumped into the fray. Valuair jointly owned by a Singaporean businessman Dennis Choo and Qantas offered lower fares together with assigned seating and meals. After just slightly over a year it merged with Qantas’s Jetstar Asia.
Budget airlines by definition appeal to the budget-sensitive travellers and especially in the cost sensitive Indian market must be prepared for a fight to the bottom. This means embracing the all the features of budget carriers like flying point to point, using a single aircraft type, landing in airports that charge the least for landing rights, high aircraft utilisation and charging for everything like booking fees, meals, luggage, blankets and even hand baggage if possible.
Innovation is not just about introducing fancy movie and entertainment experiences onboard,sophisticated and luxurious seats or offering blockchain powered digital wallets and a comprehensive frequent flyer programme. Singapore Airlines (SIA), being a premium airline, offers all of the above.
However, if a decision is made to operate as a discount carrier, then Ryanair, the leading budget airline in Europe is a good example of being innovative. Led by its charismatic founder and CEO Michael O’Leary, it always comes up new ways to shave dollars off air tickets. Whether for publicity purpose or whether they really meant it, there was talk about Ryanair introducing fees for the use of toilets in planes, charging overweight people more for their flights and even making passengers carry their own luggage to the plane. Ryanair has become synonymous with cheap tickets because they go out of their way to save costs, so travellers are somewhat assured they are getting the best deal when flying with them.
Recently, when Italian seat manufacturer Aviointeriors introduced ” standing seats”, at the Aircraft Interiors Expo 2019 (AIX) in Hamburg, Germany, travellers instantly connected this idea with Ryanair.
BUILD CODE SHARE ALLIANCES
For full-service carriers, connectivity is key. This is especially so for the more lucrative international routes. No airline can fly to every city. Domestic routes might provide the base passenger load, but it is the international ones that earn the most profits. It is thus important to build strong partnerships. SIA has more than 30 codeshare partners and many of them are not part of the Star Alliance group which it is a member of.
Jet Airways was not decisive enough in this regard. initially it thought about joining Star Alliance and for reasons which are not clear, then started working more closely with airlines belonging Sky Team. When Etihad took a 24 percent stake, it started to work more closely with Etihad and routed its flights through Abu Dhabi.
WATCH THE BOTTOM LINE
SIA may be famous for the Singapore Girl, pampering their passengers and promoting the romance and glamour or air travel, but the management keeps a close eye on costs and are not afraid to cut back when required.First of all, SIA also does not hesitate to terminate routes that are not profitable. Cebu, Chicago, Washington DC, Vienna, Istanbul, and Sao Palo among the almost 50 cities it has stopped flying to in recent years.
After the global financial crisis in 2008, there was a severe softening of demand for air travel and Singapore Airlines went through a brutal cost-cutting exercise, suspending recruitment, and letting go of staff including almost 80 pilots.
In April 2017, after it reported its first quarterly loss in five years for the fourth quarter which ended in March, SIA underwent a review of its operations and came out with a three-year transformation programme. The review included ways of managing costs more efficiently, new pricing policies, ways to improve aircraft usage and the consolidation of some departments. As a result, it was decided to merge its regional brand Silkair with the main airline. Much earlier, it had already merged Tigerair, it’s a no-frills carrier with another of its low-cost brand Scoot.
Within a year, it recorded its highest profit in seven years and regained the coveted Skytrax best airlines award from Qatar after last winning it nine years ago.
One of the financial structural problems Jet Airways faced was that it was heavily reliant on leased aircraft. While leasing allows a new airline to get off the ground quickly, as it expanded and grew its fleet, it made it’s operating expenses very high. The fact that Jet leases most of its aircraft made it vulnerable to the planes being taken away by leasing companies when it could not pay them and that is what happened. Globally, on average, airlines own half its fleet and leases the rest.
In India, demand for air travel has seen an unprecedented boom. Passenger growth in recent years has been in double digits year on year. By mid-2020s India is forecast to be the world’s third largest market for air travel. If, however, airlines do not learn from the troubles at Jet Airways, there will be more airline failures to come in the near future.