How does an Airline giant fell?
To know this let’s start from the beginning.
- 1967 – Mr. Naresh Goyal (Founder of Jet Airways) started working in his uncle's travel agency
- Seven years down the line, he sets up his own travel bureau and named it ‘Jet Air’
- 1991 – India starts the process of globalisation, liberalisation and privatisation. Mr. Naresh Goyal was in a good position to start his own airline. ‘The birth of Jet Airways’.
- 2002-2004 -Jet Airways, a full-service airline captures 44% of the domestic market share
- 2004 – India introduced its 5/12 rule, where Airlines with five years of experience and two aircraft are allowed to operate international flight
- 2005- Jet makes its first flight to London and in the same year issued its IPO.
- 2007 – Jet’s profit starts to decline
- Apr 2019 – Jet halted its operation, due to lack of cash, with only seven aircraft left from 120 aircraft. Employees were not paid for months.
So, what went wrong? To understand this let’s dig into some key aspects of the Airline Industry and changes in the airline industry after 2000
Three important points to keep in mind
1.???Airlines lease planes to cut costs, this allows them to return the plan when not in use
2.???Fuel accounts for approx. 34% of the total cost, rise in fuel price or depreciation of INR adversely affects the cost
3.???Air carrier operates on a fixed cost, which means the cost is fixed no matter if the plane is full or half empty.d
Now let’s see what changed after 2000
- Jet Airways is a full-service air carrier, which means it provides inflight meals, has business class, economy luggage allowance and hence demands high ticket price
- Price Jet and IndiGo, the low-cost carrier (LCC) entered the market in 2005 and 2006
- Today IndiGo is the largest airline in the Indian market with a market share of 48%
- The Market share of LCCs in the 2000s was 12%, in 2012 it was 59% and in 2019 it was 76%
But what is LCC
1. Unlike full-service carriers, LCC does not offer high-end services and sticks to the bare minimum but offers lower ticket prices.
2. In India, the price difference between Jet Airways and LCCS was considerably large?
So, Jet was losing its market share, hence decided to create its own low-cost brand
- 2007- Jet incurred debt to fund its expansion and bought debt-ridden Air Sahara and rebranded it as Jet Lite
- The burden of debt, coincided with the 2008 Financial Crisis, resulting fall in demand and a rise in oil prices
- 2013- Jet started fare war with low-cost carriers IndiGo and Spice Jet, the company started posting losses resulting in a drop in Market Value
- 2019 – A Consortium of 26 Banks led by SBI approached NCLT to recover its due.
- June 2021, the Mumbai bench of NCLT approved a resolution plan from a consortium comprising of UAE based businessman Murari Lal Jalan and UK based Kalrock Capital, for its takeover and revival
- Against the claim of ? 15,432 Cr, the consortium has offered to pay creditors, including banks ? 1,183 Cr over a five-year period
- ? 280 Cr will be paid in cash after 180 days of the new promoter taking ownership
- ? 195 Cr will be paid after 730 days
- The balance will be paid through the sale of assets and through cash flow generated by airlines
- Banks would get a 9.5% stake in the airline, the consortium will hold 89.79%, the employee would get 0.5% and public shareholding would be 0.21%
- Since Jet Airways halted its operation, its slots were given to other airlines, Government said it was a temporary move but now they have e reversed its positions, saying the airlines have made the investment in acquiring additional planes
- 22nd June, NCLT did not address this issue and set a 90 days period for the consortium to work with the Ministry of Civil Aviation and DGCA to resolve the matter and seek various regulatory approval.
Note: This article is only for educational purposes. A lot of data is pulled from secondary sources.
