Monday, December 10, 2018

Can A Fund Infusion Revive Jet Airways?

Jet Airways (India) Ltd. in a conference call said it’s considering a range of options, including selling aircraft, capital infusion and a stake sale in its loyalty programme, to meet its debt repayment obligation of over Rs 1,500 crore with less than four months left in the current financial year.

What it really needs is a radical restructuring in its cost structure and revenue enhancement to be more competitive in the industry, said Kapil Kaul, chief executive officer-South Asia of the international aviation consultancy firm CAPA. “Fund infusion is just the first step, but more than that they will have to restructure their cost and enhance their revenue.”

Jet Airways has been struggling to hold ground in the world’s fastest growing aviation market with competition from low-cost operators such as IndiGo, run by InterGlobe Aviation Ltd., and SpiceJet Ltd. Jet Airways’ market share has more than halved in the past decade to about 15 percent. The company’s long-term ratings were downgraded thrice in six months due to delays in the implementation of the proposed initiatives to ease tighter liquidity conditions. It had resulted in delays in payment of employee salaries and lease rentals to the aircraft lessors.

Jet Airways being a full-service carrier has a higher cost structure compared with peers such as IndiGo and SpiceJet Ltd. And its weighed down by high fuel, maintenance, employees and finance costs, according to BloombergQuint’s analysis of the airline’s financial. The airline’s employee cost, the analysis showed, is higher than that of state-run Air India Ltd.—which is reportedly overstaffed and inefficient—as are its finance and aircraft maintenance costs due to higher debt and older fleet.

Although Jet Airways has deployed three-fifth of its capacity on international routes that enjoy the benefit of lower taxes, it pays a higher fuel cost compared with its domestic peers. Indian states charge as much as 30 percent in sales tax on aviation turbine fuel, on top of a 14 percent excise duty, making it the costliest in Asia.
The airline lacks the ability to generate enough revenue to meet its cost due to stiff competition and lower occupancy. Jet Airways’ cost per seat kilometer has been higher than its revenue for at least the last three years.
Cheaper fares offered by peers has forced Jet Airways to either reduce its fares or operate at lower occupancy levels. And that doesn’t bode well Naresh Goyal-founded airline, according to Jitendra Bhargava. The former executive director of Air India said competition to gain market share will force Jet Airways to infuse funds after every six-eight quarters.
10/12/18 Soumeet Sarkar/Bloomberg Quint