All Jet Airways India Ltd. ever needed was 1 rupee (0.05 fils) for providing hot meals and cold towels.
Since even that modest goal has proven elusive, India’s longest-surviving private airline now needs bankers with spine to keep flying. It’s been clear for some time that Jet, falling behind even on pilots’ wages, was going to skip a debt payment soon.
Now that a default on bank loans has finally happened, let’s spend a minute on the brutal economics of the missing rupee. As a full-service carrier, India’s second-largest airline spends that much more per available seat kilometre than its bigger rival, IndiGo. That’s excluding fuel costs, which are volatile and exorbitantly taxed but comparable for all players.
The problem is that as 2015 was ending, Jet was earning only half a rupee more in revenue per seat kilometre than IndiGo. That was just before InterGlobe Aviation Ltd., the owner of IndiGo, set out to expand its scale of operations 2.5 times faster than what Jet could muster.
The market leader also drove prices lower by forgoing revenue of 0.9 rupees per kilometre over the first nine months of 2016. Jet was too indebted to match its rival’s aggression. When it tried, by sacrificing revenue of 0.3 rupees per kilometre, it ended up charging customers less than it cost to fly them.
Then, starting September 2017, oil prices shot up for a year. The whole industry was shaken, but Jet had already keeled over.
The fuel-price surge has now receded, and the airline is exploring cost-cutting options. But saving $100 million (Dh367 million) a year on maintenance contracts won’t make the debt problem disappear: Repayments of as much as Rs63 billion (Dh3.28 billion; $900 million) are due by March 2021. Of its fleet of 124 at the end of September, Jet owns only 16 planes that can be sold.
09/01/19 Andy Mukherjee/Gulf News
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Since even that modest goal has proven elusive, India’s longest-surviving private airline now needs bankers with spine to keep flying. It’s been clear for some time that Jet, falling behind even on pilots’ wages, was going to skip a debt payment soon.
Now that a default on bank loans has finally happened, let’s spend a minute on the brutal economics of the missing rupee. As a full-service carrier, India’s second-largest airline spends that much more per available seat kilometre than its bigger rival, IndiGo. That’s excluding fuel costs, which are volatile and exorbitantly taxed but comparable for all players.
The problem is that as 2015 was ending, Jet was earning only half a rupee more in revenue per seat kilometre than IndiGo. That was just before InterGlobe Aviation Ltd., the owner of IndiGo, set out to expand its scale of operations 2.5 times faster than what Jet could muster.
The market leader also drove prices lower by forgoing revenue of 0.9 rupees per kilometre over the first nine months of 2016. Jet was too indebted to match its rival’s aggression. When it tried, by sacrificing revenue of 0.3 rupees per kilometre, it ended up charging customers less than it cost to fly them.
Then, starting September 2017, oil prices shot up for a year. The whole industry was shaken, but Jet had already keeled over.
The fuel-price surge has now receded, and the airline is exploring cost-cutting options. But saving $100 million (Dh367 million) a year on maintenance contracts won’t make the debt problem disappear: Repayments of as much as Rs63 billion (Dh3.28 billion; $900 million) are due by March 2021. Of its fleet of 124 at the end of September, Jet owns only 16 planes that can be sold.
09/01/19 Andy Mukherjee/Gulf News
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