Jet in chop and change mode: costs, staff, routes, everything

New Delhi: Reducing the debt stockpile, trimming flab and reassessing routes - Jet Airways is doing everything a legacy carrier should do in today’s times when the rupee-dollar exchange rate continues to affect airline bottomlines despite stable fuel prices. And this is only a precursor to the airline expanding fleet later this year, flying to profitable new destinations and possibly gaining entry into the prestigious global airline grouping called Star Alliance.

Aviation industry sources tell us that after stopping flights to Johannesburg and abandoning the Brussels-JFK (New York) service, the airline may now be looking to cut services to Jeddah and Dubai too. And analysts say that flight rationalisation is also happening at Jet’s low-fare subsidiary JetLite on domestic routes. This, when the airline is simultaneously adding business class seats to JetLite to improve yields (revenue per passenger).

[caption id=“attachment_375587” align=“alignleft” width=“380”] Reducing the debt stockpile, trimming flab and reassessing routes - Jet Airways is doing everything a legacy carrier should do in today’s times when the rupee-dollar exchange rate continues to affect airline bottomlines. DebarkaBanik/Flickr[/caption]

Kapil Kaul of the Centre for Asia Pacific Aviation (CAPA) told Firstpost that Jet’s route rationalisation is on expected lines. “Loss-making and international routes will be cut down. Jet has held on to the Johannesburg route for long and the decision to exit is sensible”.

Kaul adds that he expects Jet to further strengthen international routes, mostly to Europe, after the induction of four Airbus 330 aircraft in October this year.

Already, Kingfisher Airlines’ near demise continues to help Jet by allowing it to negotiate better rates with suppliers and vendors; the airline’s market share among corporate fliers has also improved significantly since Kingfisher’s operations began to wobble late last year.

So will Jet beat the domestic airlines’ losing streak and post a profit in the June quarter after so many positive steps? CAPA’s Kaul says he expects Jet to report a modest profit in FY13.

And Joseph John of IIFL Institutional Equities says the airline is targeting a reduction in debt by Rs 4,000 crore this fiscal. “Jet plans to cut down its fleet size (including JetLite) from 120 now to 113-114 by end-FY13. This would involve outright sale and sale-and-lease-back of at least 15 aircraft this year. These transactions will generate about US$ 400 million of which about US$250 million would be used to pay back outstanding loans on aircraft. The remaining US$150 million would be used to pay back high-cost debt. The company targets bringing down total debt from Rs 13,000 crore to Rs 9,000 crore by end-FY13”.

Jet is also letting many senior people go. Already, Senior Vice-President (Finance) M Shivkumar and Company Secretary Monica Chopra have quit the airline for better career prospects. Now, the airline plans to reduce its count of expatriate pilots (they earn higher wages than Indian pilots). A story in Mint newspaper on Wednesday says 100 expat pilots will be asked to leave the airline.

IIFL’s John says availability of Indian pilots has improved and there could be a significant reduction in expat pilots for Jet from the current 220. Salaries of expat pilots are 2.5 times that of Indian pilots so “a 50 percent cut in the number of expat pilots can save more than Rs 80 crore annually (17 percent of FY14 PAT estimate).”

A report in The Hindu Business Line pointed out that Jet is also planning to enhance its ancillary business. Currently, the airline earns around $3.5 dollar a passenger, which will go up to $10. Ancillary revenue is the term for non-ticket revenue tapped by airline companies worldwide that includes convenience fee, baggage fee, in-flight entertainment and sale, and various forms of advertising and media.

The newspaper quoted VP Marketing Manish Dureja as saying ancillary revenue accounts for three percent of the airline’s total revenue at present. Recently, Jet Airways also announced a “convenience fee” for passengers booking tickets in Jet Airways and Jet Konnect flights through its website. The non-refundable charge ranges between Rs 100 and Rs 200 a seat for international travel in economy class, and at Rs 200-400 for business class.