Aviation industry is a big industry involving huge finances but still, over the past few years Indian companies in this industry are facing hard time. On top of list of such companies, there is Jet Airways, net profits of which have have been on red side for a long period now. One of the reason of losses is high taxes on fuel and rising operational costs. Also, there is neck to neck competition in the sector, which prevents airlines from raising ticket prices. Due to the competition companies are unable to raise prices but the operating costs are going up. In the case of Jet, cost per available seat km (ASKM) rose to Rs 3.31 in the second quarter of this fiscal compared with Rs 2.74 in the previous quarter.In contrast, revenue passenger km (RPKM) has crawled up to Rs 3.63 from Rs 3.5.
In India, taxes are also proving to be a significant burden on the aviation industry, Taxes constitute 40% of an airline’s total expenditure, far above the global average of 32%. Besides, revenues barely cover operational costs. So, now the only rational way to increase profits in Indian market is to cut costs. Jet airways was formed at a time when air travel used to be only for rich people. Thus cost control wasn’t something to be concerned about. Jet did extremely well till 2005. High service quality was jet’s business model. Jet airways is the only private airline of the 90s era which is alive today while lots of others are dead.
Biggest full-service carrier Jet Airways, which is now in middle of huge financial crunch, recently decided to stop free meals for most of its domestic economy class passengers from January as a means to reduce costs. Now, Jet Airways is offering free meals in economy class bookings to JetPrivilege members only.
Even after taking moves to reduce costs, the Naresh Goyal-promoted airline is quite distant from escaping this storm of financial crisis. Here are some other important facts related to the financial crisis at Jet Airways:
Continuous losses for quarters
Jet airways is suffering back-to-back quarterly losses starting from the January-March quarter of 2018 when it reported a huge oss of Rs 1,045 crore; then in next quarter of April-June when it reported a loss of Rs 1,323 crore. The trouble for the airline increased even more in the July-September quarter when it encountered a loss of Rs 1297.5 crore. It’s losses are increasing ever since.
Aviation turbine fuel burden
The rising cost of aviation turbine fuel (ATF) have adversely effected many airlines, especially Jet Airways as it flies on international routes as well. During the last year, there was a significant spike in global oil prices, which led to increase in spending on ATF. However, that cost was not charged from the passengers owing to the low-cost model and high competition thus lead to a considerable increase in operational costs
Due to shortage of cash, the airline is unable to pay its pending dues including salary and aircraft leases. Resulting in cancelling all of its domestic as well as international flights untill any other source of funds is secured.
Losses led to more loss
Consecutive quarterly losses, fund crunch and cutthroat competition have left the once market-leader in a very difficult stage. Jet Airways also seemed shareholders’ approval for converting loans into shares in order to get rid of its liabilities but this plan wasn’t executed
Promoters have talked with Etihad, a company which already owns 24% share in the airline, to buy more shares so that the airline can repay some of its long due debta. There was a talks with Qatar Airways but they didnt succeeded as well. Reason behind failing of talks with Qatar airways were because Etihad wasn’t ready for the deal because Qatar is the enemy country for UAE-based Etihad.
No money to pay salary
Most Jet employees haven’t been paid a salary on time. In fact, the airlines’ engineers’ union said in a statement that flight safety is at risk as its employees haven’t been paid for months. If that wasn’t scary enough, the pilots were earlier reportedly asked to take a pay cut of 15% for two years, leading to more problems.
No flights situation for near future
At present the airline have 41 operational flights, as per DGCA, but it is not in a financial state to keep them in the air. In fact Jet airways don’t even have funds for parking in a bay. Modi government has asked state-run banks to rescue Jet Airways to prevent thousands of job losses. But even is the bailout is given to Jet Airways, banks won’t give anything beyond a temporary bailout. But It needs a permanent solution. Also SBI led group of banks have declined to grant loan of Rs 400cr as applied by Jet Airways, so from today onwards, all the jet flights are cancelled for indefinite period.
Be as it may, Jet Airways, once the dominant figure in Indian aviation is today in a deep mess and there’s no point denying that and the future for the airline is not going to be easy.