As the formal process for its liquidation gets underway, the Jet Airways saga is finally drawing to a close, 27 years after it first took flight. Here’s a walk-through the bumpy journey of India’s first-ever private airline.
The coronavirus pandemic could not have come at a worse time for Jet Airways. The assets of the ailing carrier – which formally ceased operations in April 2019 – are set to go under the hammer with the National Company Law Tribunal’s (NCLT) 90-day deadline for initiating insolvency proceedings against it expiring this month. Interest from potential investors has all but evaporated, even as the travel industry is going through an existential crisis of its own.
Watch: The Rise and Fall of Jet Airways
Liquidation is now inevitable, with creditors clamouring to recover dues worth more than INR 33,000 crores owed by the airline. Desperation is also building among the more than 22,000 former employees who haven’t been paid since March 2018.
The only consolation, perhaps, for Naresh Goyal – the airline’s affable founder – is that Jet Airways died a natural death (due to market forces); unlike the mass extinction, precipitated by the ongoing COVID-19 crisis, that awaits the airline industry at large.
Flying into the sunset
Signs that all was not well at Jet Airways first surfaced in March 2018 when the company said it was in dire need of funds to maintain cash flow. Over the next year, almost a quarter of its fleet was laid up at airports as Jet struggled to pay the leasing companies it had hired a number of its aircraft from. A crippling shortage of funds meant that the company had to choose between paying its employees and paying creditors. Naresh Goyal’s SOS was turned down by strategic partner Etihad Airways which had grown wary about parting with more money.
Goyal’s last-ditch attempt to secure emergency funding also went nowhere, with creditors like state-owned State Bank of India demanding to know how he intended to use the money. The International Air Travel Association’s (IATA) suspension of Jet’s membership in April 2019 sounded the death knell for a company that was, until a decade ago, the nation’s largest airline.
Bold moves that backfired
By the mid-2000s, all the action in the Indian skies was concentrated in the commercial Low-Cost Carrier (LCC) sector. Geopolitical tensions and steadily rising fuel costs were eating into the margins of full-service carriers like Jet. A raft of new entrants only increased the stakes for Goyal who was particularly wary of the maverick businessman, Vijay Mallya’s plans to buy out Air Deccan, a struggling no-frills airline.
He lost no time in restarting negotiations for the eventual takeover of Air Sahara which had long been stuck in the pipeline. Goyal pulled off a brilliant coup in 2007, buying the Subrata Roy-owned carrier for a total consideration of INR 1450 crore. In his own words, it was a “good deal which is going to help us. We got a 40 percent discount on the original price of INR 2,300 crore.” Brushing aside insinuations that he had still paid too much, Goyal told PTI that, “The deal is commercially viable since we are getting a lot of infrastructure and manpower”. The deal makes complete economic sense.” In hindsight, however, the hard-won deal may have the beginning of the end for Jet Airways.
Watch: Naresh Goyal talks about Air Sahara deal and focus on JetLite in 2008
The integration of Air Sahara under the Jet banner, however, was not without problems. A long-standing tax dispute predating the acquisition – which Jet challenged in court – precluded a complete merger for years. Not to be outdone, Goyal rechristened the ex-Sahara fleet, Jet Lite, retained its original airline code S2, and began flying it on popular domestic routes. The idea was that – with the lower end of the market taken care of – the parent brand would be free to focus all its energies on the premium segment. The devil, however, lay in the details.
Conflicting brand messaging
While the tax dispute was still sub-judice, Goyal thought it fit to start a new low-frills subsidiary, Jet Konnect, in 2009 to improve occupancy on domestic routes while bringing down operating costs. The result was a textbook branding faux pas that will make for compulsory reading in B-schools for a long time to come.
While the plan looked good on paper, Goyal had overlooked a key detail: customer perception.
He now had not one but two low-cost brands in his stable. Little effort was made to differentiate it from Jet Lite which was flying pretty much the same routes, putting the average customer in a fix. Things came to a head when business seats were routinely assigned to economy passengers and full-service flights did not have enough of them.
Consolidation efforts: too little too late
While Jet grappled with these challenges, the market was not standing still. With the entry of Air Vistara into the market in 2015, full-service brands came back into focus. Having sustained heavy losses, Goyal decided it was time to course-correct once again. Jet Blue and Jet Konnect were both merged into the parent brand in a bid to “get rid of the confusion in the minds of customers.”
Goyal further declared that Jet would “have a uniform full-service product but compete with low fare airlines by working on its cost structure. The company’s coffers were flush with money after Etihad picked up a 24% stake for $379 million in November 2013. However, operating costs soared even as Jet splurged on a fleet of long haul Airbus A-330s and Boeing B-777s, pushing it back into the red. The magic of Goyal’s charisma was beginning to fade with Etihad losing patience with his obduracy.
It is indeed unfortunate that Jet chose to emulate Kingfisher Airlines in trying to ride two horses at once – low cost and premium- and met the exact same fate some 7 years apart.
When the latter crashed out of the market in 2012, Jet was perched at the very top. Though hindsight is 20/20, had Goyal tempered his ambitions with the practical advice from his team, his lot would have been entirely different.