The transition from “India needs a thousand planes” to “there is overcapacity in India” has been faster than it takes to fly from Delhi to Mumbai. Three years of low oil prices helped airlines offer lower fares and fuelled the exponential growth in air traffic. Fares, instead of firming up, have remained the same or in some cases seen a dip, leading to airlines blaming over capacity, market dynamics and operating environment for the red ink on their balance sheet.
On August 27, 2018, even when Jet Airways declared a massive Rs 1,323-crore loss, it seemed that the airline had emerged from a period of turbulence. With wide body aircraft back in its fleet, expansion to Europe from Bengaluru and Chennai, stabilisation of network at Amsterdam, strategic partnerships with Delta, KLM, Air France and Virgin Atlantic to carry passengers to and forth from North America via London Heathrow, Amsterdam and Paris and a few profitable quarters behind it, the skies looked clearer than before. Alas! It was not to be. Jet declared another loss of Rs 1,297 crore in the second quarter.
The airline has since announced a turnaround plan, aided by a recast of its network.
What is Jet Up To?
Jet will look to expedite its network rejig as it aims to achieve a cost reduction of Rs 2,000 crore over the next two years. The airline will focus on strengthening its hubs — starting with Mumbai and Delhi — to build a domestic network, which will become a feeder to its international services from these two cities. The airline is selectively reducing flights on the domestic sector and replacing international flights from tier-II cities in India with flights to the same international destinations from the metro cities.
The airline commenced services to Manchester from Mumbai in early November and it will soon add a third daily service to Singapore from Mumbai as well as Delhi, along with a daily service from Pune. Jet offers double daily flights to Singapore from Bengaluru.
These are major markets from the country and via its partner network offer choice to Australia, Indonesia and other ASEAN countries.
The airline will also launch seventh daily flights between Mumbai and Dubai, a third Delhi–Bangkok service and a second frequency to Doha from Mumbai and Delhi, along with fourth flight to Kathmandu from Delhi. Some of these flights like the Dubai flight is a replacement of the Mangalore–Dubai sector which indicates consolidation of presence at Mumbai and Delhi. In cases like Doha and Singapore, it has launched a capacity re-adjustment, replacing the wide-body planes with the narrow body B737.
This is a game of frequency over capacity. Jet is aiming to become strong in one market than being present in every market, with the same capacity spread across different times. Such a tactic helps to woo passengers because an airline is offering better connections and lower connecting times. Better connections are being offered in India and abroad, at a time when the airline has expanded its codeshare partnership with Delta, Etihad, Korean Air, Malaysian Airlines and Bangkok Airways.
Domestic Game Plan
While the international environment is largely under control, the domestic market is in a tailspin, with airlines pumping (or dumping) capacity on every possible route. Jet is all but wiped out from the south where it had a decent (if not formidable) network with the ATR aircraft. Spicejet’s Q400 foray and IndiGo’s ATR blitzkrieg led to Jet all but vacating the market.
The airline is further reducing its presence on the domestic front and is likely to close down a few stations. The airline is pulling out flights on the domestic circuit. A major chunk of this is seen from Kolkata.
The airline is pulling out of Kolkata–Pune, Kolkata– Chandigarh, Kolkata–Indore and reducing flights between Delhi and Kolkata to two each way from four currently and Kolkata–Guwahati from two to one. This comes within days of the airline pulling out of the Hyderabad–Delhi and Hyderabad–Pune markets.
Trichy as a station would cease to exist soon, as the airport currently sees once a week flight from the airline, which is not available for sale post December 2.
The Worrying Factor
The airline has seen a steady drop in aircraft utilisation. The last time, this metric — a measure of an airline’s productivity — fell below 13 hours was in the second quarter of FY16. The airline, as part of its earlier turnaround plan, had started utilising its assets more since. This was aided by lower oil prices, which helped keep the variable costs like fuel prices down.
This phase saw the airline expand to GCC (Gulf Cooperation Council) countries and add point-to-point services in India as well as red-eye flights. As oil climbs back, several flights come under pressure to breakeven and the airline is reducing its domestic presence by pulling out flights.
Reduced utilisation could increase the CASK (cost per available seat kilometer) since the same cost is amortised over fewer number of flights. The flights, which were hitherto borderline profitable, could quickly turn negative and there could be increased pressure on all flights.
What Happens Next?
The network from tier-II cities to GCC countries is likely to shrink further. The airline has already closed fare classes for its flights between Kochi and Doha beyond December and more flights are likely to follow this path. Instead, the airline could feed its traffic to the Gulf, which originates in West and South of the country via its hub in Mumbai and traffic originating from North and East via Delhi.
This strategy lets the airline take a share from a larger pie of traffic between the metros and points in GCC, leaving out the relatively seasonal VFR (Visiting Friends and Relatives) traffic from points in South India. A strong presence at Mumbai and Delhi helps Jet Airways take on the low-cost carriers at their own game of capacity strength.
This entire turnaround will be driven by a revenue strategy. The airline can use its extensive network to have few seats to compete with the low-cost carriers at a cheaper cost, a large chunk to feed international flights and then the last few for last- minute travellers, which can then be sold at a premium or dumped to take benefit of the market dynamics or disturb the pricing dynamics for competition.
The airline is trying to pick up fewer battles to fight and fight them well, by amplifying the strength of what is already strong while letting go of low yielding routes and markets for others to fight.
Whether the airline will survive in its current form is anybody’s guess. But the measures it takes today will certainly help it tomorrow, either to shore up revenues and survive or be a well-dressed bride for a likely suitor.
Ameya Joshi is the founder of aviation analysis blog NetworkThoughts.