Jet Airways has been in the news for all the wrong reasons since last August. Eight months of battle has so far been futile. The fall of the airline started within a quarter of the airline utilising all its wide-body aircraft and starting additional services to Amsterdam and Paris.
Jet initially tried selling its stake in the frequent flier program Jet Privilege – which the airline had hived off a few years ago. Since that did not work, the airline started negotiations with equity partner Etihad and simultaneously engaged with the Tata group. While names of many others made the rounds, Etihad and Tata were the only ones which were acknowledged. With stringent conditions put in place and Goyal not wanting to meet them (eventually, he agreed to meet all the conditions), the airline was on a free fall every passing day. The airline, which now operates less than 30 aircraft, had a peak of 123 aircraft not so long ago.
As the airline went to the market to find suitors, the Tata group was at the forefront. The Tatas were speculated to also bid for Air India – which did not receive a single bid.
Does Tata know aviation? The market expectation about the group has been solely because Tata Airways was the predecessor of Air India and JRD Tata was the chairman of Air India – in its heydays. Add to that the love for aviation for its chairman emeritus Ratan Tata and the group's investments in two airlines at the moment, Tata suddenly becomes the frontrunner.
The group has a majority stake in Vistara – which is a joint venture with Singapore Airlines and also a majority stake in AirAsia India – a joint venture with Malaysia’s AirAsia Berhad. While one is a full-service premium carrier, the other is a low-cost carrier. Both have struggled to gain a foothold in the Indian market. The former went through a couple of re-configurations to get the seating right, while the latter has been struggling since inception and has seen management changes at regular intervals.
Vistara’s challenge has been lack of expansion at Mumbai and limited expansion at Delhi — which is due to the infrastructural constraints. The airline’s configuration and premium offering find lesser takers at Tier II cities as compared to Mumbai — the financial capital — and Delhi — the national capital — and the hub for the airline. The Tata group buying a stake in Jet Airways would give the much-needed slots at both these airports, which will help the airline grow and match rivals was the most popular argument.
When the Air India bidding was in process, domestic market leader IndiGo had come out in open to request the government to have a separate bid for the International operations of Air India. It is no secret that IndiGo has been aiming to fly International and was actively exploring wide-body aircraft to enter the low-cost long haul (LCLH) market. From this point of view, Jet Airways international operations – if sold separately are equally attractive for IndiGo.
Vistara has already ordered wide-body aircraft and AirAsia India can rely on the large order of AirAsia X the group subsidiary to induct widebody aircraft. In case of IndiGo, the manufacturers have been pushing the airline to opt for a widebody which will be its next phase of growth after the regional connectivity on the ATR, domestic and regional international on the A320 and the medium haul international on the A321neo.
There are two major points which will make Jet Airways attractive – the slot bank at Mumbai and Delhi and the bilateral rights which the airline holds, especially to Singapore, Dubai and London – which are hard to get for others.
The last few days have seen hectic parlays between the airlines and airport operators to release the slots, which Jet Airways has been holding but not operating. Eventually, on April 4, slots were released, and airlines put additional flights on sale, albeit for a limited period.
This practice of limited allocation of slots was recently done during the SpiceJet crisis in 2014, when certain slots were given out to rivals for temporary use. As SpiceJet came back from the brink, the airline got most of its slot holding back and since it was operating a lower number of aircraft than before, the additional slots were given out to airlines at a later date during the change of scheduling season.
Airports are heavily dependent on the passengers for revenue and passenger numbers increase when more flights take off from the airport. Thus airports led by Mumbai have started handing out slots to airlines. There are multiple factors that dictate how slots get allocated at such times, the prime being the infrastructure availability. It is for this reason that IndiGo would operate its additional flights from T2 at Mumbai, instead of T1 from where it operates all the domestic flights.
While the slots are for a temporary period, it has given out a message to the market that in an eventuality where the airline does not survive, the slots will be re-distributed amongst other airlines. This would be an indication that Vistara and AirAsia India will get a fair share of slots at Mumbai as well as Delhi and same would be the case with other incumbents. On the congestion side, the issue is settled.
With slots being one side of the coin, the other was bilateral rights and the same principle of slot allocation could well be applied by the government. Jet Airways has approvals for 7x flights a day to Dubai from Mumbai – one of the most lucrative routes and thrice daily to Singapore from Mumbai and Delhi – another lucrative and business-heavy route from where Vistara can connect passengers onwards to Japan, Indonesia, Australia and some other countries in South East Asia onboard partner Singapore Airlines and its subsidiaries fleet.
Certainly, the Tata group airlines, especially Vistara which has been looking to grow at Mumbai and Delhi – both being business markets — will not get all the slots like they would have had the group purchased Jet Airways, but is the liability and cost of purchase worth all the slots or is slower growth better without the liability, which could be anywhere in excess of Rs 4,000 crore?
As for IndiGo, if the airline still has the appetite for wide body operations and is looking to see if it can get the international division of Jet Airways, may be they would also wait for the bilateral being re-allocated instead of taking over operations as far and wide with complex revenue sharing mechanism with partners in place and multiple hubs – something which the airline is so far not used to.
Time will tell if Jet Airways is saved. But for now, it doesn’t look prudent for any of the incumbent airlines to bid for Jet Airways to get even with infrastructure and flying rights.
Ameya Joshi is the founder of aviation analysis blog NetworkThought.