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By adopting a low cost model, Jet Airways is playing into IndiGo’s hands

By adopting a low-cost model, Jet Airways is playing into IndiGo’s hands

By adopting a low-cost model, Jet Airways is playing into IndiGo’s hands
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By Devesh Agarwal  Dec 6, 2018 1:06:34 PM IST (Updated)

It appears the bean-counters have been given charge at the financially beleaguered Jet Airways. Their cost-cutting moves are playing to market-leader IndiGo’s strengths instead of Jet’s strengths, and this is not the way for the airline to survive, in the long term.

It appears the bean-counters have been given charge at the financially beleaguered Jet Airways. Their cost-cutting moves are playing to market-leader IndiGo’s strengths instead of Jet’s strengths, and this is not the way for the airline to survive, in the long term.

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The difference between low-fare carriers like IndiGo and full-service airlines like Jet is how they provide the core service of transporting a passenger from the origin to the destination. Low-fare carriers focus on “no frills” and target the price sensitive consumer who decides almost solely on ticket price while the full-service passenger typically values the additional factors including, frequency, schedules, network, frequent flier points and status, and the corresponding benefits that loyalty brings, and meals.
IndiGo’s strategy from day one has been built on running an efficient and lean operation. Its decisions are driven by a strategy that leverages scale and minimises complexity.
  • IndiGo keeps its staffing and costs at low levels. Even its corporate headquarters are functional, with limited lavishness or secretaries etc.
  • A predominantly common fleet allows the airline to save on parts, spares, and personnel costs (It has started running the smaller ATR planes but thy are used for regional routes). Operations are efficient thanks to uniform processes.
  • A set of airport staff can handle up to five daily flights. IndiGo maximises returns on investment by adding frequencies to a destination, before adding a new destination.
  • IndiGo has also been at the leading edge of cost saving procedures like single engine taxiing, intersection departures (instead of taxiing to the end of the runway), flying procedures, fuel and tanker policies.
  • In Q2FY2019, IndiGo’s cost per available seat-kilometre (a measure of capacity) of Rs 3.70, is 22 percent lower than Jet’s Rs 4.76. IndiGo appears to be killing Jet with a strategy of “a thousand cuts”. Losing Rs 0.50 per ASK, IndiGo has used its massive reserves of over Rs 13,708 crore to bleed Jet Airways dry.
    With its fleet of 194 aircraft, IndiGo trumps Jet’s 124 aircraft domestic network, both in terms of breadth (49 stations served vs. 47), and depth (about 1,010 daily flights vs. 640).
    Weak on the two major purchase influencers: price and network, Jet Airways focuses on the corporate and international passengers who give it a 30 percent higher revenue per ASK of Rs 4.16 compared with IndiGo’s Rs 3.20. These passengers naturally expect Jet to provide them the full-service experience, included in their fare. Baggage, meals, priority check-in, ability to choose and allocate a seat in advance, lounge access, and priority boarding, are some of the most visible services to the passenger, and which directly impact their impression and consequent loyalty.
    While Jet is cutting back on meals and lounge access, IndiGo is courting the corporate passengers by offering free meals and advance seat allocation.
    Jet should compete on its strengths, not IndiGo’s
    Don’t compete on price. With its lower cost base and massive reserves IndiGo is tough to beat. Compete on HOW you provide the full-service experience.
    The Jet brand is still strong and has a loyal customer base. Its JetPrivilege (JP) loyalty programme is still considered the best. Jet’s most important customers are the most loyal customers of JP, i.e. the Platinum and Gold tier members. Instead of reducing their benefits, Jet must increase their benefits including lesser miles for free tickets and if needed compensate it by reducing or eliminating the benefits to infrequent and low yielding passengers.
    If Jet must dilute services, begin with those that least impact the passenger impression, before escalating to the most. Many times, it is just a small item which the passenger will not even notice or miss. For each kilogram saving of weight carried on-board Jet Airways can achieve saving running in to lakhs of rupees per year.
    • American Airlines saved over $40,000 by removing just one olive from its meal tray, today those savings are almost $100,000 both in food costs but also in weight reduction.
    • United Airlines saved hundreds of thousands of dollars by removing refreshing towels on short flights.
    • Prior to its merger with Delta, Northwest Airlines used to slice its limes in to 16 pieces instead of the previous 10, thus reducing the number of limes carried on a flight and saving over $500,000 per year. A saving of just 100 grams per flight will help Jet Airways achieve a weight reduction of 36 tonnes per year. Half the weight of a loaded Boeing 737 or Airbus A320.
    • United and British Airways started printing their in-flight magazines on thinner paper and reduced the weight from about 100 grams to less than 30 grams. They also reduced the number of magazines carried on-board. They saved over $300,000 per year by reduced costs, and weight reduction per flight.
    • Just removing drinking straws helped American Airlines and Alaska Airlines save almost 32 tonnes of weight from their aircraft per year. Cost savings and environmental publicity aside.
    • Virgin Atlantic made its glasses and plates thinner, and re-designed its meal trays to reduce the space occupied and therefore the number of food carts carried on board. A reduction of each kilo carried on-board will help Jet Airways reduce its fuel consumption by lakhs of rupees per year.
    • Removing pillows, blankets, newspapers and magazines not only saves direct costs, but the weight per aircraft is reduced. Even the quantity of water and ice carried on-board is rationalised. Mini plastic bottles are replaced with one and two litre bottles and paper cups. Environmental savings and publicity aside, a savings of just 100 kilograms per flight will save Jet over 100 tons per day. Experience in the United States and Europe shows us that passengers accepted these reductions and started carrying their own travel pillows, sweaters and shawls.
    • Jet’s efficiency experts should ruthlessly examine their costs:
      • Southwest Airlines saved the equivalent of Rs 6.50 crore in 2014 and 2015 just by changing the way they stocked and replenished their aircraft’s galleys between flights. The amount may not look large, but every rupee saved helps.
      • Re-negotiate supply, maintenance, service, and employee contracts to maximise efficiency and drive down costs
      • Increasing the use of technology to encourage electronic check-in, baggage self-check, etc. to reduce the excess staff we see at Jet’s main hubs of Mumbai and New Delhi.
      • Why fly with five cabin crew when all low-fare airlines fly with four?
      • Ask the food vendors to pre-load service trays reducing workload on the cabin crew and aid service efficiency.
      • Slash uneconomic routes and flights, especially to the depressed and hyper-competitive middle-east and gulf regions.
      • Get rid of the older fuel and maintenance heavy aircraft fast.
      • Partner with renowned chefs and offer super-premium meals as a “buy-on-board” option in economy class for additional ancillary revenue.
      • It is heartening to see that Jet Airways is already implementing some of the suggestions made in this article, but I hope we see more.
        The Influencers
        In this age of the 24-hour news cycle, and the networked social media world, it is distressing to see airline executives, not just at Jet, failing to realise the influencing role played by today’s savvy passenger. The slightest move is picked up and spread across social media at frenetic speed. This threat is also an opportunity. We regularly hear about the excellent service by Vistara (Tata SIA) or their “to die for” meals. Why not for Jet?
        Jet should pick up cues from Vistara and the hospitality industry and engage with aviation bloggers and aviation geeks? We receive hundreds of enquiries per month seeking advice on the choice of airline to fly.
        Ensuring customers don’t lose faith
        That Jet Airways is operating flights normally is irrelevant in the minds of the customer.  The perception is. Stories of flight cancellations due to financial difficulties especially those of salary delay or default spread like wildfire, impacts customer faith and hence forward bookings. This in turn forces Jet to resort to discounting, and reducing its pricing power.
        Jet Airways must manage the public perception and raise its corporate communication to adjust to the 24-hour news cycle. A simple example. An enquiry by me to Jet’s PR agency, just to know the number of daily flights the airline operates, remains unanswered even after a day. Similarly, the already good Jet social media team must rise to another level.
        The points of differentiation are fast eroding and pressure is building on Jet from all sides. Price-based from the low-fare IndiGo, SpiceJet and GoAir. Service-based from Vistara. Jet must examine the management adage “you can’t be all things to all people”, and should take a call on where it stands, what is its revised brand promise, and communicate these to its passengers and the public at large.
        Above all, the management at Jet Airways must ensure their product is always appealing.
        As Gordon Bethune, the CEO who resurrected Continental Airlines from the worst to the first rank, said, “it’s not about being the best in cutting costs. You can make a pizza so cheap that no one wants to buy it."
        Devesh Agarwal is the editor of BangaloreAviation.com. He is ranked 6th on Mashable's list of aviation pros on Twitter @BLRAviation. He is an elite level frequent flier with both Jet Airways and American Airlines, and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.
        Disclaimer: Vistara is one of the four launching partners of CNBCTV18.com.
        Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!

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