By Vijay Darda | 25-03-2019
Why the company that was once India’s number one airline in terms of passenger market share is in a state of insolvency?
If you look at Jet Airways’ initial progress, you can call it a shining journey. In 1993, a company starts business as an air taxi operator. Within a period of only two years, i.e. in 1995, it establishes itself as a full-service airline, and in 2004, it launches its international service. In 2006, the company buys Air Sahara and in 2010, with 22.6 per cent passenger market share, it becomes India’s largest company. Travellers begin to like Jet Airways. The graph of its success soars. Till 2012, it keeps its flag of success flying high as India’s paramount airline and also retains the number one position. And then, the graph begins to nosedive. Nevertheless, Jet Airways continues to maintain the number two spot with nearly 18 per cent passenger market share until last year.
So, what has caused Jet Airways to crashland with the onset of 2019? What has caused such a deterioration in its financial condition that neither is it able to pay its staff nor fly flights to capacity? In fact, Jet Airways has hired aircraft from other companies in the world. It is not able to pay the lease amount of these aircraft in time. Therefore, in the first phase itself, it has already cancelled 84 flights. The result was that the number of seats for the air travellers suddenly came down. Statistics show that the total number of seats in the domestic flights in the month of January was 1.47 crore, which stood at only 1.34 crore in February, i.e. 13 lakh seats were reduced.
It may be noted that due to the shortage of pilots, Indigo too continues to cancel some of its flights. Also, SpiceJet had to ground 12 of its Boeing 737 Max planes because the Director General of Civil Aviation (DGCA) has banned such aircraft for safety reasons. This is the biggest case of drop in number of seats in aviation history. Prior to this when 69 planes of Vijay Mallya’s company Kingfisher Airlines had been grounded, a large number of seats were reduced. But this time, the crisis is much bigger. By the end of April, Jet Airways is going to stop operation of its flights on 13 international routes.
The impact of this devastating fall in the number of seats has been that the fares of the air travel have also increased by 35 to 40 per cent on the short busy routes. Between the metros, the fare has increased by 50 to 60 per cent. This is the situation when the season of tourism has not started yet. If the plane fares grow, it will have direct impact on the tourism sector.
We all know that due to the private sector aviation companies, the air fare was reduced and it became possible for the common man to travel by air. If the fare increases, the common man may not even think of air travel. However, you will be surprised to know that it is this price war that has landed Jet Airways into the present financial crisis. When companies like Indigo and SpiceJet jumped into the price war to attract middle class customers, Jet Airways also had to reduce fares in 2013 out of compulsion. According to experts, Jet Airways used to spend one rupee per kilometre per seat more as compared to its competitors. At the end of 2015, Jet Airways was earning 50 paisa per seat against the rivals. Indigo once again reduced the fare and increased the frequency of the aircraft by two and half times. However, Indigo lost about 90 paisa per kilometre in the first nine months of 2016, but the real loss was suffered by Jet Airways. After this, Jet Airways also reduced the fare. It waived 50 paisa profit and bore an additional loss of 30 paisa but it could not survive in the price war because it was already in debt. Now it is even deeper in debt. By 2021, it has to repay the debt of Rs 63 billion.
It is expected that financial institutions like SBI will take strong measures to bail out Jet Airways. At the same time, the government will have to take tough decisions in the interest of the air travellers. The DGCA has cleared schedule of 41 days as of now. But the same has not yet been conveyed to the common man. People are not able to understand which flight to book their seats on so that their flight is not cancelled. You will be surprised to know that the Jet Airways has so far not refunded Rs 3,000 crore to the passengers who had booked their tickets in advance, though those flights have already been cancelled.
The crisis is far from over now because Etihad Airways and Qatar Airways have clearly told Jet Airways that it should first set its house in order and only then something can be thought of. So the point is that this aviation crisis has also affected the business sector. Businessmen are worried because of flight cancellation. For the big businessmen, a chartered plane has become necessary, but there is also an exponential increase in fare. The government will have to focus on not allowing the fare to grow. It is also necessary to understand that India today needs to have three times more the number of planes that are presently flying. If the reduction in the number of flights continued, what will happen to the government’s new aviation policy? The smaller cities will not be able to connect with the air service at all.
The financial crisis of Jet Airways is a matter of grave concern because at the end of the day it is the common air travellers who suffer. Does giving refund if the flight is cancelled solve the problems of the passengers? The government should understand and intervene.