When it first launched in the 1990s, Jet ruled the skies and managed to beat the Indian Airlines in getting business passengers.
A decade is hardly a long time in the life of a company. But spare a thought for Jet Airways, which had the biggest market share till 2010, and has all but collapsed.
Over the last year or so, Jet’s consumers were often looking to the skies, hoping no flights would be cancelled. Its shareholders were keeping their eyes fixed to the ground, hoping against hope that more planes would not be grounded. That would mean ceding ground to competition. As recent turn of event shows, both have been let down.
As Chairman Naresh Goyal stepped down, the story of nearly 25 years of Jet Airways is worth recounting. In the early years, the company had the promise to be India’s global airline but there were several missteps that made it run out of fuel. And ideas!
A breath of fresh air
Ask the business flyers of the 1990s if there was something special about Jet Airways. As India deregulated its skies, Jet’s service was like a breath of fresh air.
When it was launched, Air Deccan caught the fancy with its one rupee pricing. Air Sahara never really made it as a preferred airline while others flew to give company to its rivals. IndiGo, however, stood out as a strong competition from its early days.
Such was its service that Jet ruled the skies and managed to beat the Indian Airlines in getting business passengers. Indian Airlines responded and launched flights between Delhi and Mumbai every hour, calling it the shuttle service. It was hoping to capture a large chunk of the sector, nearly 40 per cent of India’s aviation market. Jet’s quality service ensured that customers did not switch the brand.
During its first decade, Jet never faced the tough competition like it were to in the decade after IPO was lapped up.
An IPO with little returns
Jet Airways was the first major airline to list in India. SpiceJet was already listed but hardly evinced interest among the institutional investors. With the strong brand, promoters managed to get a good price of Rs 1,100/share at a time when the markets still appeared cheap. With a valuation in excess of $2 billion at listing, there was a lot of room on the upside.
A little before its listing, investors got to know that the brand Jet Airways was not owned by the company. The company then paid Chairman Naresh Goyal Rs 31 crore to transfer the brand name to the company. It was a rude shock, but that’s how the cookie crumbled!
Life changed for the company after it had listed in January 2006. The stock had inched within kissing distance of Rs 1,300. That is when smart money perhaps decided to take the profit home. After that, the stock has never ever crossed the IPO price. Since then, the rich valuation of the IPO has always been an overhang.
Airline stocks are hardly for the faint hearted. Look around the world; there are not many examples of full-service carriers reporting secular growth in profit. With crude oil prices having stayed firm after the high of $147 per barrel in July 2008, airline companies have been one of the biggest losers. According to thumb rule, fuel constitutes nearly 50 per cent of the operating expense of an airline. When prices move up, the pricing ability is eroded, and getting new fliers for growth becomes a challenge.
After the 2008 bull run in crude oil prices, Jet faced competition from a growing Air Deccan and IndiGo. SpiceJet was going through its own troubles, but the low-cost carriers made it tough for Jet.
High oil prices, stronger competition, spread of low-cost carriers, airlines going to smaller towns, where fares had to be lower – Jet’s goose was being cooked.
Jet Airways did the unthinkable – bought Air Sahara to launch a separate low-cost airline brand called Jet Konnect. It wanted to fight other low-cost carriers that were eating into its market. Once the fliers got used to travelling in low cost carriers with their 180-seater planes, the rules of the game had changed.
India’s skies are decidedly ruled by low-cost airlines. The sector is facing tough times. While Jet’s fate will be decided by a new set of owners, IndiGo has seen its profit plunge despite a 42 per cent market share. SpiceJet has been hit as they had Boeing’s 737 MAX8 in their fleet. Air India’s woes seem unending as it hurtles from one worry to another. Worse, six of the airlines which bid to join the UDAN scheme of the government have shut down.
Its employees must now be on a wing and a prayer.
(The views and opinions expressed in this article are those of the author's and do not necessarily reflect that of the BTVI’s)