Over the last year, Naresh Goyal, known for his “ruthless passion” for his airline, has had to let go. Of a lot. Selling 24 percent of Jet Airways’ equity as well as a majority stake in its frequent flier programme which houses data about premium passengers. Selling slots at London’s Heathrow airport to Etihad Airways. Easing out his best friends Ali Ghandour and Vic Dungca from the board—both are airline industry men of global repute who had been by his side almost from the day he started Jet Airways. Sidelining or firing key staffers, including his wife Neeta, who had helped him steer the company through financial, regulatory and legal minefields—financial compulsions of the past few years made this move imperative. But these painful changes, made with the intent of staging even a semblance of recovery, have not restored Jet’s fortunes in any significant way. Financial year 2014 was in many ways the lowest point for what was once India’s most powerful service brand. Loss for the year is expected to be around Rs 2,000 crore. Till Q3, revenue fell 10 percent over the previous year and losses stood at Rs 1,514 crore. In its latest available results (Q3FY14), Jet recorded a (standalone) loss after tax of Rs 267crore, of which Rs 259 crore was from its domestic operations. Add the woes of subsidiary company Jet Lite (formerly Sahara Airlines), and the problem gets compounded. Jet Lite has negative net worth, and continues to make losses despite loans (Rs 180 crore till December 2013) from its stressed parent.
These numbers are chilling, but it isn’t yet time to pen an epitaph. However, there is certainly a cautionary tale to be told, deconstructing the tailspin that the 21-year-old airline finds itself in.
THE BELEAGUERED RANK & FILE
Goyal has typically administered Jet Airways closely. Albeit away from the notorious traffic jams around his airline’s corporate headquarters at Andheri east in Mumbai. For close to two decades, he worked from his home office in London. More recently, it is from his new base in Dubai, where he bought a posh 18,000 sq ft penthouse overlooking the Marina.
Senior managers of Jet, particularly in the operations and finance functions, have a bag packed and are ready for travel on most days. They are used to the chairman’s summons, and make quick trips to discuss one issue or another. Some of the trips are to Abu Dhabi, where Jet’s new strategic investor Etihad Airways is based. But more often, they meet Goyal in Dubai. The discussions centre on getting the airline back on the rails and tackling the airline’s biggest problem—its costs.
For the Jet executives, there is a sense of hopelessness about these meetings with the chairman. Attempts to cut costs have been ongoing, for as long as they can remember, yet the airline is in its poorest financial and operational shape. Many staffers, especially pilots, say they now keep close track of their bank accounts, making sure that salaries and allowances are being credited in time. And so far, they are.
Though not many saw it then, India’s two largest network carriers, Jet Airways and Kingfisher Airlines, began a race to the bottom from 2007-08 onwards. Back then, hubris ruled. Competing intensely with each other, both Goyal and Vijay Mallya moved fast with their plans to expand their domestic and international footprint. Mallya’s Kingfisher Airlines, the newer of the two, had no profits and a higher cash-burn. It reached the bottom first but, two years on, Jet Airways is not very far behind.
For this story, Forbes India spoke to airline industry professionals from across the world. Goyal did not agree to an interview, nor did he respond to questions. We did speak to two of his former CEOs, one former COO and senior managers present and past.
First, a little background. The decline of Goyal’s fortune has been long drawn. It started in 2008 after low-cost carriers (LCCs) took root in India. By 2012, the crisis had peaked and Goyal could see his airline gasping for capital. Bankers, already stuck with NPAs from the notoriously value-destroying industry, refused to lend any more. The State Bank of India, for instance, is stuck with huge exposures to both Jet and Kingfisher. Sources in infrastructure finance company IDFC recall turning the screws on the Jet management and forcing an agreement to repay Rs 1 crore a day. IDFC has since recovered its loan.
The new Indian skies
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(This story appears in the 02 May, 2014 issue of Forbes India. To visit our Archives, click here.)
Excellent article. The downfall and the tailspin seen with the key players in the airline industry has been extensive over the past few years and I agree with Mr. Agrawal completely. However, in my opinion, the industry has hit the bottom. I believe the only way from here is upwards for the entire industry. Airlines is an industry that cannot be disposed off and is crucial to the overall economic development. Eventually the government has to figure out ways to save the industry as a whole, whether by reducing taxes, reducing fuel charges or through other innovative ideas. So i think this tailspin should end soon, and with the right policies in place, foreign airlines would be extremely keen to invest in indian airlines considering the kind of potential the indian population presents for air travel. I wouldn\'t even be surprised to see Kingfisher airlines up in the sky in the near future, Vijay Mallya just may find his way out. I think this is the best time to do some bottom fishing and invest in these down and out airlines and be prepared to hold for long term with a target of at east 10 years.on May 10, 2014
By trying to charge International passenger\'s a baggage charge of 300Rs/Kg, hope Mr. Goyal is able to save his company. They better run out of business sooner than later.on May 8, 2014
Excellent article. Very well researched. A brief history of three airlines, one now defunct. Language easily understood by lay public. I think this should find a special place in the aviation journalists domain. I fully agree with Mr. Agarwals comments. Congrats Cuckoo.on Apr 30, 2014
Thanks for your kind words Sreenivasan. Fully agree with you on Cuckoo\'s fantastic ability to distil complexities in to an easy to understand format.on Apr 30, 2014
A nice summary of all that is wrong with Jet. However what beats me is the valuation that Etihad agreed to pay for Jet,considering they are not really looking at Jet as a long term investment or have any interest in turning it around.They basically want it to funnel traffic to Abu Dhabi and get hold of Jets frequent flyer list(Which they have got). But International traffic from India is not really growing by leaps and bounds.In order to make this a worthwhile investment,it has to work like a well oiled machine,match Jet arrivals to Etihad departures,more Jet-Abu Dhabi links,more codeshare and back end integration. Etihad also has its increased seat allocations to fill,which is not going to happen for a few years atleast.Looks like Naresh Goyal is really lucky to get some cash of Jet! However it was a fantastic article,enjoyed reading it. Regards Avisharon Apr 30, 2014
India is the top destination for Dubai airport with over 7.52 lakh passengers per month. Etihad has not valued Jet just stand alone. It got a 400% increase in its bi-lateral seat capacity which it desperately needs if it stands any chance against Emirates. Add a similar capacity from the Indian side and EY gets a total increase of about 700%. For now Etihad has all the data it needs i.e. Jet\'s frequent fliers. I think Abu Dhabi is waiting for a more pro-business administration to govern so that certain restrictive aspects of foreign control on Indian carriers can be tempered down. In parallel, Goyalji continues to drive Jet in to a further mess, and then we might see Etihad boost its stake and show NG the door. One thing is clear, till the Goyal family does not relinquish its operational control of Jet, things will not improve.on Apr 30, 2014
Hi Devesh, Its was very nice of you to reply(Big fan and long time follower of Bangalore Aviation here!) I agree with your views.However Jet has a good chance of surviving.It still has a very strong brand cache and more a importantly a premium one.It needs a very strong and new management,funds and a direction.Its time for Naresh Goyal to step aside.Jet truly had potential to build a word class airline product from India. -Avisharon May 5, 2014
A well researched and very well written article. Congratulations Cuckoo. It is very interesting to see the similarities between Kingfisher and Jet and how they have been ruined by the hubris of their respective Chairmen. Supposedly shrewd business men, they have each ruined their airline by swallowing a poison pill. Air Deccan and Sahara respectively.on Apr 29, 2014
Poison pill indeed! In an ironic twist to the tale, everyone who thought the sellers Capt Gopi and Saharashri had the last laugh, are now thinking again.on Apr 30, 2014