There is little doubt in anyone’s mind at Jet Airways about who calls the shots these days. The offices near Mumbai’s international airport have vice-presidents, captains and department heads, cabin baggage in tow, buzzing in and out. Most are either coming from or are en route to the Etihad Airways headquarters at Khalifa City in Abu Dhabi.
At the next board meeting, Jet Chairman Naresh Goyal will formally induct two new members into his board. Etihad President and CEO James Hogan and CFO James Rigney take their place along with a 24 percent stake in the airline. Goyal’s long-time friend and advisor Vic Dungca, who has been with him from the day he started the airline 20 years ago, steps down from the board.
What is not as well-known is that apart from the board seats, alignment with Etihad has begun at various other levels. Most of this is led by the new Jet CEO, Gary Toomey. Jet insiders say senior managers responsible for rolling out the integration plan have already been selected. Some are expat Indians who work for Etihad; others are on secondment from the airline. Earlier, around 40 captains quit Air India to join Etihad; 11 of them are now on secondment to Jet Airways and will be based in India to operate flights from Abu Dhabi. For many in the airline, the distinction between the two carriers is already getting blurred.
You can’t miss the irony. In the Middle-Eastern aviation market, Etihad Airways was, till recently, considered to be an also-ran with pots of gold to bank on. In India, Jet Airways is now a fading star, losing steam and starkly in the red. Their alliance is being positioned as a marriage of convenience, with both companies using the other to gain stature and viability, respectively. There it is. The irony.
Hogan views Jet as the jewel in his crown—his best chance at grabbing a slice of the Indian market. It is also possibly the only way to beat big brother Emirates, which is miles ahead on the high-potential India traffic. In a bullish interview to Airline Business magazine this month, Hogan had said that Etihad’s seat allocation to India ramps up from 12,000 seats a week to 50,000. “We fly to nine cities today. When we max out, between us [Jet and Etihad] we will be flying from Abu Dhabi to 26 cities in India. We will grow our presence in Bombay and New Delhi, so now long-haul flying [from India] to the USA will be over Abu Dhabi,” Hogan had said.
Hogan’s optimism glosses over many ground realities at Jet. The airline has never been as lost as it is now—and in no small part due to the promoter’s errors of judgment.
International analysts have strongly questioned Etihad’s wisdom at buying a stake in the loss-making airline. With a fleet of 80 planes, carrying 10.3 million passengers annually, Etihad is currently smaller than Jet Airways, which has more aircraft and a larger network but is swimming in a sea of red.
The rise and fall of Jet Airways is the stuff of legends in corporate India. Goyal started the airline 20 years ago with a couple of leased planes; he now runs a global operation with over 100 aircraft. Jet ramped up quickly, and almost too easily, to become India’s largest and most used airline. But Goyal was never able to fulfil his ambition of creating a premium network carrier like his ideal, Singapore Airlines. He and his wife Anita closely controlled the operations, running the company first from their offices near Mumbai’s international airport and later from their upscale house in London. The string of expat CEOs hired by Goyal had little authority over most important decisions. “Jet was never really a professionally-run company,” says Saroj Datta, who served as the airline’s executive director till he retired two years ago.
The reversal in fortune can also be traced back to the entry of low-cost carriers (LCCs) in 2005. Goyal, who had built his worldview in the era or network carriers, was unable to make the course corrections needed in the new scenario. Datta says, “Keeping 80 percent of the shareholding for himself was such a waste. Sadly, no one could make money from the airline.’’
Hogan and Etihad have grand visions of a rosier future for Jet but turning the airline around is going to be a monumental task for several reasons. Foremost is the financial mess the airline is in. In the last three quarters, Jet has lost more than it has earned in almost 10 years. On a standalone basis (without subsidiary JetLite), the airline reported net losses of Rs 495 crore in the January-March, Rs 355 crore in the April-June and Rs 891 crore in the July-September quarters this year. The losses in 2013 so far add up to a staggering Rs 1,741 crore. Goyal has been unable to stem the rot. Many thought when Kingfisher Airlines went belly-up, it would give Jet the headroom it needed since both airlines competed fiercely on metro and feeder routes. But even a year after Kingfisher’s exit, Jet’s operating costs remain much higher than its income.
In the past, higher revenues and margins on international routes were the saving grace for Jet when under pressure from domestic competition. But that has changed. In the first half of 2013-14, the airline lost nearly Rs 336 crore on its international operations. Revenues per passenger have fallen, while costs have risen. While speaking to analysts after the record losses in the last quarter, Jet CFO Ravishankar B had said that high fuel prices and a weak rupee were responsible for most of the losses. International oil analysts say this scenario is unlikely to change in 2014.
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(This story appears in the 13 December, 2013 issue of Forbes India. To visit our Archives, click here.)