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Jet CEO Kardassis quits: Etihad gets down to business in India?

That Jet Airways would undergo overhaul at both the board and the management level had been expected ever since Etihad signed a deal to pick up 24 per cent equity stake in the Indian carrier.

K.R. Balasubramanyam | June 14, 2013 | Updated 09:30 IST

K.R. Balasubramanyam
K.R. Balasubramanyam
Etihad Airways CEO James Hogan seems to have got down to serious business with Jet Airways, his airline's latest strategic partner. Evidence: the resignation of Jet CEO Nikos Kardassis.

Jet's Chief Operating Officer Capt. Hameed Ali has been named interim CEO. But there are already reports that Hogan may bring in Air New Zealand's former CEO Gary Toomey to succeed Kardassis.*

That the Jet would undergo an overhaul at both the board and the management level had been expected ever since Etihad signed a deal with Jet in April agreeing to pick up 24 per cent equity stake in Jet, India's second largest domestic carrier by market share. Etihad has committed itself to sinking in close to a billion dollars in the debt-ridden Indian carrier. And its record has been that wherever it picked up a minority stake, such as in Air Seychelles or Air Berlin, Etihad has brought about a management revamp. It appointed a new board at Air Seychelles, and replaced Air Berlin's CEO Hartmut Mehdorn with Wolfgang Prock-Schauer, who also happens to have been Kardassis's predecessor at Jet.

Kardassis's departure follows a pattern - frequently, with the entry of a new, substantial investor in an airline, a management shake up takes place. When Kalanithi Maran acquired a majority stake in SpiceJet three years ago, its CEO Sanjay Aggarwal soon quit. Maran brought in Neil Raymond Mills, then the Chief Financial Officer at the Dubai-based low-cost carrier Flydubai, in his place.

The Jet board, led by Chairman Naresh Goyal, has seven members, and Etihad is said to have negotiated for three seats on the board, including its own nominee as CEO. Thus the Kardassis resignation was not unexpected.

Jet Airways has lately been in the red, dragged down largely by its unviable domestic operations, but its financials have been lately improving. It earns close to 60 per cent of its income from international routes, which are profitable and delivering good margins. Total revenues were around Rs 17,000 crore in 2012/13 against Rs 15,000 crore in the previous fiscal year. The airline has also been able to bring down its losses from Rs 1,260 crore in 2011/12 to Rs 490 crore in 2012/13. There is a significant rise in its margins - the international routes delivered 19 per cent, while the domestic services provided four cent margins in 2012/13. Indeed, industry consultancy Centre for Asia Pacific Aviation has estimated that Jet will be out of the red, delivering a profit of around Rs 700 crore in 2013/14.

Etihad has equity partnerships with four airlines: Air Berlin, Air Seychelles, Virgin Australia, and Aer Lingus. The partnership seems to have benefited all four. All four have announced profits in the January-March 2013 quarter. This, according to the Etihad management, demonstrates the success of its new alliance model. "As well as increasing top-line revenue, our equity partnerships will improve bottom-line results, through cost savings delivered by operational synergies," CEO James Hogan had said, while announcing Etihad's January-March quarter results on April 7.

Etihad, which has a fleet of 73 aircraft, flies to nine cities in India, but its partnership with Jet opens up access to many new cities. The airline is building Abu Dhabi, the capital of the UAE, as a formidable transit hub in the Middle East. Hogan has adopted a three-pillar business model: organic growth, code-share partnerships and minority equity investments in other carriers, and this seems to be yielding results for the 10-year old carrier.

*Correction: In an earlier version, Gary Toomey was incorrectly described as former CEO of Qantas Airways. He was a former CEO of Air New Zealand. The error is regretted.

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