Business Today

JetLite, Jet Airways merger a mere formality

The Jet management mentioned that the merger will result in more focused operational efforts, however, a closer look at the details of the merger shows a picture which indicates that there's nothing much left to synergise.

twitter-logo Manu Kaushik        Last Updated: September 8, 2015  | 14:52 IST
Manu Kaushik, associate editor,Business Today
JetLite, Jet Airways merger a mere formality

The merging of JetLite and Jet Airways is a step in the right direction, but it doesn't seem to make much difference to the airline. The reasons are manifold. The Jet management mentioned that the merger will result in more focused operational efforts realising synergies in areas like administration, compliance and costs. However, a closer look at the details of the merger shows a picture which indicates that there's nothing much left to synergise.

Take fleet size, for instance. As per the recent data released by the company, JetLite has a fleet of eight aircrafts as of June 2015. In comparison, the fleet of Jet Airways is 108. In fact, the fleet size of JetLite has gradually been pared over the years. The carrier had 24 aircraft in June 2010. Also, the number of JetLite flights has been reduced significantly. In comparison to 10,353 departures in June 2010, the number of departures stood at just 5,710 in three months ending June 2015.

Jet Airways acquired Air Sahara in 2007 and since then ran it as a low-cost airline. The buyout turned out to be mistake for Jet Airways who could not survive the cut-throat competition in the market, high operating costs, and confused strategy.

Last year, when the UAE-based Etihad Airways picked up 24 per cent stake in Naresh Goyal-run Jet Airways, Jet changed its strategy to focus only on the premium-end of the market, that is the full-service carrier (FSC) segment. Subsequently, the company appointed Cramer Ball, former CEO of loss-making Air Seychelles, in which Etihad owns stake, to turnaround Jet. So, in the new focus, JetLite was a misfit.

In fact, Jet Airways had taken two charges (Rs 1,872.39 crore) on account of impairment of goodwill on its investment in JetLite (in March 2014 and March 2015). Dhiraj Mathur, Executive Director at global accounting and consultancy firm PwC says that "a low-cost operation would be a drag on FSC like Jet."

In July, the combined market share of Jet Airways and JetLite stood at 22.8 per cent which was the second-highest in the industry after IndiGo's 35.8 per cent share.

Even though the aviation market in India is largely dominated by low-cost carriers (LCCs), analysts say that there's a market for FSCs. A large part of the aviation demand comes from corporate travellers who prefer business class travel. The companies across the board have relaxed their travel policies to allow executive to fly business class.

Generally, the full-service carriers do well on long-haul flights or flights with duration of over four hours. In India, the usual domestic flight duration varies from one hour to three hours. So, the decision to focus on FSC segment has to be supported by more focus on international routes as well. That's where the Etihad partnership could benefit because the UAE carrier which has long-term experience of running FSC on international routes. Jet Airways is increasing its international flights year-on-year. For instance, the number of international flights in the April-July 2015 was 16,531, a jump of 49 per cent for the corresponding period in 2010.

The company has outlined a three-year turnaround plan to get back to profitability. Till recently, its books were bleeding red but the company has recently posted consolidated net profits of Rs 226.4 crore in the first quarter of 2015/16 supported by lower fuel cost and higher passenger traffic.

Currently, the market situation is favouring all carriers, be it LCCs or FSCs. The strength of Jet's strategy will be best judged in turbulent weather conditions.

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