Having posted a loss of Rs 1,040 crore for the fourth quarter of fiscal 2018, Jet Airways is in serious damage control mode. Earlier this week India's second-largest airline informed its employees that a 5-25 per cent salary cut is on the cards in order to trim operational expenses. But the buzz today suggested that the situation was critical, causing the airline's stock to dive over 9 per cent since its closing price yesterday.
Citing a senior executive The Economic Times today reported that Jet Airways had informed employees that the airline "cannot run beyond two months and the management needs to cut costs through pay cuts and other means to ensure that it stays afloat beyond that".
However, earlier this afternoon the airline refuted the claim in a regulatory filing. "The statement 'Can't fly beyond 60 days, Jet tells staff', as appeared in the media, is incorrect and malicious," the airline informed the stock exchange. "In line with the company's stated focus of creating a healthier and a more resilient business, it has been implementing several measures to help it reduce cost as well as realise higher revenues, for desired business efficiencies. Some of these areas include sales and distribution, payroll, and maintenance, among many others."
The airline added that as part of these cost-cutting measures it has been in dialogue with key stakeholders, including pilots and engineers, "to apprise them of the challenges being faced by the aviation sector in India generally, and the company in particular" and to enlist their cooperation for "realising necessary savings across all parts of the business".
Given that the airline boasts an annual salary bill of Rs 3,000 crore, salary cuts are an obvious cost-cutting measure, and the proposed cuts are expected to save around Rs 500 crore. The revised salaries for managers to CEO are expected to be implemented from this month. Confirming the news, earlier this week Jet Airways had said "Payroll is one of the important components of cost structure and the senior leadership has undertaken a reduction in salary to lead by example".
The daily added that over the past few days, the management team - including the airline's chairman Naresh Goyal - have informed employees that the salary cut will be for 24 months, with no scope for refunds. While the developments rattled employees at India's oldest private sector airline, and triggered protests, some believe that the situation has probably been exaggerated to prompt resignations.
Sources, in fact, claim that Jet Airways has already started firing people across functions. "In the engineering department, head of line for Delhi has been asked to leave. Job losses will start to happen in functions like cabin crew and ground handling," said one. Furthermore, the airline has decided to waive the bond terms of seven years or Rs 1 crore for its first officers and the mandatory one year notice period for pilots, including commanders.
The airline did not counter this in its BSE filing, although it did put a stop to media speculation about a stake sale in the offing. "The company denies any talks of a stake sale," it informed the exchange.
However, there is no denying that the airline has run into rough weather. "For the full year ended March 31, 2018, we reported a loss of Rs 636 crore as against a profit of Rs 1,499 crores for fiscal 2017 [including the impact of the switch to Indian Accounting Standards]," Amit Agarwal, the airline's Deputy CEO and CFO, had admitted on the last earnings call in May.
Significantly, he had told analysts that the fourth quarter results had been adversely impacted by factors like the "year-on-year impact of increase in fuel prices by Rs 366 crore" and "mark-to-market adjustment due to weaker rupee of amounting to Rs 156 crore". On the same call, CEO Vinay Dube had pointed out that the cut-throat competition in the business had caused airfares to largely remain flat over the last two years even as fuel prices doubled.
All these factors continue to be a concern, although oil prices have stopped flirting with the $80 a barrel mark of late. Industry analysts, in fact, say that the airline is likely to report a loss of Rs 1,000 crore in the first quarter of the current fiscal.
And Jet is not the only one struggling. Last week, IndiGo, India's largest carrier by passengers flown, reported a 96.5 per cent plunge in profits at Rs 27.80 crore for the first quarter of this fiscal.