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Jet Gears Up To Battle Vistara

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Debt-ridden Jet Airways, India’s second largest airline by market share, has drawn up a three-year strategy to lead the company to profitability. As part of the strategy, the airline will phase out its low-cost carrier JetKonnect (company’s name is JetLite) and focus on full-service airline; replace its high-cost borrowings (in the Rs 9,800-crore debt) with low-cost funds; and share the infrastructure including the aircraft with partner Etihad.

Naresh Goyal, chairman of Jet Airways, said on Monday (11 August) that the airline would take tough measures to operate in today’s challenging industry. Jet, on Monday, said its net loss in the three months ended 30 June has been reduced to Rs 217.6 crore from Rs 355.4 crore in the year earlier. Still, it was the airline’s sixth consecutive quarterly loss because of its high operational costs and competitive ticket pricing. Sales rose by 17 per cent to Rs 4,685.6 crore.

Jet’s three-year strategy includes operational restructuring ---  with changes in network and fleet --- for achieving profitability in its international routes. It aims to save Rs 600 crore by renegotiating contracts with its vendors and suppliers with help from its strategic partner Etihad. Both will try the collaborative procurement strategy for competitive rates. Moreover, Jet will start dedicated cargo airline jointly with Etihad.

For reducing the borrowing costs, the airline looks to raise $150 million through external commercial borrowings (ECBs) from overseas markets.

With this, India’s sky-space is going to witness fierce competition in the coming days as Singapore Airlines and Tata Sons joint-venture plans to launch its new airline Vistara in October. In addition, Air Asia is all out to play low cost game in association with Tatas.

“While Jet Airways depends on its own costly and aging infrastructure, the new airlines try the leasing route and use the cost-effective and advanced infrastructure. In this scenario, there is no guarantee on the success of Jet’s three-year strategy, even if they exit from low-cost service,” said a Mumbai-based analyst.

JetLite, which operates 11 aircraft, will now bear the main airline's branding, Goyal said, without elaborating on whether the changes would result in job losses and fleet resizing. Jet’s aircraft will be split between economy and business class seats by keeping ticket fares competitive, said James Hogan, chief executive of Etihad Airways, which owns a 24 per cent stake in Jet.

The incumbent Vistara will have up to five Airbus 320 single-aisle jets by December. Their plan is to increase the fleet size to 20 planes in five years—which would include seven A320-200 planes and 13 A320neo jets. They look to eat the market share of Jet and state-run Air India, especially in the heavy traffic routes.

Jet’s revival plan and entry of Vistara comes as most airlines in India are losing money because of rising fuel prices, high airport charges and intense competition in lowering the ticket fares. Despite the current challenges, companies and analysts predict that Asia's third-largest economy will grow to become one of the biggest aviation markets in the world by 2020.

Hogan says India is a promising market and had 42 million air travelers last year. “We take long term perspective that applies to the airlines that we invest in too…. India is critical to our strategy, while developed markets witness slower growth…."

Etihad has no exit strategy from Jet Airways. We are here to stay long, adds Hogan.