Challenges before Jet

20 January 2006

Rex Mathew analyses the challenges facing Jet Airways and the possible impact of the Jet-Sahara deal on other domestic airlines.

The biggest long-term challenge for Jet is to maintain its pricing power and profitability in the face of increasing competition from low-cost carriers. Budget carriers now account for close to 15 per cent of the domestic air traffic. Industry experts and analysts expect their share to increase to as high as 50 per cent by the year 2010.

Jet needs to maintain its superior service standards and brand image while leveraging its wide network and access to infrastructure to survive the low-cost airline boom. The airline is in a similar situation as automobile major Maruti was in the last decade. Maruti leveraged its strengths in low cost and efficient cars and nation-wide network to retain its position as the largest passenger car company, despite a significant decline in its market share.

The biggest short-term challenge before Jet is to integrate the Sahara operations with its own. Many high profile mergers and acquisitions globally have failed to achieve the projected benefits because of integration issues. There are reports that more than a dozen Air Sahara pilots put in their papers after the merger announcement.

Jet needs to retain at least Sahara's pilots and cabin crew as it is difficult to recruit experienced hands in large numbers at short notice. The ground operations and other functions can be managed by the existing Jet personnel at least to some extent.

Then there is the issue of rationalisation of the combined network. The Jet and Sahara networks are almost similar, except for some of the smaller towns which Jet flies to. Restructuring flight schedules while maintaining optimum levels of aircraft utilisation with the available airport slots would be a complex exercise.

All the new entrants have announced huge aircraft acquisition plans. Compared to them, Jet has a very modest aircraft purchase plan. It is true that airlines can ramp up capacity at short notice by leasing aircrafts. However, availability of the right kind of aircrafts and high leasing costs could affect Jet's future expansion plans.

Airline	Current fleet size	Future acquisitions
Jet - Sahara	80	Has ordered 10 A330, 10 B777 and 10 B737
Indian + Alliance Air	77	Order for 43 Airbus aircraft to be placed shortly
Air India + Air India Express	44	Has ordered 27 B787, 23 B777 and 18 B737
Kingfisher	9	Has ordered 5 A380, 5 A350, 5 A330, 40 A320 and 35 ATR including options
Air Deccan	24	Has ordered 62 A320 and 30 ATR
Spicejet	5	Has ordered 20 Boeing 737