Jet Airways Essay

Naresh Goyal, who already owned JetAir (Private) Limited (which provided sales and marketing for foreign airlines in India) took advantage of this opportunity by setting up Jet Airways as a fullservice scheduled airline that would give competition to state-owned Indian Airlines. Indian Airlines had enjoyed a monopoly in the domestic market between 1953, when all major Indian air transport providers were nationalised under the Air Corporations Act (1953), and January 1994, when the Air Corporations Act was repealed, following which Jet Airways received scheduled airline status. Jet Airways’ 45 destinations include most of the big cities in India. International destinations include Kathmandu, Colombo, Singapore, Kuala Lumpur, London’s Heathrow Airport, Bangkok, Brussels and Newark. Jet Airways was the first private airline in India to fly to international destinations. It started international operations in March 2004 between Chennai and Colombo after it had been cleared by the Government of India to operate scheduled services to international destinations. MACRO ENVIRONMENT FACTORS: Economic Economic environment of India and world affects the airline industry to a great extent. Factors like fluctuations in global fuel prices, exchange rates, slowdown etc have varying impact on the way Jet Airways has been operating in this sector. One of the most important aspect that has greatly affected the world’s transportation system is the high fuel price. Besides high taxes, jet fuel prices have become costlier than crude oil prices which have greatly affected the bottom-line for many airlines including Jet Airways. State taxes on ATF available through government agencies vary between 4% and 30%, making the fuel 30% to 50% costlier than the global average. In Tamil Nadu, Karnataka, Bihar, Madhya Pradesh, Gujarat, West Bengal, Maharashtra and Himachal Pradesh the cess is 25% or higher. The three listed airline companies – Jet Airways, Kingfisher and SpiceJet – all of which reported losses in the quarter ending December 2011, blamed rising ATF cost for their bad financial performance. In February 2012, the Centre gave a nod to direct import of ATF on a case-to-case basis But once airlines start importing ATF, traffic at the country’s congested ports is likely to increase, making matters worse for exporters and importers. Airlines will also have to factor in the cost of transporting ATF from the various ports in the country to airports around the country, something which could eventually lead to increase in the ATF cost. Jet Airways in its financial report has also indicated the losses that it has incurred due to rupee depreciation. It has been reported that revenue from exceptional items decreased by 61% from Rs. 18,919 lakhs in Fiscal 2011 to Rs. 7,319 lakhs in Fiscal 2012 mainly on account of depreciation of the Rupee against the Dollar in the current year. Even in the past Jet Airways has experienced slowdown because of global recession. In 2008 during recession, Jet Airways was forced to discontinue the following routes: Ahmedabad–London, Amritsar–London, Bangalore–Brussels and Mumbai–Shanghai– San Francisco. It also had to put an indefinite delay on its expansion plans. Naresh Goyal, Jet Airways promoter is unable to put in more funds via his holding company due to FDI restrictions. He holds 80% in Jet Airways through Tailwinds. He claims NRI status, where 100% ownership is allowed. However, Goyal’s investment is via Tailwinds, which is considered FDI by the Indian government. Tailwinds is registered in the Isle of Man. In India, only 49% FDI investment is permissible in aviation. Airline business is a complicated one and only airlines would be interested in investing domestic carriers. The government is looking at allowing foreign airlines to invest in domestic carriers but there would be no change in FDI cap of 49%. In this 49%, currently foreign airlines are not allowed to participate. So if this change happens then there would be inflow of funds from foreign airlines. The announcement of ECB (External Commercial Borrowing) with a limit $1 billion in the Budget 2012 will also give some relief to debt ridden airline companies. Shareholding Naresh Goyal 80% FII 6. 7% DII 7% Public hold 6. 3% Social The backbone of the airline industry is people. Individuals in the management, technical and crew are responsible for undertaking the task of serving their customers with utmost care and excellence. These individuals are trained and tailored to the industry’s needs before they are allowed to work. They need to meet certain standards of service and technical knowledge designed to satisfy the customers. For this reason the players invest millions of dollars to improve the knowledge of their workers. Jet Airways plans to set up a marketing services firm and launch an aviation training academy, with a total investment of Rs 1 crore. The proposal is, however, subjected to regulatory approvals, including those from the Foreign Investment Promotion Board and the Reserve Bank of India. The proposed academy would be based in Mumbai and offer certificate courses in in-flight services, ticket reservation and check-in services, according to a brochure brought out for the institute. Operations in the northeast are guided by the government’s Route Dispersal Guidelines (RDG) which entails that all Indian carriers fly to the northeast and other remote parts of the country, more so as a social obligation. After posting a loss of Rs 298 crore in the last quarter, Jet Airways has sought government clearance to scale down its flights to the northeastern region by about half to stem the losses. Technological Technological factors in macroenvironment are the most dramatic forces in changing the market place. They help the business to create new products and harness new opportunities. Jet Airways makes strategic use of the latest technology to interact with passengers at a global level. Its significant presence on social media platforms like Facebook, Twitter, LinkedIn, YouTube and Flickr ensures increase in awareness and reach of the company brand. The company’s growth on the social media networking platform has been noteworthy registering an exponential increase in the number of followers and fans on Twitter and Facebook. In the coming year, the Company aims to introduce state-of-the-art mobile applications for Android, iPhone, BlackBerry and Windows mobile phones. These applications will provide passengers with a convenient and seamless option to book tickets, check-in, access their JetPrivilege account etc. using their mobile phones. Additionally, the Company intends to commence the use of 2D Mobile Bar-coded boarding passes for guests who have checked-in for their flights, thus providing a paperless travel experience. Political In India, one can never over-look the political factors which influence each and every industry existing in the country. Like it or not, the political interference has to be present everywhere. Given below are a few of the political factors with respect to the airline industry: The airline industry is very susceptible to changes in the political environment. One instance of Government Policy resulting in great uncertainty is the fact that the Indian Government has not allowed foreign airlines to participate in FDI in aviation as yet. So the airline industry, which is currently facing draught of funds can still not expect foreign players to chip in. International airlines are greatly affected by trade relations that their country has with others. Unless governments of the two countries trade with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e. g. Pakistan & India) Political factors can also affect the day-to-day working of the airline industry. For instance, in 2009, Jet Airways announced plans to lay-off 1800 employees that were undergoing probation with the Company. What happened was a PR disaster for the Airline. First the laid off employees suddenly became socialist in their approach and later went a step further managing to politicize the whole matter by seeking support from MNS’s Raj Thackeray. Other parties and sundry ministers then followed the suit and jumped into the bandwagon, until the Jet Management had to revert the decision and ask laid off employees to join the duty back. Legal and Regulatory Operating in a cross border network of alliances and partnerships, multinational companies like Jet airways are subject to international and national regulations in terms of assignment of routes and destinations; international aviation regulations; partner’s legal standing as well as local laws. These constraints not only leave little room for airlines to operate but are also the sources for its highly efficient value chain. Another aspect is industrial relations. Personnel in the airlines industry from pilots to cabin crew to technicians everyone work in the capacity and provisions given by the laws prevalent globally. For this reason, everyone is cognizant of their rights to legal aid if required. Since most of the airline personnel in the world have associations and unions they tend to have an upper hand over management. The management therefore has to comply with their demands if it is within the capacity of the law Not only is this but the airlines also subject to strict safety, hygiene and efficient regulations. Airlines that do not deliver services according to international standards do not only lose out in the competition but are also subjected to aviation penalties. The principal regulatory authority that regulates the civil aviation sector in India is the Director General of Civil Aviation, or DGCA. To operate scheduled services in India, an airline requires an operating permit from the DGCA. This permit is required to be renewed on a year-to-year basis. An airline incorporated in India and operating scheduled services is also required to register all its aircraft with the DGCA, save and except aircraft which are wet leased. On July 10 2012 aviation regulator E K Bharat Bhushan was abruptly removed from his key position in the backdrop of his tough stance against debt-ridden Kingfisher Airlines over its failure to pay salaries to its employees. Newly-appointed chief of the Directorate-General of Civil Aviation Prashant Sukul on 13th July 2012 asked all airlines to strictly adhere to prescribed safety standards. Demographics Indian aviation industry promises huge growth potential due to large and growing middle class population, favorable demographics, rapid economic growth, higher disposable incomes, rising aspirations of the middle class, and overall low penetration levels (less than 3%). Few prominent factors we need to look at from demographics perspective: Working age population India is blessed with a young and growing population. India has amongst the best demographic ratio globally and this would continue to improve over next three to four decades. As compared to children and elderly, a relatively higher percentage of the earning population travels by air to save working hours and for business. The rising proportion of people of working age also implies higher disposable income as pressure on household for the needs of dependent children & elderly comes down. Both the above factors along with a growing working age population would lead to higher demand for air travel. Exploding Middle Class McKinsey Global Institute (MGI) predicts that the India’s middle class will reach 583 million from the current 50 million by 2025. With this exploding middle class the demand for air travel is bound to go up in a unidirectional way. Nuclear families increase – Increasing VFR (Visiting Friends and Relatives) Travel The traditional ‘joint-family’ system in India is rapidly breaking up. With increasing expenses and with more people migrating to cities for work, people are increasingly opting for nuclear and small families. This trend of smaller families has also bought a change to their lifestyles, with friends & relatives visiting more frequently and families taking more vacations – implying greater frequency of travel. Air travel is finding a growing proportion of this additional travel, with smaller families making air travel for the entire family more affordable. Increasing Employment Growing employment means higher disposable income, more business travel and higher opportunity cost of travel time. All these contribute to higher demand for air travel. Increasing Leisure Travel Tourism accounts only for 2. 5% of India’s GDP, versus 6% in Asia Pacific and 5. 3% in China. However this ratio is fast changing with India emerging amongst the fast growing tourism destinations in the world.