Six years ago, the senior management at Jet Airways undertook a rather curious exercise. The airline was launching a new brand but, unlike previous Jet events, the rollout—led by then Chief Commercial Officer Sudheer Raghavan—was quiet. In May 2008, the airline began pulling its Boeing 737 planes out of service, one by one, and painted them light-blue and white. It removed the 24 plush seats in its business class, replacing them with 50 economy class seats. Almost immediately, the planes, stripped off their trappings, went into service as Jet Airways Konnect (later JetKonnect). The new brand was Naresh Goyal’s reluctant answer to domestic Indian low-cost carriers (LCCs) that were eating up his lunch.
In the ramp-up from 2008 to 2013, JetKonnect became the workhorse as plane after plane was converted from the airline’s full-service fleet. All this, without any drum rolls or fanfare, which is Goyal’s trademark style. Towards the end of 2013, only a few aircraft continued to operate under the traditional Jet Airways branding, which offered passengers full-service at higher fares.
As has been much-documented, Goyal’s low-cost foray, or rather his version of an LCC, failed miserably. Traditional LCCs such as AirAsia have fewer staff, no frills, efficient online booking services and a system where passengers have to pay for any extra service.
But Jet’s founder-chairman’s version was to take a full-service carrier (FSC), remove the J-class and stop serving free food. Everything else, including infrastructure and staff salaries, remained the same. The extra seating did not bring in passengers by the bus-load; pulling out the food did little to save cost and, instead, lost him a lot of goodwill. No airline around the world has been able to pull off an LCC without significantly reducing other costs. (Forbes India had written about Jet’s attempt to do so in its June 2009 issue, in a story titled ‘A disKonnect with J-class’.)
Jet’s domestic operations began to pull down its financial performance, and the airline ceded ground to IndiGo and SpiceJet as even loyal customers began turning away from the once popular carrier.
Travel and ticketing agents, too, were frustrated by this half-baked low-cost model. Blue Star Air Travel Services, one of Mumbai’s biggest air-ticket consolidators, has been on Jet’s list of top agents for over two decades. But its proprietor Madhav Oza says the carrier’s LCC brand was an eyewash and never helped the airline. JetKonnect did not even have online bookings. “How could it be an LCC?” he asks.
By 2013, survival was a struggle, and Jet was borrowing even for working capital. In FY14, it notched up a loss of $680 million, arguably the highest for an operating company in corporate India that year. At the same time, its debt rose to almost $1.6 billion. In August, a few weeks before credit rating agency ICRA downgraded the company’s debt to a ‘D’, which denotes a default or expected-to-default status, Goyal admitted at a press conference that his low-cost model had failed to work.
Goyal may be down, but he’s not out. The wily entrepreneur who started his journey from humble beginnings in Sangrur, Punjab, is not about to give up. With Etihad Airways, the deep-pocketed flag carrier of the United Arab Emirates, acquiring a 24 percent stake in the company—the deal was finalised last year—he is hoping to pull a rabbit out of the proverbial hat. He has already begun to reverse Jet’s course, and this time, in a very public way.
The 64-year-old chairman has given the airline four months to go back to its original two-class, full-service format, and three years to return to profitability. “We will take swift action to re-emerge as India’s most preferred airline. By December, Jet Airways will be one consistent, predictable, full-service brand,’’ he said at a press conference held in Mumbai in August.
Read more: http://forbesindia.com/article/work-in-progress/jets-180degree-turn/38591/1#ixzz3D7ovIERx
In the ramp-up from 2008 to 2013, JetKonnect became the workhorse as plane after plane was converted from the airline’s full-service fleet. All this, without any drum rolls or fanfare, which is Goyal’s trademark style. Towards the end of 2013, only a few aircraft continued to operate under the traditional Jet Airways branding, which offered passengers full-service at higher fares.
As has been much-documented, Goyal’s low-cost foray, or rather his version of an LCC, failed miserably. Traditional LCCs such as AirAsia have fewer staff, no frills, efficient online booking services and a system where passengers have to pay for any extra service.
But Jet’s founder-chairman’s version was to take a full-service carrier (FSC), remove the J-class and stop serving free food. Everything else, including infrastructure and staff salaries, remained the same. The extra seating did not bring in passengers by the bus-load; pulling out the food did little to save cost and, instead, lost him a lot of goodwill. No airline around the world has been able to pull off an LCC without significantly reducing other costs. (Forbes India had written about Jet’s attempt to do so in its June 2009 issue, in a story titled ‘A disKonnect with J-class’.)
Jet’s domestic operations began to pull down its financial performance, and the airline ceded ground to IndiGo and SpiceJet as even loyal customers began turning away from the once popular carrier.
Travel and ticketing agents, too, were frustrated by this half-baked low-cost model. Blue Star Air Travel Services, one of Mumbai’s biggest air-ticket consolidators, has been on Jet’s list of top agents for over two decades. But its proprietor Madhav Oza says the carrier’s LCC brand was an eyewash and never helped the airline. JetKonnect did not even have online bookings. “How could it be an LCC?” he asks.
By 2013, survival was a struggle, and Jet was borrowing even for working capital. In FY14, it notched up a loss of $680 million, arguably the highest for an operating company in corporate India that year. At the same time, its debt rose to almost $1.6 billion. In August, a few weeks before credit rating agency ICRA downgraded the company’s debt to a ‘D’, which denotes a default or expected-to-default status, Goyal admitted at a press conference that his low-cost model had failed to work.
Goyal may be down, but he’s not out. The wily entrepreneur who started his journey from humble beginnings in Sangrur, Punjab, is not about to give up. With Etihad Airways, the deep-pocketed flag carrier of the United Arab Emirates, acquiring a 24 percent stake in the company—the deal was finalised last year—he is hoping to pull a rabbit out of the proverbial hat. He has already begun to reverse Jet’s course, and this time, in a very public way.
The 64-year-old chairman has given the airline four months to go back to its original two-class, full-service format, and three years to return to profitability. “We will take swift action to re-emerge as India’s most preferred airline. By December, Jet Airways will be one consistent, predictable, full-service brand,’’ he said at a press conference held in Mumbai in August.
Read more: http://forbesindia.com/article/work-in-progress/jets-180degree-turn/38591/1#ixzz3D7ovIERx
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