Why Jet Airway’s Problems are Symptomatic of the Troubles in the Indian Aviation Sector

The Never Ending Problems of Jet Airways

Not a day goes by without some news or the other about the beleaguered airline, Jet Airways and it’s never ending saga of seeking bailouts and restructuring its massive debt.

What was once a pioneer and a premium airline in the Indian Skies is now facing humiliation on a daily basis with its lenders and debtors as well as sundry banks putting forward several conditions before it can be bailed out.

Given the fact that the Elections are approaching, the Indian Government too does not want the Airline to sink and hence, it is making all efforts to come to the rescue of the stricken airline. Indeed, it is quite tragic that an airline known for its efficiency and on time performance as well as meticulous service now has to ground three fourths of its fleet as the lenders are unwilling to roll over its debt.

Why Jet is the Canary in the Coal Mine and the Race to Bottom Places All at Risk

However, before anyone can gloat over the troubles of Jet Airways, they have to keep in mind that whatever problems it is facing are also likely to affect other airlines in the Indian Aviation sector.

One need not go farther than the near bankruptcy of Spice Jet, and the bankruptcy of Kingfisher, once known for its classy approach to flying.

Thus, it can be said that what Jet is undergoing now may very well affect others in the future and as the past and the present of the Indian Aviation sector reveals; these problems are not isolated but symptomatic of the overall problems in the Indian Aviation Sector.

The key point to note here is that the Indian Aviation Sector, despite growing at one of the highest rates in the world is primarily built on a volumes model what with the low cost and budget airlines pricing their fares lower and even lower.

Indeed, the Indian Aviation Sector is a classic case of the Race to the Bottom wherein longer term survivability is questionable for any airline that seeks to enter the Fare Wars.

On the other hand, that is the only way to survive the neck tight competition and attract flyers as otherwise; they would fly with the airline that offers the cheapest fares.

Moreover, the government too is encouraging airlines to lower fares as much as possible as a means of taking Flying to the Masses.

Thus, in such a scenario, airlines can survive only if they are the most fittest and most adept at changing with the changes in the external market and business landscape.

The Perils of Crony Capitalism and What Happens Once the Music Stops

Jet Airways is presently in the talks to negotiate a bailout and a restructuring of its debt. The main problem that the lenders have is with its founder, Naresh Goyal, whom they want to replace or preferably step down on his own.

This is a classic case of how icons of the Indian Aviation Sector usually face when the net cost of operations and the balancing power of profitability both go into the red.

Fingers are pointed at the Board and the Senior Management and this was what happened in the case of Spice Jet as well as Kingfisher.

Indeed, this is again a symptom of the way business is done in India wherein Crony Capitalism means that flamboyant and high profile icons of industry often get their way due to their deep connections to the government and the political party in power.

However, this is a double edged sword as the present dispensation is not favourably inclined towards Goyal and this was what happened in the case of Vijay Mallaya as well when the then government withdrew its support to him.

The larger lesson here is that Crony Capitalism works to a certain extent and Once the Music Stops; it is game over for whoever was slow to read the signals and listen to the tunes of change.

Thus, it would not be remiss to say that other airlines too might face similar problems in the future and hence, whatever happens to Jet might very well be an example and a warning to others in the Indian Aviation Sector.

It is Not All Gloom and Doom and There is a Silver Lining to the Sky

Before you think that we are proceeding in a Doom and Gloom manner about the Indian Aviation sector, we want to assure you that there are more positives than negatives as far as the sector is concerned and hence, our point is that it is high time the airlines tweaked their business models a bit before they attempt to garner a slice of the ever increasing pie of market share.

Indeed, being the fastest growing sector in the Indian Economy, the Aviation industry is now poised to take off into higher trajectories and hence, it is our argument that a balanced price and premium business model as well a lesser reliance on volumes only approach would do wonders for the sector.

In addition, the government too can help by lowering the taxes on Jet Fuel and the Landing charges apart from desisting from over regulation that is stifling.

Of course, passenger safety is paramount and hence, the regulators too must be encouraged to do their job.

Conclusion

On balance, the key point is how to maintain profitability in a low fare and price war environment and for how long the airlines would be able to digest the losses and pump in more money without expecting profits.

To conclude, the Indian Aviation Sector is reaching a Tipping Point and hence, the collective choices of all stakeholders would determine who survives and who does not.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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