5 Reasons for the Shutdown of Jet Airways, India's Beloved Airline [A Case Study]

The unimaginable debacle of Jet Airways is now a popular case study in almost every Business School's curriculum. Founder Naresh Goyal is being investigated by the Enforcement Directorate (ED) and a large number of ex-employees still remain jobless after the airline shut down its operations in April, 2019. It is one of the biggest startup failure in India. A lesson for many, here we study the journey of Jet Airways and dig deep into the reasons for its failure with the help of the facts and stats in this case study.

News
Indian Aviation Industry
History of Jet Airways
Similar Cases
The common link in all of these cases
Reasons for Jet Airways' Failure
Buying Proposals
Conclusion

What’s the news?

25 May, 2019 News updates:
The government temporarily reallocated Jet’s slots to keep a check on reducing capacity in the sector due to a significant drop in the carrier’s flights. (Source: Livemint)
According to some sources, IndiGo and SpiceJet have been allocated 130 slots each, Vistara 110, GoAir 52, Air Asia 42 and Air India 24 slots at Indian airports from Jet’s quota. (Source: Livemint)
Jet Airways founder Naresh Goyal and his wife Anita were stopped from leaving India by immigration authorities at Mumbai airport. They were offloaded from a Dubai-bound Emirates flight, which was called back after it had reached the taxiway in Mumbai airport. (Source: InShorts)

Recently, Jet Airways shut down its operations temporarily on 17th April of 2019. Their last flight was from Amritsar to Mumbai. The shutting down of the company affected 20,000 employees and more than 60,000 people indirectly. The company is reportedly in a debt of a billion dollars. The pilot’s union NAG (National Aviator’s Guide) appealed to the PMO (Prime Minister’s office) and Civil Aviation Minister Suresh Prabhu to help the company and its employees.

The government on the other hand reportedly asked the banks to save the company without pushing it to bankruptcy. With unemployment being a major electoral issue for the government, an addition of 20000 to the list of jobless Indians will only give more substance to the Opposition. The Government is therefore pulling out all stops to prevent Insolvency of Jet.

Consequences have been of such an unprecedented level that an employee of Jet Airways committed suicide in Mumbai. The man was a cancer patient and was on a break from his job. Shailesh Singh was a Senior Technician in Jet Airways. He jumped from his building due to depression on 27th April, 2019.

Indian Aviation Industry

Aviation is an under-penetrated market in India. As more and more Indians choose flight as the best means of travel, the availability of aircraft hasn't caught up with this growing trend. For the numbers, India has 565 commercial aircraft for a population of 1.3 billion. The United States, on the other hand, has 7,309 commercial aircraft for its population 328 million. To add the aviation industry's woes, a majority of Indian airports are underdeveloped and in pathetic condition. Many of them have been rendered unusable. For instance,most of the airports in India have only a single operational runway whereas countries like the US have no less than 5 runways.

History of Jet Airways

Naresh Goyal started Jet Airways with 4 leased Boeing 737 aircraft in 1993. The airline was the paragon of success for domestic carriers in India. There were rumblings of troubles brewing within Jet Airways in August of 2018 when the company deferred the second quarter of the year. The government watchdogs got a sniff of discrepancies in the airline's finance. In the same month, the DJCA (Directorate General of Civil Aviation) conducted a financial audit of Jet Airways. It was based on the reasoning that deferment of employees’ salaries ought to affect their morale and attitude.

The same month, Jet Airways posted a loss of Rs. 1323 Crores.

In September of 2018, the Income Tax department surveyed the Delhi and Mumbai office of Jet Airways. The company was then alleged for financial misappropriation.

Similar Cases

It is not the first time that an Airline company has fallen from grace. Many companies before Jet Airways have seen similar fate. Some of them are:

  • Kingfisher Airlines
  • Air Deccan    
  • Air India Cargo
  • Indian Airlines
  • Sahara Airlines

The common link in all of these cases

The common link in all of the above examples was that they all were, at some point, involved in a merger.

Kingfisher Airlines bought Air Deccan. Kingfisher was a full-service airline whereas Air Deccan was a low-cost airline. When Kingfisher bought Air Deccan, they incorporated some changes in Air Deccan’s fleet and we all know what happened after that. Both the companies faced a downfall.

Before Air India and Indian Airlines merged, both the companies were doing reasonably good. After coming together, the crown jewels of Indian airspace were and continue to remain in the red. Air India has a debt north of Rs 50,000 crore and nothing positive has come out of the government's efforts to revive the national carrier.

Jet Airways merged with Sahara Airlines and Jet rebranded Sahara as “Jet Lite”. Sahara Airlines has been lost in oblivion and Jet Airways is heading on the same path.

Therefore, it won't be wrong to say that mergers and acquisitions in case of airlines is a risky bet. A successful airline establishes a unique identity of its own, and meddling with its brand and presence usually ends on a negative note.

Reasons for Jet Airways' Failure

There are many reasons for the failure of Jet Airways. Here are just a few of them:

1. Merger: Merging Sahara Airlines with Jet Airways was a mistake on Jet Airways's part. Sahara was acquired by Jet Airways for $500 million which was way above what the airline was actually worth.

2. Rebranding Sahara Airlines: Jet Airways renamed Sahara Airways as JetLite. Sahara at the time was a powerhouse with its name on every Indian's tongue. The rebranding cost Jet Airways flyers who were attracted towards the Sahara brand image as these passengers couldn't resonate with JetLite.

3. Mismanagement: Every company and organization rests on the abilities of its management board; there are no second opinions to this school of thought. The founder of Jet Airways, Naresh Goyal decided to become a one-man army for Jet Airways and did not hire a sound management committee to assist him in running the airline. Insiders often talk about his poor financial acumen. He relied on a single management team for handling all the operations related to Jet. Understanding that specialized teams are needed to run different departments is no rocket science. And when you acquire one more airline, you can't rely on your existing management board that's already burdened to pick on additional responsibilities!

4. Full-service airline: Full service airlines offer passengers the choice of economy or business class travel and on some flights premium economy and first class. The company was operating as a full-service airline. Operating in India as a full-service airline is not an easy task. One needs formidable financial support and customer relationships. Catering to the wealthy, the middle class, and the lower sections of the Indian society requires strategy and operational excellence beyond imagination. That is why most of the companies focus on the middle-class segment and keep the prices as low as possible. Jet Airways was biting off more than it could chew.

5. Drowning in Debts: Jet Airways was never good with money. It kept on incurring debts and spending more than its revenue. The employees were paid lavishly when compared to the industry standards. For the sake of providing comfort and luxury, the Naresh Goyal backed airline compromised with finances.

Buying Proposals

Jason Unsworth, a British Entrepreneur and CEO of Atmosphere Intercontinental Airline, expressed his interest in buying a controlling stake in Jet Airways.

However, Jason was told by Jet Airways to sit down with SBI Caps Limited as they were leading the resolution plan for the carrier.

Jason claims to have written to Jet Airways’ lenders but never having received any reply in return. He later wrote to Jet Airways’ CEO, Vinay Dube, about the proposal for purchasing stakes. Jason said he was provided with contacts of SBI to get in touch with. He is also in talks with other Indian entrepreneur investors for financing his bid for a controlling stake Jet Airways.

Relevant Article: Astonishing Corporate Espionage Case Studies

Conclusion

Jet Airways is on the verge of Bankruptcy. However, there's still some light at the end of the tunnel. Many entrepreneurs have come forward to employ people who lost their jobs due to the Jet Airways crisis. Many have been absorbed by competitors such as SpiceJet. If someone ultimately buys Jet Airways, there's hope for the ex-employees of the bankrupt airline to get their dues. The Indian Government's role is pivotal in deciding the course this crisis takes.

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About Lakshya Singh

I am a visionary content creator and internet researcher.