You must have already heard the news of Jet Airways. Here, we will try to study the journey of Jet Airways and dig to the reasons of its failure.
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 Amritsar to Mumbai. The shutting down of the company affected their 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 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. It is because bankruptcy will cause the loss of 20,000 jobs which is definitely not good for the current government due to upcoming elections.
Consequences have gone to such extent 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 a very under-penetrated market in India. Even though the demand to travel with flight is rising, there are still not many aircraft in the country. For the numbers, India has 565 commercial aircraft for a population of 1.3 billion. Whereas the US has 7,309 commercial aircraft and its population is just 328 million. Along with that, the airports of India are underdeveloped compared to those of other countries. For instance, at most of the airports in India, there is only a single operational runway whereas countries like the US have 5 to 6 runways on most of their runways.
History of Jet Airways
Started in 1993 by Naresh Goyal with 4 leased Boeing 737 aircraft, Jet Airways was a success for many years. However, in August of 2018, the company deferred the second quarter of the year. It was a hint that something is wrong with the company’s finance. Hence, in the same month, DJCA (Directorate General of Civil Aviation) conducted a financial audit of Jet Airways. It was due to the reason that deferring the employees’ salaries can affect their behavior towards their jobs.
In the same month, Jet Airways posted a loss of Rs. 1323 Crores.
In September of 2018, the Income Tax department conducted a survey in the Delhi and Mumbai office of Jet Airways. The company was then alleged for financial misappropriation.
It is not the first time that an Airline company has fallen down. Many companies before Jet Airways have been shut down in a similar manner. Some of them are:
- Kingfisher Airlines
- Air Deccan
- Air India Cargo
- Indian Airlines
- Sahara Airlines
What is common in all cases?
The most common thing you will notice in all the above cases is that they all were, at some point, merged with another airline company.
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 implemented some changes to Air Deccan’s fleet and the result we all know. Both the companies faced a downfall.
When Air India and Indian Airlines merged. Both the companies were doing good in their business. After the merger, they both fall down on their faces.
Jet Airways merged with Sahara Airlines and Jet rebranded Sahara as “Jet Lite”. They both have no existence, as of now.
So, most of the times, when an Airline merged with another airline, both companies faced problems. It is because of the difference in the nature of an Airline company.
Reasons for Jet Airway’s 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 can be called as a mistake of Jet Airways. Sahara was acquired by Jet Airways for $500 million which was not an appropriate price of the company.
2. Rebranding Sahara: This can be called as the biggest reason for the failure of JetLite. Jet Airways rebranded Sahara Airways as JetLite. Due to this, the customers of Sahara were out of Jet’s hands.
3. Mismanagement: Of course, management is the backbone of any company. However, the founder of Jet Airways, Naresh Goyal decided to lead the company on his own and not to hire any professional for it. Many people say that he took many bad financial decisions. Along with this, he only had one management team for all the operations. Managing an airline company which has acquired another company needs at least 2 management teams.
4. Full-service airline: The company was operating as a full-service airline. Operating in India as a full-service airline is not an easy task. You need very strong financial support and customer relationship. That is why most of the companies focus on the middle-class people and keep the prices as low as possible.
5. Drowning in Debts: Jet Airways didn’t care about the money even when they had none of it. They kept on taking debts and spending more than their earnings. The employees get many perks and all of them were happy. But spending more than what you earn is always a bad decision.
Jason Unsworth, who is 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 the Jet Airways that he needs to interact with SBI Caps Limited as they are leading the resolution plan of Jet Airways.
When Jason wrote to the Jet Airways’ lenders, he received no response from their side. He later wrote to Jet Airways’ CEO Vinay Dube, about the proposal for buying the stakes of their company. Jason said he was provided with contacts of SBI to get in touch with. He is also talking with other Indian entrepreneur investors for financing his bid for buying the stakes in Jet Airways.
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Jet Airways is on the verge of Bankruptcy. However, there are still some hopes for it. Many entrepreneurs have come forward to provide jobs to the people who lost their jobs due to Jet Airways crisis. It is still unclear what will happen next. If any company buy Jet Airways, there are some chances that the Jet Airways employees will get their due salaries. Also, it can be possible that the Government decides to help the company and its employees.