Jet Airways' none-too-light dilemma

Airlines plans to shift 18 turbo prop planes from Jet Airways fleet to JetLite fleet

Jet Airways plans to move all its 18 ATR turboprop planes to its low cost subsidiary, JetLite, in a possible first step towards offering only a full service model under its operating permit. The move is also part of a plan to turn around JetLite’s operations.

The airline has two operating permits and offers both full service and no-frills service in the domestic market. Jet acquired Air Sahara and renamed it JetLite in 2007. Jet Airways did not respond to an email query on the topic.

A source said the airline would first have to get approval from lessors for the transfer of aircraft from one fleet to another and then re-register the aircraft under JetLite’s operating permit.

Jet Airways has invested Rs 3,400 crore in JetLite, Rs 1,645 crore in equity and Rs 1,801 crore as an interest-free loan. However, JetLite continues to incur losses, with a negative net worth.

As part of its business plan, the airline appointed a valuer to value its equity in JetLite. Jet Airways’ third quarter profit and loss statement shows its exposure in JetLite by way of investment and loans exceeds the valuation by Rs 462 core. The result statement also indicated it was making changes to JetLite’s business model and would revaluate its exposure at the end of the financial year. Based on the valuation and JetLite’s future results, Jet Airways might have to report an impairment of investment.

A source said the idea behind shifting ATRs to JetLite was to boost operations and make the latter competitive. Under Jet Airways’ permit, the airline operates 61 Boeing 737s and 18 ATRs. It offers both full service and no-frills service (Jet Konnect) with these 78 planes. While the Boeing planes have both economy and business class, the ATRs have only economy seating and are used for no-frills service only. ATRs account for 25-30 per cent of Jet Airways’ domestic capacity. The ATR-72s can seat 62-68 passengers each and fly on tier-II routes and also important ones in South India, including Bangalore-Chennai and Bangalore-Hyderabad.

The JetLite fleet has 12 Boeing 737s under a separate operating permit and these are used for its no-frills service, Jet Konnect. JetLite had a market share of 4.3 per cent in April, down from 5.3 per cent in January, according to Directorate General of Civil Aviation data. However, JetLite reported better occupancy than Jet Airways and some of the other no-frills airlines during this period. In April, JetLite had a load factor of 76 per cent, higher than Air India, Jet Airways and SpiceJet but slightly lower than GoAir and IndiGo. JetLite posted a collective loss of Rs 116 crore over the first nine months of 2013-14.

The move to shift planes will also require support from the staff who may be transferred from Jet Airways to JetLite. The issue was discussed between the airline management and pilots last week. The pilots have sought extensive discussions with management before any decision is implemented. A section of ATR pilots are said to be worried that a move to JetLite would affect their career progression. Typically Jet Airways captains and first officers move up from Boeing 737s to wide body Airbus A330s and Boeing 777s but JetLite only has Boeing 737s.

Brand experts say the airline will have to make changes in branding to woo customers. "The problem with Jet is that over the years they have had multiple brands like Jet,JetLite,JetKonnect, Konnect Select. People go for the brand because of it's legacy but over the years they have failed to innovate & worse have becoming more confusing with these multiple brands. The 'no frills brand' & 'the full service' have to have 2 different brand images & even the service should reflect that,'' said Saurabh Parmar, founder and CEO of Brandlogist.

Brand expert Alok Nanda adds "There is immense confusion in the identities of the two airlines. That is because both essentially don the same livery, the differences between the two are minor and most consumers would be hard pressed to make out the difference. In our experience in dealing with premium brands, the most common error that is made is when companies want to launch a low cost variant the new brand is seen through the lens of the premium brand and hence positioned cheaper."

That should never be the case - a lower priced product has the opportunity of reaching out to a new segment which would not like the brand to be perceived cheap. Jet Konnect if it wants to truly be a second brand not under the shadow of Jet Airways should position itself differently - perhaps a younger, vibrant brand that loses none of its aspiration even though it is priced lower, he adds.