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Jet Airways expects to return to profit in 18 months, following implementation of a new route network and fleet strategy and cost optimisation measures, the senior management said on Wednesday.
Jet’s net worth has turned negative despite Rs 2,057 crore in equity infusion from Abu Dhabi, United Arab Emirates-based Etihad Airways last year. The company has no plan to raise equity further. Fundraising will mostly be through debt, including securing the second tranche of a soft loan of $150 million by the end of June from Etihad, the airline has said. It might also refinance costly rupee debt with cheaper dollar one. Currently, $1.4 billion of Jet’s debt of $1.765 billion is in foreign currency.
| JET’S OPERATION REVAMP |
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On Tuesday, Jet announced corrective measures after reporting a record Rs 2,465 crore loss for the quarter ended March, the worst ever in a quarter by a private airline in the country. The airline said the loss was aggravated because of impairment of Rs 700 crore on account of erosion of subsidiary JetLite’s net worth and another Rs 800 crore in one-off costs and provisions related to maintenance of engines. A weaker rupee against the dollar, higher airport charges and more aircraft on ground also contributed to the loss. For the year ended March, Jet’s loss was Rs 4,129 crore.
N Ravichandran, vice-president (finance), told analysts the airline had no surplus aircraft on ground and had leased its wide-bodied planes to Etihad and Turkish Airways. The airline has switched to power-by-the-hour maintenance contracts for its entire fleet to cut costs and made provisions in the balance sheet. This will ensure Jet is not hit by huge one-off expenses.
As part of a three-year business plan approved by the board of directors on Tuesday, Jet will strengthen presence in key local markets and step out of those unprofitable or not feeding its hubs in India or Abu Dhabi. Jet will induct six Boeing 737 aircraft, taking that fleet to 57; these will be used to connect Indian cities with Abu Dhabi and for other international routes. Daily about 1,000 Jet passengers are connecting onward from Abu Dhabi, the airline told analysts. There will be no addition in local capacity in 2014-15, the airline said.
“Turnaround will take longer than expected and will be a painful process. Serious and result-oriented restructuring is required that might require taking hard decisions, which Jet has never demonstrated in the past. Downsizing the domestic business and exiting some unprofitable international routes is key. Domestic business has to be sorted out at the earliest,” said Kapil Kaul, chief executive, South Asia, Centre for Asia Pacific Aviation.
Jet is also standardising cabin configuration on its Boeing 737 fleet, with 12 business class and 156 economy class seats, to improve yields (a measure of passengers flown for each mile for each seat) by tapping into both segments. Currently, the 737 planes are flown in three configurations; 29 of these aircraft will be reconfigured. Moreover, five wide-bodied Boeing 777 planes will be reconfigured to increased seats to 346 from 312 now, with more seats in the economy class.
Raj Sivakumar, senior vice-president (network planning and alliances), said the airline was starting revenue and cost initiatives, including increasing code share and interline revenue, ancillary revenue, renegotiation of contracts, uplift of meals and productivity of pilots and cabin crew. Jet is also trying to increase third-party revenue by offering training, engineering and security services to foreign airlines operating in India.
