Turbulence at home: Jet to up foreign flights

Private carrier Jet Airways is expected to further consolidate its international operations into a major revenue grosser in FY09, to overcome the growing turbulence in the domestic sector.

The general economic scenario does not bode well for capacity expansion on domestic routes, with some of these struggling on account of overcapacity, and only yesterday some airlines were pushed to hike fares to make up for higher aviation turbine fuel prices.

According to market sources Jet's international operations would account for 44 per cent of the overall revenues in FY09, as against 11 per cent in FY06 and 18 per cent in FY07. Clearly, opening up of international routes has benefited the airline significantly.

For Jet, says a report by a leading equity research firm, the international segment is likely to grow sharply at 104 per cent CAGR from Rs 1,357.4 crore in FY07 to Rs 5,643.6 crore in FY09.

It is estimated that the international passenger movement for the airline will increase to 22 per cent of total passengers carried in FY09 from eight per cent in FY07.

"We would not like to give the exact financials of the revenue contributions from the international operations, but yes, it would be close to 50 per cent of the total revenues from international operations in FY09," said a Jet executive on condition of anonymity.

Jet is likely to announce its international expansion plans and the method to this expansion shortly.

The airline started its international operations in 2004, with flights to London, Singapore and some other destinations. But it was with the addition of the wide-bodied aircraft that the airline went into expansion mode.

It introduced flights to New York and Toronto last year and extended its West Asia operations. The airline recently announced flights to San Francisco via Shanghai, and from Delhi to Hong Kong.

Jet has, however, dropped its plans to fly weekly to Johannesburg as "the allocation of wide-bodied aircraft has already been done for San Francisco and Hong Kong routes."

What has worked in favour of Jet in terms of international routes, experts say, is the head start and the fact that no other domestic carrier, apart from Air India, flies internationally currently.

"It's a great strategy for Jet. The share of domestic carriers in the international pie is a meagre 25 per cent. The market is huge for expansion," said Kuljit Singh, partner, Ernst&Young.

"Jet is capitalising on an early start as the gestation period on the routes is at least a couple of years. So even if the new domestic players enter the international market now, for them it will take at least couple of years to establish. But Jet has already been through this curve and luckily when there was just a single player."

According to analysts the airline has also benefited from the fact that it has a huge domestic route network of 44 destinations which it has successfully leveraged by connecting to its international flights.

At the same time now, benefits of the Brussels hub are accruing.

About the impact of this growth for Jet in the international market on the other carriers, analysts say it is difficult to gauge whether foreign carriers or Indian carriers will lose market share.