Opinion- Jet- Stress Signals - Committing Harakiri?

Neelam Mathews

Feb 21, 2013

Analysts we spoke to could not  fathom Jet Airways rational for the destructively low fares it has put into place- around  two million tickets with immediate effect. The only people with smiles on their faces are the passengers who get a respite from the comparitively high but saner prices that had come to roost. Now with Air Asia around the corner with a penchant for cutting fares, I can see all airlines sweating before summer comes.

And while Jet might have set the trend for cut throat prices with SpiceJet and Indigo to follow, the fact remains that operating costs of these carriers are around 45% less than a full service carrier like Jet that has to bear the costs for FFP, IFE and catering costs among others. So the question is: "Who is hurting whom and who is committing harakiri here? While SpiceJet had a limited offer last month for slashed fares, it did not dilute its immediate travel nor cannabalize on existing traffic. Besides, the offer was only for travel between Feb-April-offpeak season. What made Jet offer this through the peak season, we ask? The answer is difficult to get as we have received no response to our queries from Jet.

While there is a buzz that Jet requires immediate cash, is it not hurting and undermining its brand equity? "The only reason I can think of is that the airline is so short of cash that it couldn't afford to "lose" the revenues that would be generated by the additional traffic it would ticket/carry in those 20 days," said a ministry official to Aerospace Diary well versed in logistics. Stress seems like the apparent reason, he added. "Salaries are delayed....where is it justice to shareholders? "

"If I was at (Jet's) helm of affairs, I would never have compromised my quality and positioning and dilute my brand," said an analyst talking about Jet with a high operating cost base trying to compete with budget carriers. "If the price of a Louis Vuitton bag is reduced to Rs400, premium customers will stop purchasing it," said an analyst.

But companies have a strange way/logic of doing business, and Jet might just have its own. 

As a footnote, we hear many believe that Etihad, despite the current talk of issues holding the JV, is not wary of entering India. "I believe Jet are more or less desperate and Etihad are trying to make the most out of it in terms of management and strategic control......"

Now ofcourse, we will see how serious the government really is on the FDI by the way it moves on the AirAsia -Tata venture.