Once considered premium, why Jet Air adopts low fare model

moneycontrol.com

Jet Airways , which once prided itself on its full service flights, is now looking to its low fare arm to improve profitability. The company recently merged both its low fare verticals--JetLite and JetKonnect--into a single brand as it tries to take on competition, especially from IndiGo which emerged as the number one carrier in terms of market share for July

 IndiGo's rapidly expanding market share must be all the more galling for Jet Airways, considering that its fleet size is four times bigger than that of IndiGo.

 How did IndiGo score a brownie over Jet?
Being no-frills in nature, IndiGo does not serve meals on-board and hence after a sector trip, it is quick to turn--around the aircraft for its next movement after tidying it up.

For a full service carrier like Jet or even Air India, the turn around is little delayed as they serve meals and after passengers alight the aircraft, cleaning up takes time. Logically, IndiGo can deploy its aircraft for more hours then its full service counterparts who also operate on same sectors.

 Its not that Jet doesn't operate in low cost segment. JetLite and JetKonnect have been doing that since 2008 and 2009.

 What is it that Jet needs to do?
"There was a need to consolidate position in the low fare space for Jet. Having two products with similar offering will obviously confuse customers. Streamlining operations will help improve market share,"  says a former executive of Jet Air.

 This could have been the case for Jet to announce low cost operations under the banner of JetKonnect with JetLite ceasing to exist. Sudheer Raghavan, chief commercial officer at Jet Air said that the airline has always had a flexible approach in devising strategies to meet customer needs. "Since its inception in 2009 JetKonnect has been a success and hence we thought it best to have a single brand in low fare segment." He further said the airline is confident of the brand doing well by optimally deploying and cross--utilising common resources of Jet on JetKonnect.

 Another official at Jet explained that the airline can deploy JetKonnect on high density but price sensitive sectors like Patna-Delhi, where it can get volumes but lower yields. However, a sector like Bombay-Delhi will anyways have high occupancy despite exorbitant fares, where Jet can operate with 'J' class seats which can compensate with healthy revenues per available seat kilometers (ASKM).

 Meanwhile along with the change is customer preferences, there are other factors as well which gradually led to a paradigm shift in Jet's business model over the years.

In the latter part of 2008, the onset of the global economic crisis started turned out to be particularly challenging for aviation companies worldwide.  Corporates started cutting down on business class travel for their executives, holiday-makers too opted to travel by train to beat recession. Full service carriers were worst hit when compared with their low fare counterparts as business class travel became unaffordable. Luckily, Jet had just positioned JetLite as a low fare arm to check how it would fare in the Indian market which is very price sensitive. JetLite's fares were 15% lower than Jet Air.

 Predatory pricing harms all
In an unprecedented move, on Jan 1, 2009 all airlines slashed fares to the extent of 30% to grab a higher market share. Air India, Kingfisher, SpiceJet and Indigo---all were chasing a few seats. "Jet Air was against cutting fares, but had to follow suit as it would lose out on customers. I remember senior officials of the airline even calling up smaller rivals to not indulge in fare wars," said a former SpiceJet official.

Full Service versus no frills
In a price--driven market, no frills airlines started picking up business as their quick turn around led to higher aircraft utilisation then the bigger players who served meals on--board. Jet, and it counterparts Air India and Kingfisher saw their topline dwindle while Indigo and SpiceJet were gradually capturing higher occupancy. Even online--travel portals like makemytrip.com, Yatra and ezeego1.com threw up lowest fare deals from Indigo, SpiceJet and perhaps Wadia Group's GoAir on limited routes.

 Low fare became the market mantra in aviation space.
Jet started deploying more seats on JetLite, even brought down fares to the level of what SpiceJet and indigo offered.  In its quarterly analyst presentation, Jet would tom-tom about JetLite's performance in the domestic space as it achieved 75% loads in a downturn and was also profitable in financial years 2009 and 2010. In the same years, all airlines together made losses of around Rs 10,000 crore and Rs 15,000 crore.

 Prompted by the changing business dynamics, recently on the sidelines of the company's annual general meeting, Jet founder Naresh Goyal, who once believed there is nothing called low cost in aviation business said, "In difficult circumstances it is prudent to adapt to the changing market environment. Customers prefer low cost flying and hence we are offering them what they want." The airline re-aligned itself by offering more low cost seats on domestic network.

 But will the low cost strategy pay off?
Kapil Kaul, CEO (south Asia) Centre for Asia Pacific Aviation in his latest report has pointed out, "Jet Air continues to face a strategic challenge with respect to its low-cost strategy which remains ill--defined, despite the fact that the Jet Konnect subsidiary accounts for the majority of the airline’s domestic capacity. The confusion is highlighted by the fact that certain aircraft operate as full service in one direction and then return under a low-cost designation. Meanwhile, progress on the rationalisation of JetLite and JetKonnect under a single brand is progressing slowly."The CAPA India report also noted that the carrier has failed to leverage the opportunity created by the weakness of Kingfisher Airlines and Air.

shaheen.mansuri@network18online.com