TPG Capital and Blackstone have submitted bids for Jet Airways’ loyalty programme -- Jet Privilege, sources told CNBC-TV18, adding, “Indigo Partners and Singapore’s GIC are likely to put in their bids later this week.”
Sources said TPG and Blackstone have bid between $350 million (Rs 2,540 crore) and $400 million (Rs 2,903 crore) for Jet Airways' 49 percent stake in Jet Privilege. The airline was expecting at least $100 million (Rs 725 crore) more.
Interestingly, Jet Airways current market capitalisation stands at Rs 2,476 crore making its loyalty programme alone more valuable than the airline itself.
Global consulting firm On Point has valued Jet Privilege at $1.13 billion (Rs 8,202 crore) and ranked it at the 31st position among the world’s top frequent flyer programmes. It is based on this report that Jet Airways was expecting at least $500 million (Rs 3,629 crore) bids for its 49 percent stake in Jet Privilege.
Why the interest in a beleaguered airline’s loyalty programme?
In 2014, Etihad paid Jet Airways $150 million for a 50.1 percent stake in the loyalty programme. However, since then, Jet Privilege has seen a threefold increase in its membership which currently stands at 85 lakh. It is this data that the private equity funds are after.
Airlines sell air-miles in bulk to commercial partners, which use the credits to attract customers and mine valuable data on their spending habits. Members then use the miles to buy anything from seat upgrades to vouchers for retail stores. An airline's loyalty program typically has several thousands of members and includes a raft of partners ranging from credit card companies, retail stores, hotels and travel industry brands.
To put this in context, Jet Airways carried 129 lakh passengers between January and August this year and commanded market-share of 14.1 percent making it the second largest airline in India after IndiGo that flew nearly 41 percent of all passengers, government data shows.
Jet Airways is going through an air-pocket and is in dire need of funding to tide over its current financial woes. The airline reported two consecutive net losses in its past two quarterly results and ended the financial year ended March 31, 2018, with a net loss of Rs 767.62 crore.
Jet Airways’ net loss for the quarter ended June 2018 stood at Rs 1,323 crore, worse than March quarter’s net loss of Rs 1,036 crore.
This is not all. The Income Tax Department, too, is inspecting Jet Airways books for alleged falsification of accounts and suspicious transactions. The full-service carrier is also already under the scanner of markets regulator SEBI and the Corporate Affairs Ministry for various alleged lapses.
"It's evident that Jet Airways has lesser leveraging power which would explain why the bids have come in lesser than what jet airways expected," an investment banker told CNBC-TV18.
In August this year, Jet Airways allegedly told its employees that the airline has enough cash to operate for only 60 days. The airline had also asked its staff to take pay-cuts going up to a fourth of their salaries resulting in protests from its pilots. This was followed by setting up of a board-appointed executive committee to explore options to sell Jet Airways stake in Jet Privilege.
Although Jet Airways is not the only airline in India feeling the brunt of rising oil prices, the magnitude of its problems, however, are not shared across the airline industry in India. IndiGo Airlines too reported a 91 percent drop in its profits for the first quarter of the current fiscal year.
On September 3, 2018, media reports suggested that the government was planning a ‘relief package’ for the airline sector in India. Rajiv Nayan Choubey, secretary for civil aviation, had said that help to cut airline costs was on the way along but did not give any details of the planned relief package.
Industry body CAPA has forecast a hefty $1.9 billion (Rs 13,775 crore) loss for the airline sector in India because of rising oil coupled with falling rupee.
According to CAPA, airlines in India, including Air India, need an additional $3 billion (Rs 21,750 crore) of capital in the near term to shore up their balance sheets.
(One US dollar is trading at Rs 72.59)
(With inputs from Reuters)
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