‘Jet Airways Victim of Low Cost Carrier Model’: Jitendra Bhargava

As a cash strapped Jet Airways finds itself in the midst of soaring debts and nearly a third of its planes grounded, lenders led by the SBI plan are making every effort to bail out the carrier. But how did Jet Airways finds itself in such a crisis in the first place? Aviation expert and former Director of Air India Jitendra Bhargava says the airlines’ focus on short-term growth over economic viability is the key reason for this.

“India is a highly price sensitive market. The fares are kept low to stimulate growth. On the other side, the cost platform of operating flights in India is high because of not only ATF prices, landing navigation charges, etc. So, if you don’t recover cost of producing a seat through fares, you are bound to be sustaining losses. Jet Airways is a victim of this philosophy,” Bhargava says.

Adding that,

“The reality is that airlines in my opinion are being absolutely stupid. They are looking at short-term growth and interests rather than ensuring they look at their economic viability. Jet Airways has suffered as a consequence and most other carriers, notably Go Air, Indigo, Spicejet, which are low cost airlines, are being able to break even.”

Jitendra Bhargava, Aviation expert and former Executive Director at Air India

Reports suggest that SpiceJet could lease as many as 50 Jet Airways aircraft that have been grounded to keep airline fares in check. But Bhargava believes this is only a temporary solution and could cost Jet Airways in the long run.

“The bigger harm or the negative of this move will be that there will be erosion of value for Jet Airways. If you wish to revive Jet Airways but you withdraw a certain number of aircraft from here to there for market share of Jet Airways, it will become less lucrative for any potential investor to put in money.”

Jitendra Bhargava, Aviation expert and former Executive Director at Air India

Adding that SBI, which has about Rs 8,000 crores in Jet Airways is going beyond its brief as a money lender, Bhargava says banks are trying their best to salvage the situation. However, with market dynamics not allowing a full service carrier to recover money, the long term prospect of the carrier is not too optimistic.

“The simple reason (for this) is that there are some 800 odd aircraft which are due for induction in the next 5, 6 or 7 years. So the airlines inducting those aircraft would not like the market growth rate to go down through the enhancement of fares. That’s why they would naturally be keeping the fares at a reasonable level even if full service carriers cannot break even or recover the cost of producing a seat.” 

Jitendra Bhargava, Aviation expert and former Executive Director at Air India 

“SBI in one way you can say that they are trying to defend but in my opinion, they are taking a much keener interest in Jet Airways revival than the promoter of Jet Airways Naresh Goyal himself,” he added.

Bhargava adds that the only way to improve the prospects of airline carriers is to tweak the existing business model to ensure airline companies get enough compensation through fares from the market. But for Jet Airways he believes, it’s too late.

“There was a time when Naresh Goyal could have possibly taken corrective measures two years ago but now it is too late and the efforts banks are making to revive it may result in its revival but that would also be short term if it materialises.”

Jitendra Bhargava, Aviation expert and former Executive Director at Air India