In a cost-conscious market like India, airline revenue is under severe pressure and ways to keep the costs low will decide the fate of Jet Airways as it attempts to become the first Indian airline to stage a comeback after shutting down
File photo of a Jet Airways airplane taking off in Ahmedabad, Gujarat.
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The last few days have been eventful for Jet Airways in its new avatar. The airline has started hiring people at the CXO level, which will likely be followed up by concrete steps towards getting an Air Operating Permit (AOP) and the eventual start of services.
A couple of weeks ago, the airline’s CEO Sanjiv Kapoor talked about a hybrid model that created a lot of flutter. In an industry where people without skin in the game are divided over a cheat line as part of the livery, something as big as a hybrid model saw a debate like no other.
Indian aviation is dominated by Low Cost Carriers (LCCs). In 2019, 87 percent of entire domestic traffic was carried by LCCs. This was also the year when Jet Airways suspended operations and the void was filled by LCCs since Air India did not expand and Vistara’s expansion wasn’t enough to cover the entire space vacated by Jet Airways.
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A hybrid model more often than not refers to having a full-service business class and an economy class that follows the low-cost model wherein passengers have to buy on board and pay for meal, among others.
End of premium offerings?
Vistara, a joint venture between the Tatas and Singapore Airlines that started operations in 2015, promised service like no other. The airline claimed that its surveys had shown that there was demand for premium traffic, yet when it came to meeting the bottom line, the airline has not been profitable yet.
The airline has had to course-correct multiple times, changing its configuration twice, inducting all economy aircraft and further adding to that mix with two class aircraft (though done to get slots which were linked to additional capacity).
Vistara followed the earlier full-service carriers (FSCs) — Kingfisher Airlines and Jet Airways, to try the buy-on-board offering — a far cry from its initial survey of ultra-premium offerings. While Kingfisher Airlines and Jet Airways operated entire flights with Kingfisher Red and Jet Konnect branding to denote their low-fare offerings and played around with serving food as well as buy-on- board, in case of Vistara, the buy-on-board was for a small section of passengers within the same flight becoming a fourth service class!
While FSCs have clawed back some market share, the proportion of business class seats deployed in the market is less than 5 percent. Translated into numbers, this would be less than 2,000 seats in business class per day across the country. A number that can be very high-yielding but risky to begin with.
Global peers
The airline industry goes through ups and downs like no other and every event has led to a structural change in both mature and fast-growing markets. Europe, for example, saw most FSCs move to what was termed regional business class. What did it entail?
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Essentially these were the same seats with more legroom and a middle seat that remained empty, with few airlines having a fixture there, which adds to the personal space or even letting the middle seat fold.
The business class offers meals and lounge service, amongst others, but get to the economy and one may just get water, tea or coffee with the meals being buy-on-board — in line with the LCCs in the region.
Will Jet Airways go this route? Go FIRST (earlier GO Air) started with this offering known as Go Business. The airline has had these seats on sale on and off because they also double up as normal seats. The value positioning of the airline probably did not work in its favour but could the premium positioning of Jet Airways make it work?
Unity in diversity?
The basic principle of an LCC is simplicity. The much touted single fleet model with the ability to swap planes or crew and requiring the same training for all got IndiGo into the spotlight. IndiGo now has a fleet of ATR 72-600, A321neo and A320neo and A320ceo planes. SpiceJet moved to a multi-fleet model even earlier.
Months before the airline went down, Kingfisher had done an analysis for reconfiguring its fleet. Sadly, only a handful could be converted before the airline shut. Jet Airways had done the same. The jury has been out on a single type v/s multi type.
Global giants like American, Delta or United have mixed fleets along with different configurations as they adjust the demand and deployment. India is much smaller and to begin with, it makes sense to have a simplified model, lest it gets confusing for the passengers as well as internal operations of the airline.
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With margins as thin as a boarding pass, it is simply too expensive to do a trial-and-error to find out what is the optimum mix of each class, only to realise that all of it goes for a toss when you sprinkle some seasonality and change the markets.
As Jet Airways takes a step towards creating history of being the only airline in the Indian skies to ever come back after shutting down, a hybrid with a configuration that is the same across all aircraft could be the differentiator, which would give it the benefits of LCCs, the easy swaps, the simplified training, better negotiating power and yet allows it to offer two class options.
Tail Note
Time will tell if Jet Airways makes a comeback. Time will also tell how it positions itself as a hybrid model, but in a cost-conscious market like India, the revenue is under severe pressure and ways to keep the costs low will decide the fate.
If the airline can manage with costs just higher than LCCs and command a premium for business class yet continue to sell the economy class in competition with LCCs, it may have a winner!
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