Sushma Ramachandran

The revival plan for the country’s oldest airline, Jet Airways, that shut shop in 2019 has finally been cleared by the National Company Law tribunal, paving the way for it to start operations again. The path to revival, however, will not be easy for an airline that used to have 120 aircraft and 700 flight slots but will now have to manage with a fraction of these resources. It will also have to struggle to get a share of the crowded aviation market.

The rehabilitation process for Jet has come at a time when both the domestic and global civil aviation industry is in the doldrums. The domestic industry has been facing a serious shortfall in passenger traffic owing to the pandemic last year when aircraft were only allowed to operate with 50 per cent capacity. That rule was amended only early in 2021 to 80 per cent capacity but with the second Covid surge, there was again a directive in June to return to 50 per cent of pre-Covid capacity. Passenger traffic fell by 62 per cent in 2020-21 though there was a turnaround in the last quarter of the fiscal. With the second Covid wave, however, there was another dip in traffic during April and May this year.

The dismal situation here mirrored the international crisis in the aviation sector, where the steady decade-long growth in global traffic suddenly halted in 2020 leaving airlines with little revenue and high fixed costs. Owing to the pandemic and curbs on global travel, passenger traffic is estimated to have fallen by 50 per cent last year. Passenger revenues around the world are expected to dip to 240 billion dollars compared to 612 billion dollars in 2019.

It is in this backdrop that the new venture with the iconic brand name is going to try and take off. The financial consortium set to take on this undertaking is a U.K. based financial advisory firm Kalrock Capital and a UAE based businessman, Murari Lal Jalan. Though it lacks experience in the aviation industry, the consortium is planning to take on seasoned industry professionals from both here and abroad to run the new airline effectively. The target for revival is stated to be within six months though this looks like a difficult task at this stage. 

The obstacles in the way of rapid restarting include the fact that it will first have to negotiate with the government to get flight slots as the brand’s previous ones will not be available to the new company. There may not be an immediate problem in obtaining a limited number of slots as much fewer flights are operating right now, but it could become a problem in the long run. It is likely to start operations in a relatively modest manner with about 25 aircraft, as expansion will be in a phased manner. Even so, the expected investment needed for restarting operations is estimated to be in the region of  Rs. 25000 crores. This includes Rs. 10000 crore for the sale prices and other critical approvals along with Rs. 15000 crores for working capital requirements.

There will be other glitches as well including the need for the fledgling domestic carrier to carve out a market share for itself. This will be an uphill task given that the aviation industry is crowded with budget airlines which have proved a success in this highly price-sensitive market. The low-cost carrier Indigo, for instance, is the dominant player right now with a 55 per cent share of the market. SpiceJet comes in at second place with a 12.8 per cent share followed closely by Air India with another 12 per cent. The others including GoFirst, previously known as GoAir, Air Asia and Vistara have smaller market shares. The only full-service carriers currently are Air India and Vistara. The new Jet entity will have to contend with the low-cost carriers having a loyal customer base and establishing a foothold is not likely to be easy.

The new venture also enters the fray at a time when prices of aviation turbine fuel are rising relentlessly. Fuel costs are one of the biggest components of an airlines expenditure and this is bound to have an impact on the profitability of operations. This is in addition to the lower passenger traffic owing to Covid issues around the globe. Even when things get back to some semblance of normalcy, business travel will be vastly reduced since the focus is now going to be on work from home on a more permanent basis. Leisure travel is expected to rebound strongly but business travel which has been a big revenue earner for airlines is likely to remain depressed for quite some time to come.

At the same time, the consortium representatives exude confidence that they can overcome the many hurdles and restart the airline by the end of 2021. In case they are able to do so, it will definitely be a welcome development for the aviation industry. One reason is it will increase employment opportunities especially for the 9000 employees of Jet who were rendered jobless when the airline closed down. Many of them were able to find alternate employment in other aviation companies but a large chunk are still facing serious distress. The new entity may not be able to absorb many of them at the outset but it will add to the pool of jobs in the aviation sector.

In addition, the launch of another domestic carrier is welcome for consumers for whom this could mean more competitive fares as well as better terms and conditions for travel. In the long run, therefore, the entry of a resurgent Jet Airways can only be considered a positive development for the growth and expansion of the aviation industry in this country.