MUMBAI: The country's largest private carrier Jet Airways is talking to leasing companies to acquire more than 10 Airbus A320s through a sale and leaseback option at a time when the aviation industry is going through a turbulent phase caused by soaring aviation fuel prices and a depreciating rupee.
With Kingfisher Airlines planning to phase out its low-cost airline Kingfisher Red in two months - Red accounts for 50-60% of Vijay Mallya-promoted Kingfisher Airlines - Jet senses its opportunity, and wants to rework its budget airline strategy to gain market share in this rapidly growing segment.
"This market share (Kingfisher Red's) will be there for the airlines once Kingfisher Red is phased out in another two months' time," said Kapil Kaul, CEO, South Asia, Centre for Asia Pacific Aviation (CAPA), an advisory aviation firm.
According to sources, Jet will use the A320s to replace its ageing JetLite fleet which it had acquired from Sahara India in April 2007 for Rs 1,450 crore. JetLite, the low-cost subsidiary of Jet Airways, has a fleet of 18 737 single-aisle aircraft and flies to 27 domestic routes and one international destination.
Industry experts believe that reconfiguration in fleet by Jet might work for the airline because A320s are more fuel efficient and has better passenger capacity. Jet has also been struggling to get pilots for the old 737s.
"When compared with a 737-700 (Jet-Lite fleet), an Airbus A320 will offer almost 35 more seats. On routes that Jet-Lite flies, it can fly more passengers while the cost remains the same," said an aviation analyst with an equity research firm who chose anonymity.
Aviation experts believe that Jet could be using these advantages as part of a bigger strategy to focus on its budget offering, JetLite. Incidentally, Kingfisher Red and the Gurgaon-based Indigo fly only Airbus aircraft.
FOCUS ON LOW-COST
With full-service airlines like Kingfisher and Air India taking huge hit in recent times, Jet is forced it to take a hard look at its low-cost strategy. Besides, like other airlines, Jet hasn't been able to increase fares to meet market challenges.
"With every dollar increase in crude price, Jet is impacted by about Rs 50 crore per year. Nobody in the full-service segment has the courage to increase fares to the extent where costs are recovered, and selling at a discount is hitting all full-service airlines.
No one has the courage to stand up and say that my product is good and we will charge a premium," said an airline executive, requesting anonymity. In such market conditions, Jet chairman Naresh Goyal had said that his airline will deploy 80% capacity in the low-cost segment over the next three to four years.
Aviation advisory firm CAPA also saw merit in the low-cost strategy: "A more competitive low-cost operation with strategic clarity is critical for Jet Airways, especially in the domestic market."
"Part of the new JetLite strategy will include combining JetLite and Jet Konnect brands, modernising fleet, increasing operating efficiencies and customer acceptance, strengthening the route network and more importantly, bringing in a separate management team," said Kaul. Jet's auditors have raised concerns on the viability of the company in near future if Jet is not able to raise money to service its interest and other operational costs over the next six months.
Jet has a debt of over $3 billion. On Wednesday, rating agency ICRA downgraded Jet ratings from triple B minus to a double B plus on term loans and long term loans amounting to Rs 3,210 crore along with a downgrade of fund-based and nonfund based limits of the financially weakening private carrier.
No comments:
Post a Comment