As low-cost rivals wing abroad, Jet takes cue

Jet Airways, India’s leading private airline, is planning to offer low-cost services even on international routes, despite struggling with it over domestic skies.

Jaibir Sethi and Anirudha Dutta, analysts with CLSA Asia-Pacific Markets,  said Jet’s low-cost offering has grown significantly faster than its full-service business over the last two years.
“The company does switch capacity between low-cost and full-service offerings depending on demand and the management is considering a low-cost offering for its international arm,” Sethi and Dutta said in a note last week.

Jet officials were not available for comment.

The decision comes at a time when competition is intensifying. Domestic no-frillers such as Air India Express, SpiceJet and IndiGo are already flying international routes.

IndiGo launched services a few months back offering huge discounts on select routes; forcing even foreign rivals to slash the differential to stay competitive. Analysts, however, said ticket prices are not low-cost these days because of business season.
Some experts said Jet may take the low-cost route only where others such as SpiceJet and IndiGo are increasing presence, to offset any loss in share. “But, this might not necessarily translate to low ticket prices,” an analyst from a domestic brokerage said.
Meanwhile, Jet continues to struggle with its low-cost operations - under the JetLite and Jet Konnect brands — in the domestic market.

Mark Webb and Rajani Khetan of HSBC Global Research said JetLite accounted for almost 40% of the group’s recurring losses over the past four years even as it accounted for only 12-13% of revenues.

For the September quarter, JetLite’s stand-alone loss is expected to be Rs.100 crore. “This is not surprising given Jetlite’s high cost base business which was not modelled to be a low-cost operation in the first place (Jet rebranded Sahara Airways as Jetlite post acquisition). However, the changing landscape in the domestic aviation industry in India made Jet position this carrier as a low fare operator both to capitalise on the growing demand for low fare travel and in response to the increasing competition from the low-cost carriers,” Webb and Khetan wrote.

They predict the flagship’s losses will peak in the September quarter, estimated at Rs.350 crore. Of this, Rs.250 crore is expected to be due to rising fuel costs, which have been only partially offset by a 10% rise in overall yields.

A merger or consolidation of — JetLite and JetKonnect - is a solution to the problems, analysts said.

During an earnings call for the June quarter, top company officials had said the airline plans to have a single low-cost brand and one full-cost brands “in two months time”.

Jamshed Dadabhoy and Arvind Sharma of Citigroup Global Markets said in a note that if JetLite is merged into Jet Konnect, — as the Jet management has been promising this for some time now - domestic yields could improve significantly.

“We also assume an addition of 2 planes into the JetLite fleet in the fiscal after next,” they wrote.