16 JetAirways
16 JetAirways
16 JetAirways
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Karthika Palanisamy
Vidya Vardhaka College Of Engineering
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COMPLEXITIES AND UNCERTAINTIES IN THE INDIAN AVIATION SECTOR: A SPECIAL CASE OF JET AIRWAYS AND INDI GO AIRLINES View project
All content following this page was uploaded by Karthika Palanisamy on 02 October 2019.
P.B. No.206, Kannada Sahithya Parishath Rd, III Stage, Gokulam, Mysuru, Karnataka 570002
3Assistant Professor, School of Management Studies, Thoppupalayam, Erode, Perundurai,
ABSTRACT: The study is a bird’s eye view on various challenges currently faced by the Indian Aviation sector
starting from the period of 2018. The most common problems in this sector are increasing air Turbine Fuel
Charges, customer/passenger complaints, predatory pricing strategies adopted by dominant players. The
information required for the study was collected from the media reports, sectoral reports published by rating
agencies namely ICRA and CRISIL and performance reports published by DGCA. In the first section of the paper,
overall aviation industry has been analysed in terms of market share, passenger complaints and the trend in Air
Turbine Fuel prices. The second part analyses about the cost and revenue structure of selected private airlines
namely Jet Airways Ltd and IndiGo Airlines. The major positive side for the Indian aviation sector includes the
increase in Air traffic growth in the fiscal 2019 is predicted to be more than 15%, construction of new airports
by the Government and scope for enhancing customer satisfaction by means of formulating uniform polices for
ticket cancellation, baggage charges that may help the airline industry to retain more customers. On the other
hand, the serious issues comprises increasing trend in air turbine fuel prices, volatile/weakening Indian rupee
which led to increase in costs and foreign exchange losses. The Jet Airways and IndiGo airlines though they have
increase in revenue in the year 2018-19 compared to 2017-18, the net profit is negative because of increasing
fuel prices, finance costs, lease rentals and employee benefit expenses.
Keywords: Jet Airways, IndiGo Airlines, Air Turbine Fuel, Passenger complaints, weakening Indian rupee.
INTRODUCTION
The Indian aviation sector is currently facing turbulent times because of numerous reasons such as rising
turbine fuel prices, increased competition, and sluggishness in capacity expansion. It has been predicted by
the credit rating agency ICRA that the Indian Aviation Sector is likely to incur an aggregate loss of Rs 3600
crore in the financial year 2018-19 compared to Rs 2500 crore in 2017-18. Majority of the firms in the
aviation sector are currently suffering (2017-18& 2018-19) from poor financial health because of increased
cost structure. Though there is increase in the top line (sales revenue),the bottom line (expenses) move
beyond it a faster rate thus leading to losses.
The ICRA report on aviation sector also reveals the average growth rate in passenger traffic is found to be
15% yearly,positivemacro environment, favorable regulatory support, construction of new airports.
Against this backdrop, this research paper is focused on studying about the overview of issues faced by the
airline industry in India especially with reference to the two major airlines namely Jet Airways and Indigo.
LITERATURE REVIEW
CRISIL Report (2018) on Airline sector revealed that the passenger traffic in the aviation sector would be
expected to stay flatter between 15% and 17% in the fiscal year 2019 and may slow down between 11 and
13% in the fiscal year 2020.The CRISIL also predicted that the Compounded Annual Growth Rate – CAGR of
domestic passenger trafficwill range from 12% to 14% between the financial years 2018 and 2023 , the
growth being driven by GDP, airport infrastructure and improvement in the overall economy.Manu Kaushik
(Nov 2018, para.1) stated that the airline carriers have been strongly affected by two major factors namely
ATF Costs (Air Turbine Fuel) and the currency fluctuations. The dominant players in the aviation sector
have also taken aircrafts on lease from foreign lessors for whom they have to pay the maintenance and lease
rentals in terms of dollars. The rupee has been depreciating right from April 2018, which in turn led to
foreign exchange losses to those airlines.Manu Kaushik (Jan 2018, para.1) discussed about the
report(December 2018 report) given by 41-member standing committee on transport, tourism and culture.
The report was discussing bout the problems related to customer satisfaction in airlines industry. The
RESEARCH METHODOLOGY
The research design used for the study is basiclly descriptive in nature as it attempts to understand the
various aspects such as the nature of the aviation sector in terms of pricing, competition, cost structure and
challenges. The data for the study has been obtained from the annual reports of Jet Airways and IndiGo from
their respective websites. For the purpose of collecting data about the aviation sector, the performance
reports have been accessed from the DGCA (Directorate General of Civil Aviation) website.In addition to the
above sources,the information/data have been collected from the prominent newspapers to get the current
insight about the airline industry.
Limitations
1. The data/information has been collected from the published sources relating to Aviation sector
2. The study attempted to review the cost and revenue strcuture of only the two major passenger
airline companies namely Jet Airways and IndiGo.
3. There is a lack of published research work in the form of journal articles with refrence to aviation
sector
4. The study period covers mainly covers the recent two financial years namely 2017-2018 and 2018-
2019
DATA ANALYSIS
1. INDIAN AVIATION INDUSTRY AT A GLANCE
The above figure 1 shows the market share of different airlines offering domestic services as on quarter
ended September 2018. It is clearly evident from the figure that only a very few airlines dominate the
market in the aviation sector. The two major airlines having prominent market share are Indigo and Jet
Airways, constituting more than 60% domestic market share.
1.2 Passenger Growth
Passengers carried by domestic airlines during Jan-Nov 2018 were 1262.83 lakhs whereas it increased to
1059.34 lakhs during the previous year Jan-Nov 2017 . This means that there is a positive growth rate of
19.21% in terms of number of domestic passengers. The growth is exhibited in the figure 2 shown below.
Figure 2 showing growth rate in domestic passengers in the Indian Aviation Sector
Source: DGCA Statistics –Traffic data November 2018.
1.3 Passenger Complaints during the month of November 2018
In the month of Nov 2018, a total of 786 passenger related complaints had been received by the scheduled
domestic airlines. The number of complaints on the whole of airlines per 10,000 passengers carried for the
month of Nov 2018 has been around 0.67. The airline-wise details are as follows:
Figure 3 showing no. of complaints per 10000 per passengers during the month of Nov 2018
Source: DGCA Statistics –Traffic data November 2018.
The above figure 3 shows the number of complaints received per 10,000 passengers for different airlines. It
clearly indicates Air India has recorded the highest number of complaints followed Jet Airways and Indigo
because the number of passengers are relatively more in these airlines. The various reasons for complaints
by the passenger are depicted in the figure.It can be found that the majority of the complaints arise due to
flight problems, customer service and baggage related issues. More than 30% of the passenger complaints
are received due to customer service related issues. Around 32% of the passenger complaints are received
due to flight related issues. Around 24% of the passenger complaints are received due to baggage related
issues. The distribution of complaints is represented in the figure 4 in the form of pie chart.
Figure 4 showing various reasons for passenger complaints during the month of Nov 2018
1.4 Increasing Fuel Prices
85000
80000
75000
70000
65000
60000
55000
Delhi
50000
Kolkata
45000
Mumbai
40000
Chennai
1-May-17
1-Apr-17
1-Jul-17
1-Aug-17
1-Sep-18
1-Nov-18
September 01,2017
November 01,2017
December 01,2017
1-Dec-18
1-Jun-17
October 01,2017
1-Jan-19
January 01,2017
March 01,2017
January 01,2018
March 01,2018
May 01,2018
July 01,2018
1-Oct-18
11-Oct-18
February 01,2017
February 01,2018
February 16,2018
April 01,2018
August 01,2018
June 01,2018
Figure 5 showing Air Turbine Fuel Price (Domestic) in Rupees
The jet airways has been facing lot of problems right from the start of year 2018,such as huge losses, loan
repayment, increase in fuel prices,employee lay off as a part of cost-cutting measures ,weak rupee, heavy
price competition.As per the audited financial statements of Jet Airways Ltd as on March 2018, it has total
borrowings of Rs. 508556 lakhs which comprises of Non-Convertible Debentures, term loans from banks
and also foreign currency loans.
2. COST AND REVENUE ANALYSIS OF JET AIRWAYS AND INDIGO - INTERGLOBE AVIATION LTD
This section discusses the cost and revenue part of two airline services market leaders namely Jet Airways
and Indigo for the past two years 2017-18 and 2018-19. The various parts of the cost to the airlines such
fuel costs, foreign exchange losses, lease rentals and salary. More recently, in the year 2018-19,airline
companies faced with the problem of increasing fuel prices which in turn led to the foreign exchange losses
because US dollar should be used to buy Air Turbine Fuel.
2.1 Revenue and Cost Analysis of InDigo
Table 2 Revenue breakup for the quarter ended September (IndiGo)
Particulars(inINRmillion) Quarter Ended
Sep'18 Sep'17 Change%
Revenue from operations 61,853 52,910 16.9%
Other income 3,289 2,146 53.3%
Total income 65,142 55,056 18.3%
Source: Annual report of IndiGo
The above table 2 shows the revenue break up of IndiGo for the quarter ended September 2017 and
2018.The primary business operations of this airline is passenger services. It is also into offering other
products and services, such as cargo and tours services. There is an increase of 16.9% in revenue from
operations Sep 17 and Sep 18 where it has recorded 53.3% increase in other income. The increase in
revenue from other operations is more than 3 times the revenue from operations.
The above table 4 shows the revenue break up of Jet Airways for the quarter ended September 2017 and
2018.The primary business operations of this airline is passenger services. It is also into offering other
products and services, such as cargo and tours services. There is an increase of 16.9% in revenue from
operations Sep 17 and Sep 18 where it has recorded 61.9% decrease in other income. The aircraft fuel
expenses has increased by 54.9% compared to the previous quarter because of increase in air turbine fuel
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which is evident from the table 1.The company has also faced increase in lease rentals by 17.7% compared
to the previous year. The finance cost which includes interest on various loans has increased by 22.8%
compared to the previous year. Overall, it can be found that lease rental and fuel costs and other operating
expenses form the major part of the expenses in the Profit & Loss Account.
CONCLUSION
The focus of the study is to have a broader view of the challenges and performance of the Airline
industry.The expert opinions and published reports indicate that the aviation sector has been affected by
two major macroeconomic problems namely increasing Air Turbine Fuel prices and the volatile exchange
rates. Apart from these two problems, the sector faces competition due to predatory pricing strategies
adopted by dominant players. The special case of Jet Airways face deep troubles in terms of liquidity
problems which hinders them in paying their creditors, lessons , employees and lenders. Jet Airways has
huge borrowed loans which carry an interest rate of 20% per annum as on 2018 and suffers from foreign
exchange losses, in addition to the above macroeconomic problem stated above. Of course, the aviation
sector gets lot of support from the government in terms of setting up of new airports, UDAN scheme and
also increase in air traffic year-on-year. The committee reports reveal that the airline industry can focus
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more on enhancing customer experience by means of maintaining uniform cancellation charges, luggage
charges and also handling customer grievances within the stipulated time.
REFERENCES
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losses-rise/story/280402.html
2. Manu, K. (2018,November, 14). Crude oil prices heading southwards; is the winter over for aviation sector?
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