BSTR/172

IBS Center for Management Research

Jet Airways’ Strategy, Operations and Competitive

Position
This case was written by Shirisha Regani, under the direction of Sanjib Dutta, IBS Center for Management Research.
It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate
either effective or ineffective handling of a management situation.

2005, IBS Center for Management Research. All rights reserved.

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 BSTR/172

Jet Airways’ Strategy, Operations and

Competitive Position
“I was traveling around the world at the time and flew on BA (British Airways), Qantas, and AA
(American Airlines). I can safely say that the level of service (at Jet Airways) was twice that of
these major global airlines.”
- David Bromwich, a Jet Airways passenger, in 2002.1
“Naresh (Goyal) gave people the airline they needed; not just what they wanted.”
-Pradip Madhavji, former chairman of Thomas Cook, in 2003.2

JET AIRWAYS’ SUCCESSFUL IPO

In March 2005, Jet Airways (India) Limited (Jet Airways) became the first Indian airline to issue
shares to the public, when it made a successful debut on the National Stock Exchange (NSE) and
the Bombay Stock Exchange (BSE) simultaneously. The much awaited Initial Public Offering
(IPO) raised Rs. 1899 crore 3, through the sale of 1.72 crore shares (20 percent of the company‟s
equity) of Rs.10 each. The issue price was set at Rs. 1100, but the lowest price the shares were
traded for on either of the bourses was Rs. 1155. At the end of the first day of trading, the closing
price of the shares exceeded Rs. 1300, which was a gain of around 18 percent over the issue price.
A part of the amount raised through the IPO was expected to be used to retire some of Jet
Airways‟ high cost debts (primarily to the International Finance Corporation and the Infrastructure
Development Finance Company), and the rest to fund the airline‟s ambitious expansion plans.
Analysts said that retiring its high cost debts would bring down Jet Airways‟ debt-equity ratio
from around 5.4:1 before the IPO to 1:1, which would prove to be advantageous to the airline in
securing further loans on favorable terms and in negotiating lease agreements for new aircraft.
Naresh Goyal (Goyal), Jet Airways‟ founder and chairman, said there was a possibility of the
airline looking at an international shares listing in future if such a move was found to be feasible.
Jet Airways‟ tremendously successful IPO further consolidated the airline‟s position in the Indian
aviation industry. It also proved that the large number of low cost airlines (LCA) being set up in
the country found it difficult to affect Jet Airways‟ popularity with passengers. 4.
As of late 2004, Jet Airways was the leader in the Indian airline industry with a market share of
nearly 46 percent (in terms of passengers carried). Indian Airlines, India‟s national airline,
followed at around 38.5 percent, and Air Sahara, another private operator, was fast catching up
with a market share of 14.5 percent in 2004. The positions of all three, however, were under threat
from Air Deccan and a slew of other LCAs that promised to change the dynamics of the industry
completely. (By the end of 2004, Air Deccan, which started operations in late 2003, had managed
to capture a market share of one percent in terms of passengers carried.)

1
www.airlinequality.com, May 5, 2002.
2
Radhika Dhawan, “On a Wing and a Prayer,” Businessworld, September 22, 2003.
3
One crore is equal to ten millions. As of mid-2005, $1 was equal to approximately Rs. 43.
4
At the time of the IPO, Air Deccan was the only LCA operational in India. Kingfisher Airlines and
SpiceJet were on the verge of being launched and several other LCAs were also in the pipeline.

1
 Jet Airways’ Strategy, Operations and Competitive Position

BACKGROUND

Civil aviation in India came under the purview of the Department of Civil Aviation, a part of the
Ministry of Civil Aviation and Tourism, Government of India (GoI). Until economic liberalization
took place in the early 1990s, the sector was dominated by government-owned carriers Air India,
Indian Airlines, and Alliance Air, along with a few helicopter companies.
In 1991, as a part of the economic liberalization program, the GoI opened the civil aviation sector
to private investment. This was considered to be a boon for the sector and was welcomed by
investors and passengers alike. The general opinion was that civil aviation would benefit
considerably with the entry of private airlines, which would compete with the increasingly
apathetic national airlines and improve the overall standards of service. Following liberalization,
several new private airlines began operations in India. Some of the prominent ones were:
ModiLuft, Damania Airways, East West Airlines, NEPC, Air Sahara, and Jet Airways. Of these
airlines, only Jet Airways and Air Sahara managed to survive the 1990s.
Goyal, the founder of Jet Airways was a Commerce graduate who joined Lebanese International
Airlines as a General Sales Agent (GSA) based in New Delhi in 1967. Following this, he had a
stint with Iraqi Airways for a few years, before joining the Royal Jordanian Airlines as a regional
manager. Working with foreign airlines gave Goyal extensive exposure to all facets of the airline
business and propelled him toward entering the business himself.
In 1974, Goyal set up Jetair (Private) Limited, a company that provided sales and marketing
representation to foreign airlines operating in India. Kuwait Airways and Air France were some of
Goyal‟s clients. Goyal was appointed as the regional manager of Philippine Airlines as well. Over
the next few years, he expanded his network by picking up agencies for some more airlines. Goyal
was a business savvy man who understood the importance of networking. Therefore, he made it a
point to attend the annual general meetings of the International Air Transport Association (IATA,
the global aviation body) and he developed valuable contacts there.
Over the years, Goyal shifted base to London and attained the status of a Non-Resident Indian. For
some years he had been toying with the idea of harnessing his extensive aviation industry exposure
by setting up his own airline. In the early 1990s, he took advantage of the Indian Government‟s
Open Skies policy to announce the launch of his own airline, which was to operate scheduled air
services on domestic sectors in India. Consequently, Jet Airways began operations in May 1993.
Jet Airways was a fully-owned subsidiary of TailWinds Ltd. (TailWinds), a company registered in
the Isle of Man (a tax haven in the Irish Sea), of which Goyal was a majority shareholder. Kuwait
Airways and Gulf Air also had a combined 40 percent stake in TailWinds.
Unlike other private airlines that began operations in the 1990s, Goyal was very systematic about
the strategy and operations of Jet Airways. He leveraged all his experience and contacts in the
airline industry to ensure that Jet Airways operated in as professional a manner as possible
(according to analysts, the other private airlines adopted a lackadaisical approach to their
operations, which was the main reason for their downfall). Goyal hired Lintas, a major advertising
agency, to develop Jet Airways‟ corporate logo; IMRB, a market research firm, to do a consumer
survey; and Andersen Consulting (known as Accenture from 2001) to do a feasibility study and
help prepare the business plan. He also acquired a fleet of new Boeing 737 aircraft, primarily
through leasing.
Staffing was done with care. Goyal realized that engineering and technical skill was critical to the
proper functioning of airlines, and knew that, at that time, this skill was lacking among Indians.
Therefore, he hired expatriates for critical functions like flight operations, flight engineering, and
service quality. Several Indians who had worked for global airlines were also roped in to work for
Jet Airways.

2
By the late 1990s, Jet Airways flew to over 40 destinations across India. The September 11, 2001
terrorist attacks on the US5 affected Jet Airways as much as they did any other airline. Jet Airways
reported net losses in 2001-02 and 2002-03, when its load factor 6 dropped to 61-62 per cent. To
help cut costs, Goyal devised a strategy that cut down increments for staff and pruned their
training budgets (safety training was not affected). Some of the expatriates were also allowed to
leave the airline after their contracts expired.
The airline turned around by fiscal 2003-2004 and passenger numbers began improving as load
factor increased to 67 percent. In the fiscal ended March 2004, Jet Airways made a net profit of Rs
1.4 billion on revenues of Rs 34.4 billion (Refer Exhibit I for Jet Airways‟ Income Statement and
financials). The airline operated a fleet of 42 aircraft (Boeing 737s and ATRs) flying to 45
destinations across India. In early 2005, Jet Airways was granted permission to fly some
international routes; it launched flights to Kuala Lumpur, Singapore, and London. In addition, the
airline also operated flights to Kathmandu and Colombo and was on the threshold of launching
services to the United States.

JET AIRWAYS’ STRATEGY AND OPERATIONS

Jet Airways‟ strategy in the 1990s was to position itself differently from Indian Airlines, which
was then the dominant player in Indian aviation. Indian Airlines had a wide network of
destinations across India, along with a large and varied fleet of aircraft, the pick of flying slots at
airports, and the valuable backing of the national government. Despite these advantages, the
airline‟s performance was far from satisfactory. The airports and planes were badly maintained, the
staff was indifferent (and sometimes rude) to passengers, and operations were ridden with
inordinate delays and cancellations. Despite this, the airline was profitable, as passengers wishing
to fly had no other choice until the early 1990s.
Jet Airways was designed to take advantage of Indian Airlines‟ unsatisfactory operations and to
lure passengers, especially regular fliers, away from it. The airline also positioned itself differently
from the other private airlines set up in the 1990s. India‟s early private airlines were considered to
be rather extravagant in their operations, with some of them serving fancy meals and even hard
drinks on board. Jet Airways on the other hand, combined operational excellence with cost
efficiency. (Refer Exhibit II for Jet Airways‟ Mission Statement).
Jet Airways was positioned as an airline for business travelers. Traditionally, business travelers are
considered to be the major source of any airline‟s revenue. Business travelers fly more frequently
and are less price conscious than leisure or budget travelers. For this reason, airlines prefer to earn
and retain the loyalty of this segment of passengers.
From its inception, Jet Airways was clear about its strategy of focusing on the business segment,
and was positioned as „a world class airline for business travelers‟. It was designed and operated
as a professional airline, with excellent on-time performance (of utmost importance to business
travelers who often have appointments to keep at the destination). The commitment to
professionalism was even built into the company‟s logo and colors. The ochre of the logo reflected
warmth and the blue background represented professionalism. As a further reflection of its
commitment, Jet Airways connected most of the metros of India and offered several early morning
and late night flight slots, which were the ones business travelers usually preferred.
Most people (especially those flying on business and those who traveled long distances regularly)
considered flying a necessary evil. Jet Airways tried to convey the impression that flying could
also be an enjoyable experience. The airline therefore adopted the tag line „The Joy of Flying‟,

5
On September 11, 2001, terrorists hijacked four planes from different American airports and flew them
into prominent buildings in the US, killing thousands of people.
6
The number of passengers carried as a proportion of available seats.
which became an integral part of all its advertising. In the late 1990s, Jet Airways commissioned a
study to determine how the brand should be positioned and the values that it should stand for. It
was decided to make the brand more „warm and caring‟. The yellow rose, which forms a part of Jet
Airways‟ communications program, was adopted to convey these values. Regular domestic fliers
in India vouched for the fact that Jet Airways offered the best service in the Indian airline industry.
The service in Club Premiere, the airline‟s business class, in particular, was considered par
excellence.
Analysts said Jet Airways‟ focus on business travelers gave the airline the freedom to increase
prices to correspond with the ever-rising fuel prices (fuel accounts for the major portion of any
airline‟s operating expenses). As business travelers were less price conscious, a marginal increase
in fares was unlikely to affect demand. This option was not available to airlines that focused on
leisure travelers, who were sensitive to prices. Jet increased its fares by 10 percent twice in 2004.
Cargo prices were also increased once that year.
In keeping with its image as a professional airline, Jet Airways gave considerable importance to
the selection and training of pilots and cabin crew. Not only did the airline employ experienced
pilots from other airlines, but it also had a policy of training its own pilots. Pilot training was done
at Ansett‟s7 facilities in Australia. The airline‟s commitment to technical training was reflected in
the fact that Jet Airways had an excellent „technical despatch reliability‟ 8 figure of over 99
percentage. This made Jet Airways the recipient of the „Pride in Excellence‟ award, given by the
Boeing Company for technical excellence, in 2003 and 2004.
Jet Airways employed young and outgoing people as cabin crew and ground staff, and ensured that
they were well trained and smartly dressed to add to the overall passenger experience. Jet Airways
usually allotted two flight attendants for small ATR aircraft, while the Boeings had three or four
attendants, ensuring that all the passengers received individual attention and were well taken care
of.
For the convenience of its passengers, Jet Airways introduced several value added services that
made flying a more comfortable experience. It was the first airline in India to offer Tele-Check in,
Through-Check in, City-Check in, and On-time Check in facilities. The airline also offered various
other value added services to different categories of people like unaccompanied minors, expectant
mothers, the disabled, elderly travelers, and people traveling with pets.
In-flight catering at Jet Airways was widely applauded. The airline got its meals catered by Taj-
SATS, a five star airline catering service. Jet Airways also served food on all its flights, no matter
what the duration of the flight, and at all times of the day. This practice came as a pleasant surprise
to several frequent fliers who were impressed by the quality and variety of food served on the
airline and the fact that food was served even when the flights did not cover meal times.
Jet Airways‟ meal time food service in the economy class usually consisted of unlimited non-
alcoholic drinks, a two-course meal (with a choice of vegetarian or non vegetarian dishes), and hot
beverages. Non meal time flights served substantial snacks, as well as non alcoholic drinks and hot
beverages. The food in the business class offered even greater variety and was served on good
quality china crockery. Jet Airways claimed that it had more than 50 menu options in all, for
different days, at different times. The airline also offered passengers the choice of making Special
Meal requests for diabetes patients, strict vegetarians, and other individual and health options.
Although Jet Airways served food even on short flights (sometimes of not more than 45 minutes
duration), passengers claimed that the whole process was handled so efficiently that passengers did
not feel rushed or uncomfortable.

7
Ansett was an Australian airline that was in liquidation as of mid 2004.
8
Technical despatch reliability is the standard by which an airline‟s technical performance is measured.
Several foreigners who flew Jet Airways in India were all praise for the airline‟s catering service.
They said that the quality of service that Jet Airways offered was not to be found in any other part
of the world, where even major airlines served indifferent meals and few snacks, earning airline
food a notorious reputation.
Jet Airways‟ in-flight entertainment was also ranked among the best in the industry. The airline
brought out a voluminous in-flight magazine called „Jet Wings‟, which was of excellent quality in
terms of paper used, pictures, and layout. In addition to this, it carried two or three other
magazines and newspapers in the cabin. To keep passengers occupied during flights, Jet Airways
started a contest called „Contest2Win‟, which allowed passengers who answered the questions in it
correctly to win several prizes including cars, consumer durables, and free flight tickets. Children
(between ages 2 and 12) traveling by Jet Airways were given a small backpack called „Jet Kids‟,
which usually contained comics, coloring books, crayons, and other things of interest to children.
With the intention of tailoring its service to the needs of passengers, Jet Airways put into place a
system of feedback from customers called the „Service Tracker‟, which allowed the airline
to monitor the quality of service offered and to reward high performers among employees. Jet
Airways claimed that it was serious about the feedback it received from customers and often acted
on it within seven days of its being collected.
Jet Airways boasted of one of the youngest fleets of aircraft in the global aviation industry. As of
2004, the average age of Jet Airways‟ fleet was 4.5 years. Flying a young fleet conferred several
operational advantages on the airline. Younger planes had a better appearance, were low on
maintenance costs, and came equipped with the latest technologies, which made it more efficient
to operate them. The airline also employed a more or less uniform fleet of Boeing 737s and ATR
aircraft. This saved the airline in terms of costs of pilot and crew training, and maintenance, and
increased the substitutability of spare parts and fittings across aircraft.
The planes were also designed for maximum comfort. Passengers found the cabin configuration in
Jet Airways more comfortable than on other airlines, even in the economy class. The ATR planes
were usually configured in a single aisle with two seats on either side of the aisle. Boeings on the
other hand, had three seats on either side of the aisle in the economy segment and two in Club
Premiere.
Jet Airways chose its network smartly, flying to most places of either tourist or business
importance in India. The airline operated on a hub-and-spokes system 9, with the prime hubs being
in Mumbai, Delhi, Bangalore, Kolkata, and Chennai. This increased the airline‟s network coverage
across the country. Jet Airways also had access to several parking bays and prime landing slots at
most of the major airports in India. This was of great help in scheduling flights and also helped
lower the turnaround time10 of the flights.
In late 2003, Jet Airways introduced „Apex Fares‟ in order to be able to compete with
other airlines on an equal footing. Under Apex Fares, the airline set aside a percentage of the seats
on each flight to be sold at concessional prices. Jet Airways offered Apex Fares on tickets
purchased 30 days, 21 days and 15 days in advance of the day of the flight.
In 2004, Jet Airways put in place a yield management system that allowed the airline to fix ticket
prices depending on the demand for seats on a particular flight and the availability of seats of that
flight. This was designed to allow the airline to sell each seat on the airline at the best possible
price and to ensure that the maximum number of seats on each flight was filled.

9
In a hub-and-spokes system, an airline designated certain cities as hubs. Passengers from smaller towns
were brought to these hubs, from where they took flights to other places, which were not directly
connected to their point of origin.
10
Turnaround time is the time required for an aircraft that has just landed to be ready for takeoff again.
Using the yield management system, Jet Airways announced „Check Fares‟, which were 30 to 40
percent lower than the regular fares in economy class. Unlike Apex Fares, Check Fares did not
have to be booked in advance. They were usually announced close to the departure date on certain
specified flights (usually afternoon flights which did not have much traffic). Soon after the launch,
Jet Airways announced that the yield management system had begun to show results. “Revenues
have gone up; the seat factor has gone up. More importantly, our yields are higher despite the
lower fares (yields being a function of costs, revenues and the seat factor),” said Saroj Datta
(Datta), executive director of Jet Airways.11
In late 2004, Jet Airways also announced „Night Saver Fares‟ for late night flights, which were not
very popular. These fares were up to 80 percent lower than the normal economy fare and were
offered in five slabs. They were issued on a first-come-first-served basis and the fare kept
increasing closer to the departure time. Initially, this scheme was launched on the Delhi-Mumbai
and Delhi-Bangalore sectors, and was likely to be extended to other sectors depending on its
success. In the early 2000s, Jet Airways introduced online booking and telephone booking, which
allowed passengers to book tickets at their convenience from wherever they wanted. In addition to
this, there was also a Jet Mobile service that sent flight updates to passengers enrolled for this
service.
With the increase in competition in the Indian aviation sector, Frequent Flier Programs began to
gain importance. In July 2004, Jet Airways launched an improved version of its old frequent flier
program. Under the new program, the airline‟s 350,000 members were slotted into five tiers
instead of the earlier three, and were offered a wider choice of schemes. They could now access
their accounts online and through a dedicated service center on the phone. It also introduced a
multiple criteria-based tier assessment system, which offered quicker upgrades to business class.
Jet Airways relied on automation to help achieve efficiency in operations. For instance, the airline
introduced an automated rostering system to improve the utilization of pilots. It was expected that, over
time, the system would actually reduce the number of pilots required and lower the cost of operations.
Outsourcing was also undertaken in a big way to cut costs and increase productivity. By 2004, Jet
Airways had outsourced functions like ramp handling, cargo, passenger handling, ticket checking,
and loading and unloading in Delhi and Mumbai. Depending on the success of the strategy in these
places, it planned to extend it to other cities as well. “Controlling costs is the key to survival, and
the key to that is improving productivity,” said Datta. 12 The importance of cost control could not be
underestimated, especially with the rising fuel prices and rapidly increasing competition in Indian
aviation.

JET AIRWAYS VS. COMPETITION

The early 2000s saw a tremendous increase in competition in the Indian airline industry. By the
end of the 1990s, the less efficient private airlines had exited the industry and only Jet Airways and
Air Sahara were left to compete with Indian Airlines. Considering that the aviation market in India
was very small with an extremely low penetration rate (as of 2004, the average air travel in India
was 0.014 trips per person every year; in the US it was 2.02 trips per person per year), the
competition for a share in the small market became stiff. (Refer Exhibit III for a brief profile of Jet
Airways‟ competitors).
By the early 2000s, Indian Airlines‟ reputation in the industry had taken a severe beating,
and people generally did not choose to travel on it unless there was a compelling reason to do so
(usually better connectivity to remote places and concessions given to certain categories of
people). However, by 2003-2004, the airline had become more aggressive in fighting private

11
“No.1 Jet Airways: Changing Skies,” Businessworld, November 8, 2004.
12
Ranju Sarkar, “Jet Airways: Fly by wire,” Businessworld, November 8, 2004.
competitors and had launched several schemes aimed to put it back on top. For instance, in 2004,
Indian Airlines launched „Metro Shuttle‟, which provided frequent flights on the extremely busy
Delhi-Mumbai route at low prices (which were comparable to premium railway fares on the same
route). Analysts said that at any time, Indian Airlines was a formidable threat to Jet Airways, because
of its wide network and political clout.
Jet Airways‟ main rival, especially in the northern regions of India, was Air Sahara. Air Sahara
matched Jet Airways in service and on-time performance, and several people believed that there was
little to choose between the two airlines. One major difference, however, was that unlike Jet Airways,
Air Sahara gave as much importance to budget travelers as it did to the business segment. As a result,
it frequently came up with schemes that appealed to budget travelers. A certain section of people also
felt that there was more warmth and consideration in the service provided by Air Sahara than that of
Jet Airways, which, according to them, turned up its nose at economy passengers and first time fliers.
Air Sahara‟s main disadvantage vis-à-vis Jet Airways was that it did not have a strong presence in
the southern sectors and that its network was much smaller than that of Jet Airways. By early
2005, Air Sahara had already begun taking steps to remedy this shortcoming. It announced that it
would open a hub in the southern city of Hyderabad, from where it would connect several northern
cities to other southern cities, drastically reducing the travel time between these places.
Even as the full service airlines (FSAs) were fighting for a share in the limited market for airline
services in India, a new competitor emerged in the form of Air Deccan, which positioned itself as
an LCA and went after a totally new market segment – that of the growing middle class – by
offering fares that were almost half those of FSAs. Air Deccan was based in Bangalore and by
mid-2005, it connected most of the major cities in India and a few smaller ones as well.
Competition intensified further in the first half of 2005 as two new airlines, SpiceJet and
Kingfisher Airlines (Kingfisher), began operations. Soon after launching operations, both the new
airlines embarked on an aggressive campaign to muster market share. SpiceJet was positioned
distinctly as a budget airline and announced tickets at Rs. 99 on some sectors for the first 99 days
of its operations. Reportedly, the day the airline opened bookings, it sold 37,000 seats, and had a
load factor of 98 percent in the first week of operations.
Kingfisher (set up by Vijay Mallya of the United Breweries Group), on the other hand, promoted
its image as a „funliner‟, which provided exemplary service and in-flight entertainment (almost on
a par with FSAs) at a price that was significantly lower than theirs. The airline offered services like
seat back television sets, a wide menu, and swanky interiors to differentiate itself from other
airlines. Analysts said that Kingfisher could turn out to be Jet Airways‟ main competitor, as it
offered excellent services at a price that was almost 10 percent lower than that of Jet Airways. The
airline was also targeting major metro routes like Delhi-Mumbai and Bangalore-Mumbai, which
were the strongholds of Jet Airways.
Another new LCA, Go Air, launched by Jeh Wadia, of the Bombay Dyeing Group, was set to start
operations in October-November 2005. This airline was also targeted at middle class travelers and
was to connect smaller cities that were ignored by mainstream airlines. Including SpiceJet,
Kingfisher, and Go Air, aviation experts estimated that 14 new LCAs would begin operations in
India over the mid-2000s (with six of these ready to be launched by late 2005). (Refer Exhibit IV
for details of some of the airlines likely to start operations in India).
The mushrooming of new airlines led to an aggressive price war in the industry. Airlines slashed
fares drastically and several introduced promotional prices on high-traffic sectors. Airline industry
analysts felt that in this aspect Jet Airways‟ public issue put it at a distinct disadvantage in relation
to its competitors. As a listed entity, Jet Airways was responsible to its shareholders to operate
with a certain margin of profit. This would give it less flexibility in the on-going price war when
its unlisted competitors slashed prices deeply.
One outcome of increasing competition in the industry was employee poaching. The dearth of
trained people in India forced new airlines to resort to poaching employees from other more
established airlines to meet their staffing needs. Poaching was at its highest for pilots, but it was
observed that even cabin crew and ground staff were being lured away by newer airlines. Jet
Airways estimated that nearly 50 percent of its ground staff had left between late 2003 and mid-
2005. Kingfisher Airlines also employed several people from Air Sahara.
The high demand for staff inflated salaries and put the staff in a position to demand better terms.
For instance, pilots‟ salaries, which usually averaged between Rs. 35,000 and Rs. 50,000
per month, had increased to almost Rs. 100,000 per month by 2004, with some of the most
experienced ones even drawing double that. Analysts expressed concern at this trend, as after fuel,
labor was the most critical component of cost for airlines, and several global airlines burdened
with high staff costs, were heading toward liquidation. This trend was especially more dangerous
for the new LCAs, as it was a contradiction of their basic philosophy of maintaining „low costs‟.
Jet Airways, however, was confident that it would be able to meet competition from the LCAs.
The airline reasoned that in India, the difference between LCAs and FSAs was much narrower that
it was in the US or Europe. Talking about competition from LCAs, Wolfgang Prock-Schauer
(Prock-Schauer), CEO of Jet Airways, said, “The scope of these start-up carriers is low because
they have to bear the same high airport costs, fuel costs, and infrastructure problems.”13
In western countries, LCAs kept costs low by flying to secondary airports, which offered them
better terms as well as more landing and parking slots. In India, there were no secondary airports
as of the early 2000s, and even the LCAs had to fly to the main airports, which were naturally
dominated by the major airlines. There was no scope for LCAs to bargain for better terms or more
slots, as airport capacities were limited. Even if the capacity were increased in the future, the FSAs
would get their fair share of slots and parking bays, along with the new airlines, which would
negate the increase.
Besides, in India, 80 percent of airlines costs were fixed costs, relating to infrastructure, fuel,
navigation, and maintenance. These fixed costs were common to all airlines and therefore, there
was no significant difference in the cost structure of FSAs and LCAs. As a result, the LCAs did
not have the scope to lower prices significantly, without compromising on margins. Analysts
argued that without a significant difference in price, there was no reason why passengers should
prefer an LCA to an FSA.
However, there was another section of people who believed that the threat of LCAs could not be so
lightly dismissed. Notwithstanding matching fixed costs, these LCAs had the capacity to not only
lower the variable cost significantly but also to tap additional sources of revenue to make up for
small margins.
For instance, Air Deccan operated with only one cabin attendant per flight, where Jet Airways
employed a minimum of two. This lowered the employee costs for Air Deccan. Second, Jet had a
huge bill to foot for in-flight catering, considering the meals it served. In contrast, Air Deccan did
not serve food at all, which resulted in considerable savings for the airline. Not only did it not
serve food, it actually sold food on-board, and this was an additional source of revenue. Air
Deccan also rented out the plane‟s bodies, seat backs, and any other available space on the aircraft
for advertising, and this brought in additional revenues.
The argument in favor of LCAs seemed justified by the fact that within just over a year of being
set up, Air Deccan had become very popular in India. Its success was even more remarkable seeing
that a large majority of the airline‟s passengers were apparently flying for the first time,
which proved that Air Deccan had succeeded in its intention of creating a new market for itself. It
was increasingly felt that as the airline grew, it would succeed in eating into the business segment
too,

13
“Jet Airways net more than doubles; pays 30 p.c.,” The Hindu Business Line, May 18, 2005.
as people were never averse to saving money. It was observed that several companies were also
asking their employees to choose the lowest fare for business travel. Captain GR Gopinath, Air
Deccan‟s managing director, announced that the airline planned to have a fleet of 11
Airbus aircraft and 18 ATRs by 2006 (as of mid-2005, the airline had 18 aircraft in all). He also
said that it was likely that Air Deccan would issue shares to the public by mid-2006.
The main area in which Air Deccan and other LCAs could threaten Jet Airways was in providing
flights to smaller cities that were off the main flying routes. Air Deccan‟s stated objective was to
connect secondary cities in India to metros (in addition to flying between metros) so that people
traveling to these areas could take advantage of flying. (As of early 2005, Air Deccan had flights
to several smaller cities like Vijayawada, Madurai, Kolhapur, Hubli, Belgaum, etc., which were
ignored by major airlines). If this strategy worked, Air Deccan would be able to beat the FSAs on
volumes if not margins.
On the other hand, Air Deccan‟s apparent popularity had one major flaw – its poor punctuality
record. People who flew Air Deccan complained of the frequent delays and cancellations they had
to face. This was unlikely to endear Air Deccan to business travelers who often traveled on tight
schedules and had appointments to keep at their destination. People who had to catch connecting
flights to other destinations also avoided the airline for this reason. In this area, Jet Airways had a
very distinct advantage over all its rivals. Besides, cancellation charges on LCAs were very heavy
compared to FSAs. This made people wary of buying tickets on them.
Analysts said Jet Airways‟ business segment orientation would help it meet competition from the
new LCAs, as business class fliers gave priority to service over price. Conversely, however, there was
a concern that Jet Airways may be isolating itself from the booming middle class, which had taken to
flying and was poised to becoming the fastest growing segment of fliers. Jet Airways‟ Apex Fares
scheme was designed to overcome this problem, but it would be completely successful only if the
Apex fares matched the fares offered by LCAs. (Refer Exhibit V for a comparison of fares).

INTERNATIONAL PROSPECTS

Jet Airways‟ prospects improved further when, after years of lobbying on the part of private
domestic airlines, the GoI permitted the airline and Air Sahara to fly international routes in early
2005. Following this, Jet Airways launched services to London and Singapore from Mumbai and
to Kuala Lumpur from Chennai. High-ranking officials at Jet Airways said they were confident
about the airline‟s success on international routes. “Like in our domestic operations where we have
been profitable from our first year of operations except in 2001-02 and 2002-03, we expect to be
profitable in our international operations from the first year itself,” said Prock-Schauer. 14
The launch of its international operations was expected to pit Jet Airways against global majors
like British Airways, Singapore Airlines, and Malaysian Airlines, which operated on the same
routes. Competition would also come from Air India and Air Sahara (which launched operations
simultaneously). Jet Airways, however, was confident that it would be able to tackle the
competition.
Jet Airways had positioned itself as an essentially Indian airline for its overseas operations,
focusing on values like hospitality and courteousness. For instance, it launched its services to
Singapore with a new communications strategy under the theme „spirit of new India‟. “Five to
eight years ago, people thought of India as a Third World country; now we‟re trying to tell people
to come and experience us and you will know that India has matured over the last 10 years. But it‟s
not just clinical, it‟s also about the warmth and personal attention and care that we bring from 12
years of experience,” said V. Raja, the vice president of Jet Airways‟ Southeast Asian operations.15

14
“Jet Airways net more than doubles; pays 30 p.c.,” The Hindu Business Line, May 18, 2005.
15
Arun Sudhaman, “Jet tries on 'New India' sell in Singapore entry,” Media Asia, April 22, 2005.
POSSIBLE TURBULENCE

Jet Airways was also on the verge of launching flights to the US when its plans were stymied by
allegations that the airline was linked to terrorist groups. In May 2005, Jet Airways Inc., an airline
based in Maryland in the US, alleged in a filing with the US Department of Transportation that Jet
Airways India had links with Al Qaeda, a terrorist organization, believed to have been behind the
September 11 attacks on the US. Jet Airways Inc., claimed that allowing its Indian namesake to fly
to the US would be a threat to national security.
Jet Airways Inc. was an „on paper only‟ airline that did not own any planes till that point of
time. However, the airline apparently had plans of launching operations in 2005. Jet Airways India‟s
reaction to the allegations was one of surprise. It said that the allegations were “sensational,
unsupported, and offensive”16. It also said that it suspected name and copyright issues to be the main
motives behind the allegation made by the US airline, rather than any substantial evidence of terrorist
links.
Regardless of what the real motive might have been, this allegation had the effect of bringing Jet
Airways‟ plans to launch flights to Newark in New Jersey from Mumbai (with a stopover at
Brussels) to a standstill. Analysts were of the opinion that even if Jet Airways managed to clear its
name in the present controversy, its long-term international prospects were likely to be affected.
After the horror of September 11, even a suspected or tenuous link with terrorist organizations
could jeopardize an airline.
The situation was further worsened by the fact that Jet Airways‟ ownership structure was
complicated and opaque. Jet Airways was mainly owned by TailWinds, which in turn was owned
by Goyal, Kuwait Airways, and Gulf Air. A small part of TailWinds was also owned by several
shell companies17, which in turn were owned by Goyal. The „Jet Airways‟ brand was owned by Jet
Enterprises, which was also a shell company in which Goyal had a majority stake. Jet Airways had
a contract with Jet Enterprises, under which the airline had to pay 0.1 percent to 0.2 percent of its
total revenue as royalty to the latter for using a brand owned by the latter. Considering that Jet
Airways‟ total revenue in March 2004 was Rs. 34.4 billions, the airline was required to pay a
significant amount of money to Jet Enterprises.
Jet Airways‟ system of aircraft leasing had also come under question. In 2004, a leading Indian
business magazine published a report which described Jet Airways‟ aircraft leasing deals. The
report showed that there were three firms from which Jet Airways leased its planes – Washington
Aircraft Hire Company, North American Aircraft Hire Company, and Pinewatch Limited.
However, none of the three firms were known names in the aircraft leasing market. All the aviation
industry sources contacted in the preparation of this report claimed that they had never heard of
any of these companies, and that there were no records of any other airline having ever leased
planes from these firms. “None of these companies make offers to Indian Airlines, Air-India, or
Air Sahara when they put out tenders for aircraft. This is strange, for if a company is aggressively
and successfully leasing to one Indian company, there‟s no reason why it shouldn‟t make offers to
the other companies in India,” said one source.18
Adding to the mystery was the fact that two of the three companies (North American Aircraft Hire
Company and Washington Aircraft Hire Company) were headquartered in the Cayman Islands,
considered a haven for shell companies. This seemed to suggest that not all Jet Airways‟ dealings
were above board. The details of the number and types of planes leased from these companies are as
follows:

16
news.airwise.com.
17
Shell companies are those that generally do not have active business operations. They basically exist as
legal entities and are used as instruments by which another company can carry out its dealings.
18
“The curious case of civil aviation,” Businessworld, November 15, 2004.
 10 Boeing 737s from North American Aircraft Hire Company

6 Boeing 737-800s from Washington Aircraft Hire Company

3 Boeing 737-400s from Washington Aircraft Hire Company

1 Boeing 737-900s from Washington Lease Company

2 Boeing 737-400s from Pinewatch
Analysts also suggested that Jet Airways was overly dependent on Goyal in terms of leadership.
Goyal was a complete hands-on manager who played a critical role in all the decisions taken for
the airline, from selecting cabin crew to buying aircraft. His wife Anita Goyal also played an
active role in the business, and an especially key role in setting fares. According to analysts, this
kind of leadership suited companies when they were in the growth stage, but after a while, the
running of a business was best left to professional managers. Goyal‟s hands-on style also did not
go down well with the airline‟s CEOs, which probably accounted for the fact that Jet Airways had
three CEOs in 10 years (Prock-Schauer, who joined in 2003 was the third).
However, despite the problems it had to contend with, Jet Airways was one of the strongest brands in
India and was generally acknowledged by passengers as one of the best airlines globally. In 2005,
Skytrax Research of London ranked Jet Airways as the „Best Airline in India/South East Asia‟, at
the 2005 World Airline Awards. Sri Lankan Airlines was judged second and Air Sahara third.
Jet Airways also had one of the highest EBITDAR (earnings before interest, tax, depreciation,
amortization, and aircraft rentals) margins in the global aviation industry. Jet Airways‟ EBITDAR
margin was around 30 percent in 2004. This bettered the margins of Singapore Airlines (round 25
percent) and Southwest Airlines19 (18 percent), although it was less than that of Ryanair 20, which
had an EBITDAR of 41 percent.
A strong financial position, valuable brand, and exemplary service, combined with a growing
market for airline services in India, were likely to go a long way in helping Jet Airways achieve its
mission of becoming a „world class domestic airline‟.

19
Southwest Airlines was one of the most successful airlines in the US and the pioneer of low cost services
in the country.
20
Ryanair, based in Ireland, was one of the major LCAs in Europe.
 Jet Airways’ Strategy, Operations and Competitive Position

Exhibit I
Jet Airways Income Statement and Quarterly Financials
Annual Income Statement 31-Mar-04 31-Mar-03 31-Mar-02
Profit / Loss A/C Rs. mn %OI Rs. mn %OI Rs. mn %OI
Net Sales 34474.21 98.41 28756.81 99.12 25262.87 96.32
Operating Income (OI) 35030.68 100.00 29010.68 100.00 26227.98 100.00
OPBDIT 9197.66 26.26 4427.37 15.26 4794.11 18.28
OPBDT 6641.01 18.96 1866.03 6.43 3107.10 11.85
OPBT 1489.47 4.25 -2866.69 -9.88 -381.24 -1.45
Non-Operating Income 291.95 0.83 410.31 1.41 247.34 0.94
Extraordinary/Prior Period -139.23 -0.40 1261.41 4.35 -176.74 -0.67
Tax 150.33 0.43 0.50 0.00 0.42 0.00
Profit after tax(PAT) 1491.87 4.26 -1195.46 -4.12 -311.05 -1.19
Cash Profit 6643.41 18.96 3537.25 12.19 3177.29 12.11
Dividend-Equity 0.00 0.00 0.00 0.00 82.90 0.32

Quarterly Statement 31-Mar-2005 31-Mar-2004 % Change

Sales of Products/Services 12033.60 9356.10 28.62
Other Income 192.50 255.20 -24.57
Total Income 12226.10 9611.30 27.21
Total Expenses 8247.70 6821.00 20.92
Stock Adjustments 0.00 0.00 --
OPBDIT 3978.40 2790.3 42.58
Interest 683.80 628.30 8.83
Depreciation 1150.60 1253.30 -8.19
Extraordinary Items 0.00 0.00 --
Prior Period Adjustments 0.00 0.00 --
Provision for Tax 814.00 80.00 917.50
After Tax Profit 1330.00 828.70 60.49
Equity Capital 863.30 720.90 19.75
Reserves 0.00 0.00
Source: www.myiris.com

12
 Jet Airways’ Strategy, Operations and Competitive Position

Exhibit II
Jet Airways’ Mission Statement
Jet Airways will be the most preferred domestic airline in India. It will be the automatic first
choice carrier for the traveling public and set standards, which other competing airlines will seek
to match.
Jet Airways will achieve this pre-eminent position by offering a high quality of service and
reliable, comfortable and efficient operations.
Jet Airways will be an airline which is going to upgrade the concept of domestic airline travel -
be a world class domestic airline.
Jet Airways will achieve these objectives whilst simultaneously ensuring consistent profitability,
achieving healthy, long-term returns for the investors and providing its employees with an
environment for excellence and growth.
Source: www.jetairways.com

Exhibit III
Profiles of Jet Airways’ Competitors
Indian Airlines:
Indian Airlines, set up in 1953, was India‟s national airline and one of the largest domestic
airline systems in Asia. The airlines, along with its fully-owned subsidiary Alliance Air,
operated a fleet of 62 aircraft (4 wide bodied Airbus A300s, 41 fly-by-wire Airbus A320s, 11
Boeing 737s, 2 Dornier D-228 aircraft and 4 ATR-42). As of mid-2005, Indian Airlines flew to
57 destinations in India and 20 abroad. Its revenue in 2003-2004 was over Rs. 46 billion and the
net profit was Rs. 1.2 billion.
Air Sahara:
Air Sahara was a part of the Sahara India Parivar, a multi billion business conglomerate in India
with interests in media & entertainment, housing & infrastructure, tourism, public deposit
mobilization, consumer products and information technology. Air Sahara was founded in 1993
after the liberalization of civil aviation in India. As of mid-2005, Air Sahara flew to 24
destinations and operated a fleet of 20 aircraft comprising 13 Boeing 737s and 7 Canadian
Bombardier aircraft. The average age of the fleet was less than five years. Air Sahara‟s revenue
in 2003-2004 was Rs. 13.3 billion and the net profit was Rs. 811 million.
Air Deccan:
Air Deccan, India‟s first low cost airline, was set up in late 2003. The airline, which was based
in Bangalore, was a unit of Deccan Aviation Private Limited, India's largest private heli-charter
company. As of mid-2005, Air Deccan flew to 35 destinations in India, operating primarily,
point-to-point flights. The airline operated a fleet of 18 aircraft, comprising Airbus and ATR
planes. In 2003-2004, Air Deccan had revenue of Rs.682 million and net profits of Rs.40
million.
Two other airlines, SpiceJet and Kingfisher Airlines began operations in mid-2005. SpiceJet
was based in New Delhi, while Kingfisher Airlines was based in Bangalore.
Compiled from various sources

13
 Jet Airways’ Strategy, Operations and Competitive Position

Exhibit IV
Proposed Airlines in India
Go Air Promoted by the Wadia family of the Bombay Dyeing Group.
The airline was likely to start services in October-November
2005. It was expected to concentrate on western and southern
India initially.
Indus Air A value carrier, it was expected to launch services in May
2005, but postponed the launch. This airline was expected to
concentrate on the northern routes.
AirOne A regional airline, it announced in February 2005 that
services would begin by the end of the year. It was expected
that this airline would focus on non-metro routes.
Magicair A no-frills domestic airline, expected to be launched by the
end of 2005. Magicair was designed to be a pan-India airline
connecting metros, non-metros, and major holiday
destinations.
EastWest Airlines This was a revived version of the East West Airlines that
operated in India in the 1990s. The new airline planned to
launch services by late 2005.
IndiGo A low cost airline promoted by travel and tourism
conglomerate Interglobe. This airline received the no-
objection certificate from the government, but had not
announced any plans for services launch as of mid-2005.
Crystal Air A regional carrier that planned to focus on South India.
Paramount Air A Coimbatore (Tamil Nadu)-based airline that planned to
launch regional services.
Visa Air A low cost airline that was in the process of raising funds as
of mid-2005.
Compiled from various sources

14
 Jet Airways’ Strategy, Operations and Competitive Position

Exhibit V
A Comparison of Fares on the Delhi-Mumbai Sector in June-July 2005
Jet Airways (Apex Fares)

Booking Days in Advance Fare (Rs.)

30 4225
21 4280
15 5295

Air Sahara (Apex Fares)

Booking Days in Advance Fare (Rs.)

30 - Above 3775
20 - 29 3830
15 -19 4730
10 - 14 5310
5-9 5845

Indian Airlines (Apex Fares)

Booking Days in Advance Fare (Rs.)

28 4170
21 4290
7 6480

Air Deccan (DynaFares, depending on demand for a particular flight)

Booking Days in Advance Fare (Rs.)

Morning Flight Afternoon flight
30 3350 2500
20 2500 3350
15 3450 3450
Compiled from various sources

15
Additional Readings & References:

1. Radhika Dhawan, On a Wing and a Prayer, Businessworld, September 22, 2003.

2. Plain flying arrives in India, Asia Times, October 1, 2003.
3. Govt's open sky policy grounded again, www.indiainfoline.com, February 7, 2004.
4. The new low-cost warriors, Businessworld, July 5, 2004.
5. Jet Airways ready to go global, The Economic Times, August 6, 2004.
6. Indian low-cost airline expands, news.bbc.co.uk, August 25, 2004.
7. S Viswanathan, Flights of Fancy, Industrial Economist, August 30, 2004.
8. Discount packages on offer, Industrial Economist, August 30, 2004.
9. Shobha Mathur, Giving wings to dreams, Industrial Economist, August 30, 2004.
10. Jet Airways tops in domestic circuit, The Hindu Business Line, August 31, 2004.
11. Rich Pickings for Indian Low-Costs, Airfinance Journal, October, 2004.
12. No.1 Jet Airways: Changing Skies, Businessworld, November 8, 2004.
13. Ranju Sarkar, Jet Airways: Fly by wire, Businessworld, November 8, 2004.
14. The curious case of civil aviation, Businessworld, November 15, 2004.
15. Jet Airways plans IPO, The Hindu Business Line, November 25, 2004.
16. Private carriers continue to dominate domestic skies, The Hindu Business Line,
December 30, 2004.
17. Jet Airways seeks cash via IPO, Airline Business, January 2005.
18. Jet set for $550 million IPO, Airfinance Journal, February 2005.
19. India: 'Open Sky' policy and dog-fight, www.jeffooi.com, February 2, 2005.
20. N Mahalakshmi, Is Jet IPO a good bet?, www.rediff.com, February 14, 2005.
21. Amit K, 6 questions to ask before buying Jet's IPO, www.rediff.com, February 15, 2005.
22. Jet Airways taxis towards listing with pricing at month end, Euroweek, February 18, 2005.
23. Aarati Krishnan, Jet Airways: Invest at cutoff, The Hindu Business Line, February 20, 2005.
24. Turboprop ‘Surge’, Aviation Week & Space Technology, February 21, 2005.
25. Jet Airways IPO blows out as buyers lap up Indian growth, Euroweek, March 4, 2005.
26. Should you ride this Jet? www.domain-b.com, March 15, 2005.
27. No need to launch low cost carrier: Goyal, www.moneycontrol.com, March 30, 2005.
28. Jet Airways picks perfect timing, Airfinance Journal, March 2005.
29. Arun Sudhaman, Jet tries on 'New India' sell in Singapore entry, Media Asia, April 22, 2005.
30. Investors pile into Indian carriers, Airline Business, April, 2005.
31. Jet Airways to launch Mumbai service, Travel Weekly, May 6, 2005.
32. Jet Airways net more than doubles; pays 30 p.c., The Hindu Business Line, May 18, 2005.
33. G Ganapathy Subramaniam and Sudipto Dey, Jet, IA & Sahara to align fares to take on
low-cost entrants, The Economic Times, May 19, 2005.
34. Aarati Krishnan, Jet Airways: Hold, The Hindu Business Line, May 29, 2005.
35. Opening Asia, Air Cargo World, May 2005.
36. Sudhir Chowdhary, IA goes low-cost, to slash fares 20%, The Financial Express, June 2, 2005.
37. Low cost carriers make mass air travel a reality, The Hindu Business Line, June 6, 2005.
38. Jet Airways denies terror links, news.bbc.co.uk, June 6, 2005.
39. Fly on Air Deccan @ Re 1, The Economic Times, June 7, 2005.
40. Air Deccan plans to divest 25% via IPO, The Economic Times, June 7, 2005.
41. Cancellations cost on low-cost airlines, The Economic Times, June 8, 2005.
42. Ben Mutzabaugh, Jet Airways battle: Trademark issue or terror threat? USAToday,
June 8, 2005.
43. Anjuli Bhargava, Airborne, Businessworld, June 27, 2005.
44. www.airlinequality.com
45. www.wikipedia.com
46. news.airwise.com
47. www.myiris.com
48. www.epinions.com
49. www.indiainfoline.com
50. indian-airlines.nic.in
51. www.airsahara.net
52. www.airdeccan.net
53. www.spicejet.com
54. www.flykingfisher.com
55. www.jetairways.com