Company Overview
Jet Airways (India) Ltd. (Jet Airways or "the company") is a provider of air passenger transportation and cargo services. The company operates daily flights to 75 destinations, including the US, Canada, the UAE, Singapore, Malaysia, and the UK. The company is headquartered in Mumbai, India and employed 12,082 people as on March 31, 2013. The company recorded revenues of INR194,092 million ($3,551.9 million) during the financial year ended March 2013 (FY2013), an increase of 13.7% over FY2012.The operating profit of the company was INR31,959 million ($584.8 million) in FY2013, compared to an operating loss of INR60,729 million ($1,111.3 million) in FY2012. Its net loss was INR7,798 million ($142.7 million) in FY2013, as compared to the net loss of INR14,201 million ($259.8 million) in FY2012.
SWOT Analysis
Jet Airways is a provider of air passenger transportation services. The company offers integrated
operations to its customers, which allow the company to cater to a wide range of customer needs
and conveniences, which in turn give a competitive edge over its competitors. However, the growing number of low cost and low fare airlines and the increasing number of private jets could impact Jet Airways' domestic market share.
Strengths
1. Vertically integrated operations give a competitive edge over competitors
Jet Airways offers integrated operations to its customers. It offers passenger operations, cargo
operations and also leases aircrafts. In the passenger segment, the company operates daily flights
to 55 domestic destinations and 20 international destinations. International destinations covered by the company include Abu Dhabi, Bahrain, Bangkok, Brussels, Colombo, Dammam, Dhaka, Doha, Dubai, Hong Kong, Jeddah, Kathmandu, Kuwait, London Heathrow, Muscat, Newark, Riyadh, Sharjah, Singapore and Toronto.
The company also offers other services, including online ticket booking and reservation, online
check-in services, wheelchair assistance, kiosk check-in and mobile ticketing. The company also
offers on ground services such as check-in options, airport lounges, coach services and bus services. Furthermore, Jet Airways also transports cargo across the world. In FY2013, it transported 230,057 tons of cargo. Thus, vertically integrated operations allow the company to cater to a wide range of customer needs and conveniences, which in turn give a competitive edge over its competitors.
2. Robust fleet base and strong network portfolio improves operational margins
Jet Airways has a strong operational portfolio with strong fleet base and network operations. At the end of January 2014, the company operated a fleet of 113 aircraft, which include 10 Boeing 777-300 ER aircraft, 10 Airbus A330-200 aircraft, four Airbus A330-300 aircraft, 72 Boeing
737-700/800/900/900 ER aircraft and 15 ATR 72-500 Turboprop aircraft and two ATR72-600 aircraft. Further, Jet Airways' wholly-owned subsidiary, JetKonnect, operates a fleet of 15 aircrafts comprising seven Boeing 737-700 aircrafts, six Boeing 737-800 and two Boeing 737-900 ER aircrafts. In addition, the company has a strong network base across the globe. It covers 20 international destinations and operates flights to and from 55 destinations in India. It has codeshare agreements with 17 airlines, including Air Canada, All Nippon Airways, Brussels Airlines, Etihad Airways, JetKonnect, Kenya Airways, Malaysia Airlines, Qantas, Thalys and United Airlines. Thus, the company's robust fleet base and strong network portfolio enables Jet Airways to improve its operational margins by effective utilization of its asset base.
3. Information technology and e-Commerce initiatives enhances the operational performance
The company enters its third decade of operations and it has strengthened its focus on creating
differentiating products and services to stay ahead in a competitive and challenging environment.
For instance, Jet Airways has strategically set up a joint Innovation Council in partnership with
International Business Machines Corporation (IBM), to create smarter, faster and personalized
self-service, digital and social media solutions to enhance customer service and engagement. The
company also launched India’s first native airline mobile application for Windows Phone and applications for Android, iPhone and BlackBerry phones. Furthermore, the company also aims to use new technology to increase its ancillary revenue and also leverage cloud computing which entails several benefits like infrastructure flexibility, scalability, cost control and improved performance and productivity. Thus, these initiatives enhance the operational performance and on a whole increase the customer base.
Weaknesses
1. Negative margins affect the future growth plans
The net margins of the company recorded negative figures in FY2013, despite growth in its revenues. For instance, the company recorded a negative profit margin of 4% in FY2013, although its revenues increased by more than 13%. The company reported net loss was INR7,798 million ($142.7 million) in FY2013, as compared to the net loss of INR14,201 million ($259.8 million) in FY2012. However, the net margins have improved from the last fiscal but remained in negative values. Therefore, consistent negative margins for the company could negatively impact shareholder's confidence in the company thus affecting its future growth plans.
2. Geographic concentration exposes to risk of downturns in macroeconomic conditions
Although Jet Airways has expanded to other international regions, it still depends on Indian market for majority of its revenue. In FY2013, the company generated about 48.1% of its revenue from India. This over-dependence on the Indian market may have a dampening influence on the company’s revenues if the economy and/or the company’s sales in India do not grow as expected. High dependence on the domestic market may restrict Jet Airways’ income growth to the local economy. It makes the company susceptible to changes associated with the economic and political situation of the country. Thus, the company’s high reliance on one market exposes it to the risk of downturns in the country's macroeconomic conditions and amplifies its business risk.
Opportunities
1. Strategic expansion of global aviation circles enhances revenue base
Jet Airways is planning to expand its operational network in the coming years. In this context, the company has started new flights to various domestic and international destinations in the recent past and signed many agreements. For instance, in January 2014, the company launched two new international flights: Bengaluru’s maiden flight to the Gulf, connecting India’s IT Hub with Abu Dhabi, as well as a new daily direct service from Hyderabad to Abu Dhabi from March 2014. These two new routes will be serviced by the airline’s Boeing 737 – 800 aircraft, further strengthening Jet Airways’ growing international network in the Gulf region, thus enhancing flight connectivity beyond Abu Dhabi.
In December 2013, Jet Airways entered into a partnership with renowned Greek natural and wellness brand KORRES. for a new amenity kit to enhance in flight experience of First Class and Premiere guests - onboard its international flights. KORRES products are made from natural and certified organic ingredients of the highest quality and aesthetically packaged. Moreover, in November 2013, Jet Airways and Garuda Indonesia, the national carrier of Indonesia, signed a code share agreement and simultaneously launched a reciprocal frequent flyer program. Also, in June 2013, the company signed codeshare agreements with Air France and KLM Royal Dutch Airlines to enhance connectivity between Europe and India. Thus, such expansion would help the company to increase its presence in the global aviation circles and allow it to cater to a wide range of customers thereby enhancing its revenue base.
2. Growing trends of tourism industry in developed countries helps to boost revenues
The tourism industry is booming which would boost the demand for the company’s services. The
role of airlines in the total tourism business is to provide mass and quick transportation between
countries under safe, standardized and economic conditions. The company provides services to
passenger carriers. According to United Nations World Tourism Organization (UNWTO), the number of international tourists worldwide grew by approximately 5% i.e., 38 million tourist arrivals, reaching 747 million in total in the first eight months of 2013. The destination regions leading the growth include: Asia and the Pacific (6%), Europe is up by 5% and the Americas by 3%. Among the 25 largest international tourism earners, receipts grew by double-digits in Thailand ( 27%), Hong Kong (China) ( 25%), Turkey ( 22%), Japan ( 19%), the UK ( 18%), Greece ( 15%), India ( 14%), Malaysia ( 12%) and the US ( 11%). The growing global tourism coupled with the company’s presence in more countries could thus help it to boost its revenues and margins.
3. Strategic alliance with Etihad Airways would enhance customer base
The company through strategic agreements expands its reach into new markets. For instance, Jet
Airways and Etihad Airways have forged a strategic alliance in November 2013, wherein Etihad
Airways planned to invest $379 million for a 24% stake in Jet Airways. Etihad Airway’s overall wider commitment to Jet Airways also included an injection of additional $220 million to create and strengthen a wide-ranging partnership between the two carriers. For the required agreement Etihad Airways has paid $70 million to purchase Jet Airways’ three pairs of Heathrow slots through a sale and lease back agreement. Jet Airways continues to operate flights to London utilizing these slots. Further, an amount of $150 million is planned to be invested by Etihad Airways by way of a majority equity investment in Jet Airways’ frequent flyer program, ‘Jet Privilege’. This partnership will offer a wider consumer choice to the Indian traveler by connecting 23 cities across the country to a significantly enhanced international market. This in turn, would facilitate further tourism inflows to the country and help promote trade and commerce.Thus, strategic alliance with Etihad Airways would help the company expand into new markets and increase its customer base.
4. Strong outlook of the Indian airlines industry augers the topline growth
The Indian airlines industry showed healthy growth over the last couple of years with the exception of 2009. The market is predicted to grow at a strong rate across the forecast period of 2013-2016. According to MarketLine (a unit of Informa plc), the Indian airlines industry had total revenues of $18.1 billion in 2013, an increase of 20.3% over 2012. Furthermore, the performance of the industry is forecast to accelerate, with an anticipated CAGR of 22% for the four-year period 2013-2016, which is expected to drive the industry to a value of $32.7 billion by the end of 2016.
Jet Airways is one of the leaders in the Indian aviation industry. Hence, a positive growth in the
Indian aviation sector would increase the demand for the company's services which in turn augers well for the company's top line growth.
Threats
1. Intense competition in the aviation industry impacts the domestic market share
The competition in the airline industry has been intensified with the emergence of low cost carriers in the East Asian region. The low fare charged by these budget airlines makes Jet Airways' airline operation less competitive. In the long-haul market, the company faces competition from local operators in most geographical areas, including Middle East and Asia. In the medium-haul market, low-cost carriers have established strong market positions and continue to grow. Further, as a result of increasing business travel, a number of customers are increasingly looking towards air travel options which allow them to minimize stoppage time at airports caused due to various reasons, including baggage handling and refueling. This has led an increasing number of business organizations to invest in private jets, which are jointly owned along with certain airlines, or completely owned.
Moreover, the recent policy reversal by the Indian Government allowing foreign stakes in airline
companies in India may result in the launch of new airlines in the industry, further increasing the
competition. For instance, Malaysian low-fare airline AirAsia in partnership with the Tata Group plans to establish a domestic Indian airline in the coming years.Thus, the growing number of low cost and low fare airlines and the increasing number of private jets could impact Jet Airways domestic market share.
2. Statutory regulations incurs additional costs and impacts the operating margins
As an airline operator, the company undertakes operations based on the stipulations of statutory regulations relating to airline operations. Jet Airways is required to conduct passenger operations
and cargo operations on international routes in accordance with the stipulations of international agreements. These stipulations include treaties, bilateral agreements, and the decisions of the International Air Transport Association (IATA). A violation of specific laws and regulations by the company could result in the imposition of fines and penalties.
The company is also subject to numerous statutory environmental protection regulations. These regulations are imposed on airline companies with regard to issues such as aircraft emissions of greenhouse gases, use of environmentally polluting substances and their disposal, and energy usage at major offices. Jet Airways shoulders a considerable cost burden in order to adhere to such statutory regulations. If the current regulations are strengthened or if new regulations, such as environmental taxes, are introduced, the company has to incur large additional costs, which would impact the Jet Airways' operating margins.
3. Volatile fuel prices pressurizes the margins and profitability
Jet fuel forms the main raw material used in the airline industry. The cost of jet fuel formed a significant part of the total expenses for the company. Fuel costs increased by 5% to INR69,920 million ($1,279.5 million) for FY2013 from INR66,306.7 million ($1,213.4 million) in FY2012. This increase was mainly due to an increase in the aviation turbine fuel (ATF) rates on account of increase in crude oil prices.
The average rate per liter of fuel for domestic operations in FY2013 was INR67.1 ($1.2) vs and
INR60.2 ($1.1) for FY2013. The average rates for international operations were INR48.9 (approximately $1) in FY2013 vs INR43.4 ($0.8) in FY2012.
Moreover, the demand for petroleum and related products has historically been cyclical and sensitive to the availability and prices of oil and related feedstock. Historically, international prices of crude oil and refined products have fluctuated widely due to many factors that are beyond the control of companies like Jet Airways. For instance, according to IATA, the average price of jet fuel in Asia and Oceania region stood at $122.5 per barrel in January 2014, a decline of 6.9% over the past year. The average fuel price was $124.6 per barrel in 2013 which impacted the overall fuel bill of the airline industry by $4 billion. Hence, a sustained volatility in aircraft fuel prices could negatively impact the Jet Airways costs which in turn would pressurize its margins and profitability.