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Jet to start its own cargo unit; looks at new revenue model

Jet to start its own cargo unit; looks at new revenue model
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First Published: Tue, Jun 17 2008. 12 21 AM IST
Updated: Tue, Jun 17 2008. 12 21 AM IST
Shanghai: The country’s biggest domestic carrier, Jet Airways (India) Ltd, will invest as much as $15 million (Rs64 crore) in setting up its own air cargo unit after scrapping plans to form a venture.
The carrier expects to begin flying freighters by the middle of 2009, chief commercial officer Sudheer Raghavan said on Monday in Shanghai.
Talks with Deutsche Lufthansa AG, Germany’s biggest carrier, about forming a venture “didn’t work out,” he added without elaborating.
Jet wants to join state-owned Air India in flying freighters as surging fuel prices and cutthroat competition squeeze margins on passenger flights.
India, home to about a sixth of the world’s population, has less than 10 all-cargo planes at present, according to the Centre for Asia Pacific Aviation, or Capa.
“That’s a miniscule number” so “there is space for more cargo carriers,” said Binit Somaia, the aviation advisory company’s Sydney-based director for India and West Asia. Still, “it would help to have a partnership with a global operator.”
However, the airline plans to put its international expansion on hold until the end of next year because of soaring oil prices, according to Raghavan.
“After this flight, we will probably only launch Dubai when we get the rights. We are going to consolidate our international operations until the end of 2009, when we get new aircrafts,” he said.
Raghavan also said the airline intended to eventualy conduct an equity rights issue to raise funds, but that “this is not the right time” because of high oil prices and weak global stock markets.
In April, Jet’s chairman Naresh Goyal said the airline was assessing the market for the launch of a rights issue. The company had previously said a rights issue might raise up to $400 million.
The airline’s cargo unit will be equipped with at least three leased Boeing Co. 737 passenger planes converted into freighters, Raghavan said. The planes will be taken from JetLite, the carrier’s low-fare unit. The carrier needs to get permission to transform the planes from the aircraft owners, Raghavan said.
Jet has plunged 45% this year in Mumbai trading on concerns that surging fuel costs and rising competition will crimp profit.
Yields on passenger flights is likely to fall this summer from a year earlier, Raghavan said in a 14 June interview.
To help cope, Jet aims to reduce wastage, including ensuring that it doesn’t carry too much food on flights, he added.
The carrier also plans to find new sources of revenue, possibly including selling advertising on boarding passes and its website, Raghavan said.
Charging for check-in luggage may be considered as well, he added. Still, Jet doesn’t intend to axe routes or to cancel aircraft orders, Raghavan said.
The carrier operates 84 planes. It had outstanding orders for eight Airbus SAS A330s and 33 Boeing aircraft, including 10 787-8s, as of the end of May, according to the plane makers’ websites.
The combined loss of Indian carriers, including Jet and Deccan Aviation Ltd, the country’s largest discount carrier, will likely double this year to $1.5 billion, according to Capa.
Domestic aviation fuel prices have surged 53% this year, eroding gains from rising traffic. The price of aviation fuel, which accounts for nearly 45% of an Indian carrier’s operating costs, has risen almost 90% since last June.
Jet Airways lost Rs91 crore ($21.2 million) in the third quarter to 31 December 2007, compared with a profit of Rs40 crore a year earlier.
Reuters contributed to this story.
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First Published: Tue, Jun 17 2008. 12 21 AM IST
More Topics: Jet Airways | Cargo | Oil | Investment | Corporate News |