Jet Airways plans to cut non-fuel costs by 12-15% in 2 years
2 min read 29 Aug 2018, 08:19 AM ISTJet Airways, controlled by Naresh Goyal, had a few quarters earlier started the process to reduce its non-fuel costs to improve its finances
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Mumbai: Jet Airways (India) Ltd on Tuesday said it is on track to cut non-fuel costs by 12-15% over the next 18-24 months, a day after the airline’s board outlined a turnaround plan following a second straight quarterly loss. Higher fuel costs, subdued yields and an unrealized foreign currency loss hurt Jet Airways in Q1, chief financial officer Amit Agarwal said in conference call with analysts.
The carrier, controlled by entrepreneur Naresh Goyal, had a few quarters earlier started the process to reduce its non-fuel costs to improve its finances. Earlier in August, the airline’s management asked employees to take an up to 25% cut in their salaries.
Airlines in India have been hammered by higher jet fuel prices, a weaker rupee and intense competition, restricting their ability to raise fares to cover higher costs. In the past year, Brent crude has gained 46% to $76.10 a barrel, while the rupee weakened 8.73% against the dollar during the period.
While the domestic aviation sector faces headwinds, Jet Airways, which is essentially a full-service carrier, also faces stiff competition from no-frill carriers, which operate on a comparatively lower cost model.
Jet Airways, which had about 13.6% of the domestic market share in July, on 27 August reported a fiscal first quarter loss of ₹ 1,323 crore, excluding those of its unit.
Directors of the airline meanwhile approved a turnaround plan, which includes cutting costs by more than ₹ 2,000 crore over two years, improving pricing, better inventory management, leveraging the Jet Privilege programme, capital infusion and fleet simplification.
The airline plans to bring down costs by cutting maintenance costs, selling and distribution costs, fuel rate and optimization, debt and interest cost reduction and enhancement of crew and manpower productivity, it had said in a statement.
On Tuesday, Jet Airways said it trimmed its debt to ₹ 7,364 crore as of end-June, from ₹ 8,082.65 crore as of end-March. Agarwal said about 65% of the debt is dollar denominated.
The airline was able to reduce its debt as it tapped in additional liquidity of $300 million last quarter from lease incentives and debt, borrowings from domestic banks, he said, without disclosing the cash garnered from lease incentives.
Lease incentives refer to deferring of lease payments by airlines to leasing companies, typically after an airline conducts a sale and lease back of aircraft, said an analyst with a foreign brokerage, who didn’t want to be named.
Under a sale and lease back (SLB) procedure a lessor will purchase an aircraft from an airline and then lease it back, removing the aircraft, and its associated debt, from the carrier’s balance sheet.
Agarwal said Jet Airways will service debt totaling ₹ 2,200 crore this year from funds raised from internal accruals, equity infusion and cost reduction steps.
The airline, which owned 16 wide body aircraft in a fleet of 112 as of end-March, will conduct sale and lease back for a portion of its fleet to raise cash, he said.
Jet Airways, which is owned 24% by Etihad Airways of Abu Dhabi, has most of its aircraft under operating lease from lessors.
“Given this mismatch between fare and fuel price, it’s only a matter of time that yields will pick up," said Jet Airways’ chief executive officer Vinay Dube.
