Home / Companies / News /  Jet Airways crisis set to reset India's aviation industry

Mumbai: Jet Airways (India) Ltd’s decision to halt operations from Wednesday evening for want of funds is set to rattle the world’s fastest-growing aviation market with its adverse impact on other businesses in the value chain as well as thousands of jobs.

The outcome would also have a ripple effect on competition, fares and customers as rival airlines scramble to fill up the vacancy caused by Jet Airways' grounding.

In an attempt to mitigate the crisis, the Directorate General of Civil Aviation (DGCA) on Thursday met aviation industry executives and airport operators.

The aviation regulator’s effort is to put in place a comprehensive plan to bridge the capacity gap and check a spike in ticket prices.

One of the biggest fallouts of the Jet Airways crisis is the loss of jobs.

Industry executives said it is not only Jet Airways employees who are hit.

“The loss of job of every employee on the rolls of Jet Airways also costs five others indirectly involved in the value chain," said a senior industry executive, requesting anonymity. Considering Jet has more than 15,000 employees, that would mean loss of work for about 75,000 people.

Airport operators, fuel suppliers and other vendors have lost a big customer with Jet Airways' fall. Once the biggest private airline outside government control, Jet Airways had a fleet of 119 planes and operated about 600 flights a day—before the liquidity crisis emerged on 31 December when the airline first defaulted on interest payments.

With Jet Airways halting its flights, Airports Authority of India, GMR Infrastructure Ltd and GVK Group stand to lose airport landing and parking charges and other rental revenue from Jet Airways.

These charges make up about a tenth of the price of an air ticket.

A big challenge for the authorities is to ensure that air fares do not surge during the summer holidays amid a shortage in domestic capacity. Spot ticket prices have already risen sharply in recent weeks.

Although SpiceJet Ltd, IndiGo (InterGlobe Aviation Ltd) and others are looking to add capacity, it may be some time before they are able to fully meet demand, especially in the ongoing peak travel season through June.

Surging fares will also likely impact travel plans. Indian travellers tend to travel to to Europe and North America during the summer holidays. Such long flights require wide-body planes, unlike the narrow-body aircraft used by most of the incumbents.

“Jet’s disappearance from the market is set to have a ripple effect on budget carriers, for whom a sudden scale-up of operations will be a big challenge. It will add to the working hours of their employees and raise stress levels, affecting the travel experience of customers. This will also have an impact on the image of India’s aviation industry to international travellers," said the same executive quoted above.

For Jet Airways, leaving its existing fleet of a dozen planes grounded is a costly affair while the exodus of highly trained staff, including engineers, poses a stiff challenge in executing a quick turnaround if the carrier manages to eventually rope in an investor. Industry watchers said reviving a grounded airline is much more difficult than turning around one which is a going concern, even if its operations are minimal.

Also, foreign airlines are likely to eye Jet Airways’ international routes if India does not quickly bridge the vacuum.

Jet Airways' failure is also set to reignite the aviation industry’s longstanding demand to bring aviation turbine fuel under the goods and services tax (GST). Such a move would help airlines bring down their costs as fuel now makes up about 40% of the cost of running an airline in India.

Experts said the failure of airlines can be tracked to macro-economic factors. “High jet fuel prices, exclusion of jet fuel from GST and poor airport infrastructure have affected the health of airlines," said Dhiraj Mathur, former leader of defence and aerospace practice, PwC India.

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