Lenders to Jet Airways (India) Ltd may tap its frequent-flyer programme to partly rescue the airline from its financial distress.
Despite a sharp reduction in Jet Airways’ fleet and the pessimism stemming from its inability to repay loans and service plane lease rentals, Jet Privilege Pvt. Ltd (JPPL) has witnessed its customer base swell from 7.3 million to 9 million in the past year. Reward-point sales have risen 20% to 35 billion JPMiles during the period, improving opportunities for the carrier’s shareholders to monetize their value.
JPPL was incorporated in 2012 as a wholly owned unit of Jet Airways, but was hived off as an independent entity in 2014 after Etihad Airways PJSC bought a 50.1% stake for $150 million valuing the firm at $300 million. Etihad’s investment in Jet Privilege was part of its overall $600 million investment in the airline announced in April 2013.
Shareholders of Jet Airways, which currently include state-run banks, are betting on the comparatively robust financials of JPPL to monetize the airline’s stake in the venture and use the money to partly repay its dues.
“Several private equity firms had recently expressed their interest to pick up portion of Jet Airways’ stake in JPPL. Moelis was acting as the investment banker for the proposed deal," Manish Dureja, managing director and CEO, JPPL told Mint.
On Point Loyalty, a global management consultancy focused on airline loyalty programmes, had valued JPPL at $1.131 billion (about ₹7,300 crore) last year, based on the average rupee exchange rate in November.
A back-of-the-envelope calculation showed that the reward-point sales totalling 35 billion JPMiles can be redeemed to buy around 4.2 lakh round-trip flights to London or around 3 lakh round-trip flights to New York, Chicago or Canada. If paid in cash, the flights to Europe would cost ₹3,000-5,000 crore, and those to US-Canada would cost ₹6,000-7,000 crore in the current season, considering the range of air fares offered by various airlines during the April-May period.
According to JPPL’s reward scheme design, a one-way flight from India to Europe costs 42,000 JP Miles and a flight to New York, Chicago or Toronto costs 60,000 JP Miles. JPPL has split the global air-map into 13 different zones and from any airport in one zone to another zone costs a specific number of JPMiles. Jet Privilege has partnerships with 25 foreign carriers and any member can choose a carrier of choice to fly abroad by redeeming their JPMiles, although taxes need to be paid separately for such flights.
Even as Jet Airways struggles to secure an investor to repay its loans worth ₹8,500 crore, JPPL has managed to ramp up its business profitably during the past year.
“Around 45% JP Miles business come from air transactions and about 55% from non-air transactions," Dureja said.
Air transactions include purchase of Jet Airways’ tickets while non-air transactions include swipes on co-branded debit and credit cards. JPPL has partnered with American Express, HDFC Bank, ICICI Bank and IndusInd Bank to launch a range of co-branded credit and debit cards.
Besides, JPPL has tie-ups with several hotel chains, restaurants and event management firms through which customers can earn JPMiles. Through these tie-ups, involving revenue-sharing agreements, JPPL sells JP Miles and makes money.
Every year, on an average, 9-12 billion JP Miles are redeemed by customers, said Dureja, who expects JPPL to grow 15-20% in the current financial year.
JPPL, around 10 days ago, tied-up with SpiceJet, Air India, GoAir and Vistara to enable existing Jet Privilege members to use their air miles on these airlines for domestic travel. This, the airline said, will ensure customers are not stuck with unused JP Miles while flying within India, especially against the backdrop of Jet Airways grounding 75% of its aircraft in the past five months. Previously, JP members could redeem their JPMiles to fly only Jet Airways within India. IndiGo, India’s top domestic carrier, is not part of this pact.
During fiscal 2018, JPPL’s net profit surged over 66% to ₹177.35 crore from ₹106.63 crore in the previous year, according to filings with the ministry of company affairs. The company’s total income grew to ₹622.24 crore in 2018 from ₹537.52 crore in fiscal 2017.
Also, during fiscal 2018, JPPL earned revenue of ₹251.82 crore from redemption of miles, compared with ₹244.41 crore in fiscal 2017.