Can Naresh Goyal keep his smile?

In the dog-eat-dog world of Indian aviation, Naresh Goyal’s Jet Airways has survived against the odds for more than two decades when others have fallen by the wayside. Jet’s survival is thanks to Goyal’s adaptability. He might have opposed foreign direct investment (FDI) in Indian carriers, but when the policy changed he was the first off the block, and sold 24 per cent stake in Jet to the UAE-based Etihad Airways.

Goyal’s flexibility was again in display when Jet jettisoned its low cost service JetKonnect and became a complete full-service carrier (FSC). From December 1, all of Jet’s flights have a two-class, business and economy, offering.

This was a bold move. The Indian aviation market is price-sensitive. Low cost carriers (LCCs) have increased their market share at the expense of the FSCs. Past precedent is not encouraging either. Vijay Mallya’s gambit in Kingfisher Airlines to go full-service had fallen flat and hastened its demise.

So, what is Goyal and Jet Airways betting on?

Many of its customers and even executives were confused by Jet’s many brands -- Jet Airways (the full-service offering), JetKonnect (the low-cost service) and for a brief period Konnect Select (premium seating in the low-cost service).

These pulled in different directions and diluted the brand equity. “A true LCC and FSC represent two different cultures and a mixed offering by an airline creates problems with respect to positioning, costs and practices. ,” says Amber Dubey, Partner and India Head of Aerospace and Defense at global consultancy KPMG. Now with a single brand, Goyal hopes to address these problems.The move was also hastened by the entry of new players. “Air Asia and now, Vistara Airlines’ entry would bring international best practices. During the next couple of years, the distinction between LCCs and FSCs may become wider. This would require airlines to reassess their brand positioning,” adds Dubey. Jet Airways declined to comment for the story.

Goyal may still be the largest shareholder in Jet, but it is Etihad that may be in the pilot’s seat. An indication of this was the massive churn in the top management of Jet after Etihad came (within a year, Jet had three different CEOs). Jet’s move to FSC is driven by the need to align itself with Etihad’s standards. The West-Asian airline has won World Travel Awards for six consecutive years from 2009.

Post the Etihad-deal, the entrepreneur has also shifted Jet’s focus from the domestic to the international market. The share of the international operations in Jet’s revenue increased from about 58 per cent in the March quarter last year to nearly 63 per cent in the September quarter. It’s not that international passengers are willing to open up their pockets.

“Similar to the domestic market, a large proportion of the international passengers are also price-sensitive, especially in the leisure segment. This is reflected by the fact that for most airlines fares on a specific route are in a very narrow band, especially for sectors being served by more than two airlines,” says Rahul Prithiani, Director, CRISIL Research. Yet, Jet’s international operations are more profitable than its domestic business, thanks to lower costs.

Does this mean that Goyal has taken his eyes off the domestic market? Not quite. In an analyst conference call last year, Cramer Ball, Jet’s new CEO explained, “We are a network carrier. We are building flexibility in our business to operate… We will fly, where it’s commercially the most advantageous…whether that is domestic or international. ”

There is fortune to be made at the top of the pyramid. Fares in the business class are at least thrice the economy class and the margins are better. Though Goyal does not mind losing some of the share in the LCC market for the sake of profitability, he may not have to. Aiding him is the cost structure in domestic market. “In the Indian market, currently, there are no major structural differences between LCC and FSC. This includes fuel cost, airport charges, aircraft lease, maintenance, and staff cost. A random check of the online ticket sites will highlight the irony that many a time LCC fares are higher than FSC ones,” says Dubey. In other words, Jet can compete with the LCCs.

Additional inputs by Ashwini Phadnis

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