People watch as a Jet Airways (India) Ltd. aircraft prepares to land at Chhatrapati Shivaji International Airport in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

Jet Airways Vows to Cut Costs, Sell Stake in Loyalty Program

(Bloomberg) -- Troubled carrier Jet Airways India Ltd. said it will sell a stake in its loyalty program and cut as much as 20 billion rupees ($285 million) in costs over the next two years as part of a turnaround plan after years of losses in a competitive aviation market.

Announcing the biggest quarterly loss since 2015, the board of the Mumbai-based airline considered fundraising measures at a meeting to help revive the company, Jet Airways said in a filing to the stock exchange late Monday. The management has been tasked to accomplish this in a “time-bound manner,” it said.

“The air passenger traffic is extremely strong but it’s now on the incumbents how they deal with the financial problems,” said Sanjiv Bhasin, executive vice president at Mumbai-based IIFL Securities Ltd. “The strong consumption and the good prospects of the aviation sector provides optimism that a dark knight, who can look beyond the negative rhetoric, may be willing to step in.”

Shares of the company rose 4.7 percent to 295.45 rupees in Mumbai on Tuesday.

Fare Wars

Jet Airways is struggling in a market where intense competition has driven air fares so low that airlines can barely cover costs. Profitability for local airlines is unlikely to recover in the near term as carriers plan to add about 100 new aircraft in the next five years, putting pressure on fares, Fitch Ratings said this month. That will lead to some airlines scaling back operations, helping the bigger ones like IndiGo to consolidate their market share, the agency said.

With the entry of low-cost operators such as IndiGo, run by InterGlobe Aviation Ltd., and SpiceJet Ltd., the market share of Jet Airways has more than halved in the past decade to about 15 percent. The Mumbai-based carrier has reported losses in all but two of the Past 11 years, and this month said it needed to raise funds to meet liquidity requirements.

Among the proposed steps is the sale of its stake in JetPrivilege, its loyalty program, which grew 30 percent to 8 million customers in the year ended March 31. Blackstone Group LP is in talks to buy a stake in the loyalty program, people with knowledge of the matter said this month.

Jet Airways owns 49.9 percent of the program, with the rest held by Etihad Airways PJSC, which separately owns 24 percent of the Indian carrier.

Paring Debt

Besides cost reductions, Jet Airways has also proposed capital infusion and paring of debt that would result in “significant” decrease in interest cost. It did not provide details.

“Intentions are there, but details are not there,” said Deven Choksey, managing director at KR Choksey Shares & Securities Pvt. in Mumbai. “Jet on its own won’t be able to survive.”

Losses for the three months through June were 13.2 billion rupees, compared with a profit of 535 million rupees in the same period a year ago, Jet Airways reported Monday. Shares have tumbled 64 percent this year, shrinking its market value to $479 million.

India, the world’s fastest-growing aviation market, is also one of the toughest in which to survive. Premium carrier Kingfisher Airlines Ltd. collapsed in 2012, while legacy Air India Ltd. has survived on repeated state bailouts. At the same, the lure of the market, where air travel penetration is still low for its 1.3 billion population, has prompted Singapore Airlines Ltd. and AirAsia Group Bhd. to start local operations.

Jet Airways group had gross debt of 86.2 billion rupees, and net debt of 73.6 billion rupees as on June 30, Chief Financial Officer Amit Agarwal told analysts in a conference call Tuesday. About 65 percent of the company’s debt was dollar-denominated, he said.

The carrier will wet lease excess ATR aircraft, and will cut costs related to maintenance, selling and distribution, it said. Etihad, which has piled up losses investing in troubled companies in the past, remains committed to the partnership, according to the statement.

The proposals to inject capital and the sale of the loyalty program “bode well for the long term financial health and sustainability” of the airline, Chairman Naresh Goyal said in the statement.

©2018 Bloomberg L.P.