Why Jet Airways Didn’t Hurt Like Kingfisher Shutdown
It took the aviation industry three years to recover from Kingfisher shutdown but disruption from Jet Airways was short-lived.
Two large airlines shut down in India in the last six years, undone by losses and mounting debt. But while the industry took about three years to recover from the grounding of Kingfisher Airlines, the impact of Jet Airways (India) Ltd. halting flights has been short-lived. Both airlines were the second-largest players when they collapsed— Kingfisher with a market share of 20 percent and Jet Airways with 16 percent.
One thing separates the industry’s recovery after 2013 and now: large carriers with stronger balance sheets who have been able to increase capacity. That limited the increase in fares and hastened the road to normalcy this time.
Jet Airways is unlikely to return to the skies anytime soon as lenders, seeking repayment of Rs 10,000-crore loans, have decided to take the grounded carrier to the insolvency court after failing to find a buyer or an investor.
Kingfisher Impact
The industry had 15,000 crore available seat kilometres in 2011-12, when Kingfisher Airlines started facing cash problems. The capacity fell 13 percent as former billionaire Vijay Mallya-owned airline shut shop.
The industry then took close to three years to recoup the capacity lost because other airlines were also grappling with issues and higher crude prices.
- SpiceJet Ltd. had a debt of close to Rs 855 crore on its books, while its operating profit was negative Rs 598 crore. Along with debt and operational losses, SpiceJet was also on a verge of virtual shutdown in 2014, until the former founder and current Chairman Ajay Singh mounted a controversial rescue takeover.
- Jet Airways had a debt of Rs 11,031 crore and a negative Ebitda of Rs 27 crore.
- InterGlobe Aviation Ltd., the operator of IndiGo, had placed orders for 180 A320neo aircraft in June 2011 but these were scheduled to be delivered from November 2015. Now India’s largest carrier, it had a cash balance of Rs 1,832 crore then—about 12 percent of what it has now.
The sudden drop in capacity after Kingfisher halted flights in 2013, however, aided yields or average fare per passenger per kilometre as ticket prices spiked. IndiGo and SpiceJet saw the biggest jump in 2012-13, with yields jumping 21 percent.
Jet Airways Impact
This time, the growth in yields would be limited. That’s because the industry has already been ramping up its capacity. In April, even when Jet Group’s 90 percent aircraft had been grounded, industry capacity was down by only 7 percent. The ramp-up has been led by IndiGo, GoAir and Air Asia. IndiGo added nearly 193 crore available seat kilometres in April compared to last year—twice of what was added by other players.
The lost capacity will be recouped in less than six months, according to Santosh Hiredesai, equity research analyst at SBICAP Securities. “Jet issues should normalise by the end of Q2FY19 which will also lead to normalised fares.”
This capacity addition also limited the spike in airfares, said Sharat Dhall, chief operating officer (B2C) at Yatra Online Pvt. Ltd. Immediately after Jet Airways shut its operations, ticket prices on an average spiked 10-15 percent, he said, adding that last-minute fares rose 30-35 percent. “But now they are only 5 percent higher compared to last year, and with more capacity expected to come in, things should be back to normal soon.”
A MakeMyTrip spokesperson said there has been some rationalisation in fares compared to the peak the travel portal witnessed immediately after Jet Airways suspended operations. The fares dropped 7.5 percent in June compared to April and May, the spokesperson told BloombergQuint. While the airfares are still 2 percent higher for this period compared to the same last year, MakeMyTrip’s data indicate a pick-up in overall flight bookings currently, according to the spokesperson.
In fact, aviation fuel consumption rose 3 percent year-on-year in May, when Jet Airways halted flights, according to data by Oil Ministry’s Petroleum Planning & Analysis Cell. Again indicating that the industry has been able to recoup most of the lost capacity.