Challenges for Goyal as Jet board meets
MUMBAI: At an annual general meeting earlier this month in Mumbai, Jet Airways (India) Ltd’s founder and chairman Naresh Goyal apologised to his company’s shareholders who lost money, while listing out several steps to improve growth and corporate governance. The airline subsequently deferred announcing its June quarter results to August 27.
The carrier will have to punch above its weight when Goyal and other directors meet later on Monday to discuss cost-cutting steps and ways to turnaround its financial woes.
Indian airlines have been hammered by higher jet fuel prices, a weaker rupee and intense competition, restricting its ability to raise fares to cover higher costs. While the sector faces headwinds, Jet Airways, which is essentially a full service carrier, also faces stiff competition from no frill carriers, which operate on a comparatively lower cost model. Shares of Jet have lost more than half of their value in the past year, according to BSE data.
“We were scared about our future with the airline when the management asked us to consider pay cuts,” said a pilot with Jet Airways, on the condition of anonymity. The pilot was referring to one of the steps planned by Jet Airways to cut costs and conveyed to employees earlier in August. “However, we understand that the management is working hard to turn around the finances and bring down costs.”
Jet Airways had net debt of ₹8,082.65 crore as on March-end, according to its annual report. Its costs are also high, accentuated by a recent rally in fuel prices and the cost of debt servicing.
“Jet’s cost structure/debt levels have improved, but it needs to do more because of intense competition in the industry,” SBI Cap Securities said in a July 16 report. Jet Airways plans to cut non-fuel costs by 12-15% in the coming quarters. Goyal, who owns a 51% stake in Jet Airways, has in the past steered his airline through difficult situations.
In 2013, when Jet Airways was battling with higher costs, Goyal managed to get Abu Dhabi-based Etihad Airways take a 24% stake for ₹2,050 crore.
In the recent past, Jet Airways signed an enhanced cooperation pact with Air France-klm, expanding its opportunities in Europe and North America.
Goyal built Jet Airways from scratch. For over two and a half decades, since 1992, he kept the carrier afloat while many of its contemporaries shut shop.
The rules of the game have, however, changed with no frill carriers with lower cost structure and deeper pockets like Indigo and Spicejet ruling the domestic skies, and competition from full-service airlines like Tata-singapore Airlines’ Vistara and state-owned Air India.