 | « Back to article | Print this article |
Post Etihad deal, Jet signals shift in flight plan
Following the alliance, the Indian carrier will cut back on its focus on India, add more international routes and create a rival to its hub in Brussels at Abu Dhabi.
While markets have been rife with concerns over the adverse impact of the Jet-Etihad alliance on Air India’s international operations, the national carrier may actually gain incremental traffic in the domestic arena.
Currently, the country’s second largest passenger carrier, Jet Airways, has drawn out a blueprint to connect 23 cities in India to Abu Dhabi to synergise operations with Etihad Airways.
Such a business plan, while likely to improve profitability for Jet on international routes, may limit its footprint at home as the planned network expansion is not feasible with the fleet at its disposal.
Jet will require short-haul Boeing 737s to feed the traffic to Abu Dhabi, Etihad’s home base and hub.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
It does have plans to induct 54 aircraft over the next three to five years but the initial demand would have to be met by diverting its existing fleet of 57 such aircraft.
Data available indicate that the shift in Jet’s focus from domestic operations has already started to happen.
The airline’s share in the domestic market fell to 24.6 per cent in September from 26.2 per cent at the start of the year.
The reasons for this change in focus are not just operational but also financial.
In 2012-13, Jet lost over Rs 1,100 crore (Rs 11 billion) in domestic operations but earned around Rs 400 crore on international routes.
An overhaul in operational structure, thus, would mean more profits.
“The highly competitive domestic market will get even more competitive once AirAsia and Tata-Singapore-Airlines commence operations.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
“For Jet, the focus is likely to shift to supporting its international operations.
“We expect an increase in its low cost flights to Tier II and III airports.
“Jet would like to bring in traffic from these locations to feed the international routes.
“We may also see an increase in direct flights to certain global destinations on a selective basis since its high-end corporate travellers may not prefer a stopover,” says Amber Dubey, partner and head (aerospace and defence) at global consultancy KPMG.
More destinations
To woo more passengers, the agreement between Jet and Etihad has identified eight cities from where the Indian airline will fly directly to Abu Dhabi.
These are Ahmedabad, Mumbai, New Delhi, Bengaluru, Hyderabad, Chennai, Thiruvananthapuram and Kochi.
According to the agreement, these cities will come on the map by 2013.
Etihad too flies directly from these cities and the tie-up will help it double the capacity on these routes.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
In the second phase, Jet will fly from six more destinations directly -- Amritsar, Jaipur, Lucknow, Kolkata, Goa and Mangalore -- to Abu Dhabi.
Etihad does not fly directly from these cities as it is not entitled to do so under the bilateral air-service agreements.
However, through its alliance with Jet, it will now be able to deepen its geographical reach in India, currently limited to nine cities.
In the international skies, Jet would begin its offensive by beefing up its presence on the Indo-US route.
It will soon add flights to Newark and Chicago via Abu Dhabi, according to the business plan drawn out in the commercial co-operation agreement with Etihad.
Jet will connect Mumbai to Newark, Bengaluru to Chicago and New Delhi to New York.
These will directly take on Air India which connects the same three points through New Delhi (direct to New York and Chicago) and Mumbai (direct to Newark and via New Delhi to New York).
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
The combination will also challenge the domination of Emirates among West Asian carriers over the lucrative India-US market.
According to studies, the India-North America market is growing annually by just under 10 per cent; and by 2014, about 730,000 passengers will fly yearly on the sector.
Jet will, however, not be able to operate direct flights to West Asia (other than Abu Dhabi) from India, according to the terms outlined in the final commercial co-operation agreement inked with Etihad.
According to the terms of the CCA -- a copy of which has been reviewed by Business Standard -- Jet would have to route its services from India to Sharjah and Dubai through Abu Dhabi as soon as it becomes economically viable.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
In what may additionally water down Jet’s operations out of its hub in Brussels (Belgium), the Indian airline would have to develop Abu Dhabi as an exclusive hub for flights to North America, South America, Africa and the United Arab Emirates (‘exclusive territories’).
Canada too would be included in the list of ‘exclusive territories’ once relevant amendments are made to bilateral air-services agreements to permit Jet to fly to Toronto via Abu Dhabi. Jet currently flies to New York and Toronto via its hub in Brussels.
The agreement, however, says exceptions can be made to allow Jet to mount non-stop operations between India and destinations in the ‘exclusive territories’ if Etihad agrees that it would be economically viable to do so.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
A Jet spokesperson, while declining to share details of specific plans, says, “As the Jet and Etihad alliance is being examined by the concerned regulatory authorities and their consequent approvals are awaited, it would be inappropriate for Jet to respond at this stage.”
The CCA also restrains the Indian carrier from entering into code-share arrangements with third-party airlines, the impact of which may result in Abu Dhabi being bypassed as a hub for traffic to and from the exclusive territories.
According to the terms of the CCA, Jet would have to exit existing joint ventures or code-share arrangements with other airlines which can adversely impact business prospects of the alliance it has forged with Etihad.
Jet can form code-share arrangements with third parties to destinations within exclusive territories not served by Etihad or its affiliates -- but only till such time as they do not commence operations on these routes.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
Better coordination
Jet and Etihad would set up a co-operation committee and four facilitation groups --the commercial flying sub-committee, the frequent flyer programme and marketing team, the joint sales team and the joint operational, product and customer experience team -- to implement, co-ordinate and develop the synergies in operations, marketing and sales outlined in the CCA.
Etihad has already begun the process to steer organisational revamp in Jet.
According to industry sources, Rajeev Nambiar, sales head of Etihad, is likely to replace Sonu Kripalani, Jet’s vice-president (sales), who is expected to take up another position within the organisation.
In another move, Willy Boulter, Etihad’s vice-president (commercial and network planning), is likely to take over as Jet’s chief commercial officer, replacing Sudheer Raghavan.
Raghavan, it is said, is leaving the organisation as his powers and responsibilities are being curtailed.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
Leading aviation consultancy firm Centre for Asia Pacific Aviation in its latest report says, “A revamp of the senior management of Jet has commenced.
“The process is being led by Etihad which will place a number of its executives in key roles, including that of the CFO, COO and CCO.
"A number of high profile and respected independent directors are expected to be appointed to the board. . . This marks the start of a new era in the management of Jet with a professional and structured framework in which the influence of the promoter will be reduced.”
Apart from the development of a new integrated international network, clarity over Jet’s domestic strategy and product planning is expected to emerge over the next two to three months, CAPA says.
Earlier this month, the Union cabinet cleared Jet’s Rs 2,058-crore (Rs 20.58-billion) proposal to sell 24 per cent stake to Etihad.
The Jet-Etihad alliance is the biggest foreign direct investment in the domestic aviation industry since the government allowed foreign carriers to pick up to 49 per cent stake in Indian airlines in September last year.
Click NEXT to read further. . .
Post Etihad deal, Jet signals shift in flight plan
The deal envisages overall cash infusion of $600 million and provisions for the extension of a soft loan of $300 million to Jet.
The infusion is expected to help the Indian airline pare its debt to $1.5 billion this financial year from $2.1 billion in 2012-13.
DEAL Details
As a part of the deal between Jet and Etihad, there will be an overall cash infusion of $900 million in debt and equity.
The infusion would help Jet Airways cut its debt from $2.1 billion to $1.5 billion
$379 million will come as equity investment
$150 million will be invested in Jet’s frequent flyer programme
$300 million will be loan assistance
$70 million will be lease back of Jet’s Heathrow slots
