How Jet Air plans to turn around its low fare subsidiary

Jet Airways plans to move all its 18 ATR turboprop planes to its low cost subsidiary, JetLite, in a possible first step towards offering only a full service model under its operating permit.

The move is also part of a plan to turn around JetLite’s operations.  

The airline has two operating permits and offers both full service and no-frills service in the domestic market. Jet acquired Air Sahara and renamed it JetLite in 2007. Jet Airways did not respond to an email query on the topic.

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A source said the airline would first have to get approval from lessors for the transfer of aircraft from one fleet to another and then re-register the aircraft under JetLite’s operating permit.  

Jet Airways has invested Rs 3,400 crore (Rs 34 billion) in JetLite, Rs 1,645 crore (Rs 16.45 billion) in equity and Rs 1,801 crore (Rs 18 billion0 as an interest-free loan.

However, JetLite continues to incur losses, with a negative net worth.

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As part of its business plan, the airline appointed a valuer to value its equity in JetLite.

Jet Airways’ third quarter profit and loss statement shows its exposure in JetLite by way of investment and loans exceeds the valuation by Rs 462 core (Rs 4.62 billion).

The result statement also indicated it was making changes to JetLite’s business model and would revaluate its exposure at the end of the financial year.

Based on the valuation and JetLite’s future results, Jet Airways might have to report an impairment of investment.

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A source said the idea behind shifting ATRs to JetLite was to boost operations and make the latter competitive.

Under Jet Airways’ permit, the airline operates 61 Boeing 737s and 18 ATRs. It offers both full service and no-frills service (Jet Konnect) with these 78 planes. While the Boeing planes have both economy and business class, the ATRs have only economy seating and are used for no-frills service only.

ATRs account for 25-30 per cent of Jet Airways’ domestic capacity.

The ATR-72s can seat 62-68 passengers each and fly on tier-II routes and also important ones in South India, including Bangalore-Chennai and Bangalore-Hyderabad.

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The JetLite fleet has 12 Boeing 737s under a separate operating permit and these are used for its no-frills service, Jet Konnect. JetLite had a market share of 4.3 per cent in April, down from 5.3 per cent in January, according to Directorate General of Civil Aviation data.

However, JetLite reported better occupancy than Jet Airways and some of the other no-frills airlines during this period.

In April, JetLite had a load factor of 76 per cent, higher than Air India, Jet Airways and SpiceJet but slightly lower than GoAir and IndiGo. JetLite posted a collective loss of Rs 116 crore (Rs 1.16 billion) over the first nine months of 2013-14.