Jet Airways, an Indian carrier, has a reputation for rapidly growing in the air travel market, but the airline is facing increasing competition from airlines like Vistara and low-cost carriers Indigo, Spice Jet and Go Air.

Half of Jet Airways is owned by Etihad Airways, which helped the airline recover from its debt. Therefore, Jet Airways denied on Thursday that it needs to cut cost to maintain it’s finances.

Budget airlines like Indigo, Spicejet, and Go Air have expanded throughout the past decade by giving first-time travels and middle-class families a new chance to fly with full-service carriers that offer lounges and a free meal on board. The airlines offer services that many full-service carriers in the region have; for example, Indigo recently launched Priority Check-In and Boarding.

In India, the world’s fastest-growing aviation market, it is toughest for premium airlines, such as Kingfisher Airlines, to survive. Kingfisher was started by Indian businessman Vijay Mallya in 2005 and was one of the nation’s leading carriers until it was grounded in 2012 due to the mounting debt. Another example would be Air India, the struggling Maharaja, which is running on public funds and is going to receive another bailout package of $110 billion from the Indian government.

Jet Airways is facing issues similar to those of Kingfisher. The rise of low-cost airlines in India is driving more traditional airlines like Jet Airways toward financial troubles.

“Jet Airways is facing challenges all on the front,” said Rahul Kapoor, an analyst at Bloomberg Intelligence. “The rise in oil prices is having a double whammy on their earnings. They already have a sparse balance sheet compared with other Indian carriers.”

India has also been proven to be the toughest markets were airlines are being forced to sell tickets for 1 rupees ($0.014) to attract the fastest growing middle-class in the world. Indian airlines are among the biggest customers of single-aisle aircraft from Airbus and Boeing; airlines often place orders for new planes despite being unable to pay for the planes without loans.

According to Livemint, Jet Airways has total debt of Rs 943 crore, and cash and equivalents of Rs 32 crore for the year ended 31 March, according to Bloomberg-compiled data. The firm’s total debt ballooned to 55.4 times before interest and tax as of 31 March, compared to 4.9 times the previous year.

Jet Airways’s stocks have tumbled 64% this year, making it the worst performing airline throughout the Asia Pacific region.

“We need to recover the money and value we have lost,” Jet Airways Chairman Naresh Goyal said at the airline’s annual general meeting on Thursday. “I feel guilty, I feel embarrassed that we have not been able to perform, especially with shareholders who stood with us.”

Jet Airways rivals aren’t faring much better, with the entire sector hit by rising fuel prices and reduced value of the rupee, leading to increased debt to fund aircraft purchases and rapid growth. IndiGo, for example recently posted a 97% drop in net profit, which is the airline’s worst quarterly performance. Spicejet has yet to post its earnings.

Overall, Jet Airways has hit another financial turbulence due to competition low-cost carriers (LCC), which are able to offer lower costs than Jet Airways. Jet Airways did perform several measures to reduce costs and increase revenue, in areas including sales and distribution; payroll; and maintenance. Jet Airways has denied that they have started firing employees in order to cut costs, but workers have been asked to take a pay cut as much as 25% as there were rumors spreading about the airlines will close for 60 days. Jet Airways will have to win a financial battle to get its operations to their original status.

Featured image by Rick Schlamp via Wikimedia Commons

Categories: Industry Talk