Strategic and SWOT Analysis Report on Jet Airways India Limited
COMPANY
OVERVIEW
Jet
Airways (India) Ltd. (Jet Airways or "the company") is a provider of
air passenger transportation and cargo services. The company operates daily
flights to 75 destinations, including the US, Canada, the UAE, Singapore,
Malaysia, and the UK. The company is headquartered in Mumbai, India and employed
12,082 people as on March 31, 2013. The company recorded revenues of INR194,092
million ($3,551.9 million) during the financial year ended March 2013 (FY2013),
an increase of 13.7% over FY2012.The operating profit of the company was
INR31,959 million ($584.8 million) in FY2013, compared to an operating loss of
INR60,729 million ($1,111.3 million) in FY2012. Its net loss was INR7,798
million ($142.7 million) in FY2013, as compared to the net loss of INR14,201
million ($259.8 million) in FY2012.
SWOT ANALYSIS
Jet
Airways is a provider of air passenger transportation services. The company
offers integrated
operations
to its customers, which allow the company to cater to a wide range of customer
needs
and
conveniences, which in turn give a competitive edge over its competitors.
However, the growing number of low cost and low fare airlines and the
increasing number of private jets could impact Jet Airways' domestic market
share.
Strengths
Vertically integrated operations give a
competitive edge over competitors
Jet
Airways offers integrated operations to its customers. It offers passenger
operations, cargo
operations
and also leases aircrafts. In the passenger segment, the company operates daily
flights
to 55
domestic destinations and 20 international destinations. International
destinations covered by the company include Abu Dhabi, Bahrain, Bangkok,
Brussels, Colombo, Dammam, Dhaka, Doha, Dubai, Hong Kong, Jeddah, Kathmandu,
Kuwait, London Heathrow, Muscat, Newark, Riyadh, Sharjah, Singapore and Toronto.
The
company also offers other services, including online ticket booking and
reservation, online
check-in
services, wheelchair assistance, kiosk check-in and mobile ticketing. The
company also
offers
on ground services such as check-in options, airport lounges, coach services
and bus services. Furthermore, Jet Airways also transports cargo across the
world. In FY2013, it transported 230,057 tons of cargo. Thus, vertically
integrated operations allow the company to cater to a wide range of customer
needs and conveniences, which in turn give a competitive edge over its
competitors.
Robust fleet base and strong network
portfolio improves operational margins
Jet
Airways has a strong operational portfolio with strong fleet base and network
operations. At the end of January 2014, the company operated a fleet of 113
aircraft, which include 10 Boeing 777-300 ER aircraft, 10 Airbus A330-200
aircraft, four Airbus A330-300 aircraft, 72 Boeing
737-700/800/900/900
ER aircraft and 15 ATR 72-500 Turboprop aircraft and two ATR72-600 aircraft. Further,
Jet Airways' wholly-owned subsidiary, JetKonnect, operates a fleet of 15
aircrafts comprising seven Boeing 737-700 aircrafts, six Boeing 737-800 and two
Boeing 737-900 ER aircrafts. In addition, the company has a strong network base
across the globe. It covers 20 international destinations and operates flights
to and from 55 destinations in India. It has codeshare agreements with 17
airlines, including Air Canada, All Nippon Airways, Brussels Airlines, Etihad
Airways, JetKonnect, Kenya Airways, Malaysia Airlines, Qantas, Thalys and
United Airlines. Thus, the company's robust fleet base and strong network
portfolio enables Jet Airways to improve its operational margins by effective
utilization of its asset base.
Information technology and e-Commerce
initiatives enhances the operational performance
The
company enters its third decade of operations and it has strengthened its focus
on creating
differentiating
products and services to stay ahead in a competitive and challenging environment.
For
instance, Jet Airways has strategically set up a joint Innovation Council in
partnership with
International
Business Machines Corporation (IBM), to create smarter, faster and personalized
self-service,
digital and social media solutions to enhance customer service and engagement.
The
company
also launched India’s first native airline mobile application for Windows Phone
and
applications
for Android, iPhone and BlackBerry phones. Furthermore, the company also aims
to use new technology to increase its ancillary revenue and also leverage cloud
computing which entails several benefits like infrastructure flexibility,
scalability, cost control and improved performance and productivity. Thus,
these initiatives enhance the operational performance and on a whole increase
the customer base.
Weaknesses
Negative margins affect the future
growth plans
The
net margins of the company recorded negative figures in FY2013, despite growth
in its revenues. For instance, the company recorded a negative profit margin of
4% in FY2013, although its revenues increased by more than 13%. The company
reported net loss was INR7,798 million ($142.7 million) in FY2013, as compared
to the net loss of INR14,201 million ($259.8 million) in FY2012. However, the
net margins have improved from the last fiscal but remained in negative values.
Therefore, consistent negative margins for the company could negatively impact
shareholder's confidence in the company thus affecting its future growth plans.
Geographic concentration exposes to risk
of downturns in macroeconomic conditions
Although
Jet Airways has expanded to other international regions, it still depends on
Indian market for majority of its revenue. In FY2013, the company generated
about 48.1% of its revenue from India. This over-dependence on the Indian
market may have a dampening influence on the company’s revenues if the economy
and/or the company’s sales in India do not grow as expected. High dependence on
the domestic market may restrict Jet Airways’ income growth to the local
economy. It makes the company susceptible to changes associated with the
economic and political situation of the country. Thus, the company’s high
reliance on one market exposes it to the risk of downturns in the country's macroeconomic
conditions and amplifies its business risk.
Opportunities
Strategic expansion of global aviation
circles enhances revenue base
Jet
Airways is planning to expand its operational network in the coming years. In
this context, the company has started new flights to various domestic and
international destinations in the recent past and signed many agreements. For
instance, in January 2014, the company launched two new international flights:
Bengaluru’s maiden flight to the Gulf, connecting India’s IT Hub with Abu Dhabi,
as well as a new daily direct service from Hyderabad to Abu Dhabi from March
2014. These two new routes will be serviced by the airline’s Boeing 737 – 800
aircraft, further strengthening Jet Airways’ growing international network in
the Gulf region, thus enhancing flight connectivity beyond Abu Dhabi.
In
December 2013, Jet Airways entered into a partnership with renowned Greek
natural and wellness brand KORRES. for a new amenity kit to enhance in flight
experience of First Class and Premiere guests - onboard its international
flights. KORRES products are made from natural and certified organic
ingredients of the highest quality and aesthetically packaged. Moreover, in
November 2013, Jet Airways and Garuda Indonesia, the national carrier of
Indonesia, signed a code share agreement and simultaneously launched a
reciprocal frequent flyer program. Also, in June 2013, the company signed
codeshare agreements with Air France and KLM Royal Dutch Airlines to enhance
connectivity between Europe and India. Thus, such expansion would help the
company to increase its presence in the global aviation circles and allow it to
cater to a wide range of customers thereby enhancing its revenue base.
Growing trends of tourism industry in
developed countries helps to boost revenues
The
tourism industry is booming which would boost the demand for the company’s
services. The
role
of airlines in the total tourism business is to provide mass and quick
transportation between
countries
under safe, standardized and economic conditions. The company provides services
to
passenger
carriers. According to United Nations World Tourism Organization (UNWTO), the
number of international tourists worldwide grew by approximately 5% i.e., 38
million tourist arrivals, reaching 747 million in total in the first eight
months of 2013. The destination regions leading the growth include: Asia and the
Pacific (6%), Europe is up by 5% and the Americas by 3%. Among the 25 largest
international tourism earners, receipts grew by double-digits in Thailand (+27%),
Hong Kong (China) (+25%), Turkey (+22%), Japan (+19%), the UK (+18%), Greece
(+15%), India (+14%), Malaysia (+12%) and the US (+11%). The growing global
tourism coupled with the company’s presence in more countries could thus help
it to boost its revenues and margins.
Strategic alliance with Etihad Airways
would enhance customer base
The
company through strategic agreements expands its reach into new markets. For
instance, Jet
Airways
and Etihad Airways have forged a strategic alliance in November 2013, wherein
Etihad
Airways
planned to invest $379 million for a 24% stake in Jet Airways. Etihad Airway’s
overall wider commitment to Jet Airways also included an injection of
additional $220 million to create and strengthen a wide-ranging partnership between
the two carriers. For the required agreement Etihad Airways has paid $70
million to purchase Jet Airways’ three pairs of Heathrow slots through a sale and
lease back agreement. Jet Airways continues to operate flights to London
utilizing these slots. Further, an amount of $150 million is planned to be
invested by Etihad Airways by way of a majority equity investment in Jet
Airways’ frequent flyer program, ‘Jet Privilege’. This partnership will offer a
wider consumer choice to the Indian traveler by connecting 23 cities across the
country to a significantly enhanced international market. This in turn, would
facilitate further tourism inflows to the country and help promote trade and
commerce.Thus, strategic alliance with Etihad Airways would help the company
expand into new markets and increase its customer base.
Strong outlook of the Indian airlines
industry augers the topline growth
The
Indian airlines industry showed healthy growth over the last couple of years
with the exception of 2009. The market is predicted to grow at a strong rate
across the forecast period of 2013-2016. According to MarketLine (a unit of
Informa plc), the Indian airlines industry had total revenues of $18.1 billion
in 2013, an increase of 20.3% over 2012. Furthermore, the performance of the
industry is forecast to accelerate, with an anticipated CAGR of 22% for the
four-year period 2013-2016, which is expected to drive the industry to a value
of $32.7 billion by the end of 2016.
Jet
Airways is one of the leaders in the Indian aviation industry. Hence, a
positive growth in the
Indian
aviation sector would increase the demand for the company's services which in
turn augers well for the company's top line growth.
Threats
Intense competition in the aviation
industry impacts the domestic market share
The
competition in the airline industry has been intensified with the emergence of
low cost carriers in the East Asian region. The low fare charged by these
budget airlines makes Jet Airways' airline operation less competitive. In the long-haul
market, the company faces competition from local operators in most geographical
areas, including Middle East and Asia. In the medium-haul market, low-cost
carriers have established strong market positions and continue to grow.
Further, as a result of increasing business travel, a number of customers are
increasingly looking towards air travel options which allow them to minimize
stoppage time at airports caused due to various reasons, including baggage
handling and refueling. This has led an increasing number of business organizations
to invest in private jets, which are jointly owned along with certain airlines,
or completely owned.
Moreover,
the recent policy reversal by the Indian Government allowing foreign stakes in
airline
companies
in India may result in the launch of new airlines in the industry, further
increasing the
competition.
For instance, Malaysian low-fare airline AirAsia in partnership with the Tata
Group plans to establish a domestic Indian airline in the coming years.Thus,
the growing number of low cost and low fare airlines and the increasing number
of private jets could impact Jet Airways domestic market share.
Statutory regulations incurs additional
costs and impacts the operating margins
As an
airline operator, the company undertakes operations based on the stipulations
of statutory regulations relating to airline operations. Jet Airways is
required to conduct passenger operations
and
cargo operations on international routes in accordance with the stipulations of
international agreements. These stipulations include treaties, bilateral
agreements, and the decisions of the International Air Transport Association
(IATA). A violation of specific laws and regulations by the company could
result in the imposition of fines and penalties.
The
company is also subject to numerous statutory environmental protection
regulations. These regulations are imposed on airline companies with regard to
issues such as aircraft emissions of greenhouse gases, use of environmentally
polluting substances and their disposal, and energy usage at major offices. Jet
Airways shoulders a considerable cost burden in order to adhere to such statutory
regulations. If the current regulations are strengthened or if new regulations,
such as environmental taxes, are introduced, the company has to incur large
additional costs, which would impact the Jet Airways' operating margins.
Volatile fuel prices pressurizes the
margins and profitability
Jet
fuel forms the main raw material used in the airline industry. The cost of jet
fuel formed a significant part of the total expenses for the company. Fuel
costs increased by 5% to INR69,920 million ($1,279.5 million) for FY2013 from
INR66,306.7 million ($1,213.4 million) in FY2012. This increase was mainly due
to an increase in the aviation turbine fuel (ATF) rates on account of increase
in crude oil prices.
The
average rate per liter of fuel for domestic operations in FY2013 was INR67.1
($1.2) vs and
INR60.2
($1.1) for FY2013. The average rates for international operations were INR48.9 (approximately
$1) in FY2013 vs INR43.4 ($0.8) in FY2012.
Moreover,
the demand for petroleum and related products has historically been cyclical
and sensitive to the availability and prices of oil and related feedstock.
Historically, international prices of crude oil and refined products have
fluctuated widely due to many factors that are beyond the control of companies
like Jet Airways. For instance, according to IATA, the average price of jet
fuel in Asia and Oceania region stood at $122.5 per barrel in January 2014, a
decline of 6.9% over the past year. The average fuel price was $124.6 per
barrel in 2013 which impacted the overall fuel bill of the airline industry by
$4 billion. Hence, a sustained volatility in aircraft fuel prices could negatively
impact the Jet Airways costs which in turn would pressurize its margins and
profitability.
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