Why Jet Airways Was Grounded? [3 Major Lessons]

Fourteen years back in 2006, Jet Airways invested a hefty amount of 500$ million in cash for purchasing the Air Sahara. The founder Naresh Goyal was headstrong and rigid. He did not hesitate to go against the suggestion of the professional associates who warned him against the said investment. The “JetLite” was borne out of this investment. But it backfired as early as in 2015, and JetLite had to be pulled off the market. The 1.2$ billion debt-ridden Indian airlines have committed several mistakes, only to be grounded in 2019 April. On 17^th of April 2019, the last flight Boeing 737-800 took off from Amritsar at 10.19 PM to Mumbai. The pilots, air hostesses and staffs had their salaries due for months and the bleak future lays ahead for this yellow uniformed crew.

In 1992, headquartered in Mumbai, Naresh Goyal founded Jet Airways with high hopes, and his dreams were fulfilled initially. The airline had to face some low lows during the period of the Great Recession of 2008-2009 when the number of passengers dropped drastically. The Indian skies were and are dominated by low-cost flights. The airlines like Indigo and Spice Jet gave tough competition to Jet Airways. Post-recession, the flight fares dropped and the fuel prices shot higher. This era was tumultuous to all the aviation companies. The flying Jet did not take the trio, Indigo, Spice Jet and Go Air, to be serious competitors. It emphasised strongly on the corporate and giving less importance to the cost-sensitive domestic fliers.

At the beginning of this decade, in 2009, the Jet sacked thousands of employees including pilots and staff. There was complete mismanagement, poor coordination in the governing body. Several flights were cancelled and the passengers and staffs were in a soup. But then Jet finally sorted out the differences with its employees, re-hired them and the matter was solved for the time being. Even though the financial crisis was not over then, the sun shined again. Jet welcomed the year 2010 with a smile.

The airline made certain reformations and modifications in its operations like improving the efficiency of the management teams, adding newer routes, controlling the operational costs (like fuel) and using their aircraft more. In 2009, Jet Airways added another subsidiary, besides Jet Lite (Air Sahara investment), Jet Konnect. Now, Jet was operating the two subsidiaries at low-cost models, which was quite shocking especially in the era of the financial crunch.

In 2012, the Jet started competing with Indigo and Spice Jet providing cheap flight fares. But the problem was it was still flying at a higher cost than its competitors. To Etihad, the Jet seemed a lucrative offer and it planned to buy from 24% share, which would turn out to be a great disaster in the long run.

 In 2013-14, it encountered a net loss of 36.7$ million, and this was indeed catastrophic. In 2014, the Jet decided to end Jet Konnect and fly only full-service carriers domestically which has much higher rates than the low-cost carriers of Indigo. The International Air Transport Association (IATA) published an analysis in 2018 that the number of passengers increased steadily since the sluggish rates recorded in 2010-2013.

The demand was high, and Jet was unable to meet the rising demand at its decided price range. In international aviation domain, it could hardly compete with Emirates, KLM etc. In the domestic market, the competition was also cut-throat. The company had been running in high debts since 2018 and complete bankruptcy in 2019. It resulted in missing payments, salary overdue etc; even Indian Oil Corporation refused to serve this aviation brand.

The aviation experts around the world are not reluctant to blame the faulty management strategies of Naresh Goyal. Jet Airways operated more than 120 flights in above 1000 destinations. This huge process was being monitored by one management team single-handedly, headed by none other than the founder himself. The analysts opined that there should have been two management teams, one for service carrier and one for the budget flyer.

Devesh Agarwal, the editor of Bangalore Aviation said in an interview that “Jet lacked a concrete business model and fiddled with it often, which confused investors, (and) passengers alike.” Goyal was also blamed for rash business and investment decisions which led to its downhill journey soon after. Agarwal also added, “Simply put, they spent more than they earned and kept accruing debts.”

Goyal was unable to find a prospective investor to pump in funds for saving the situation. The salt-to-software conglomerate Tata and Etihad Airways were against increasing their stake in this sinking airline. The near 70-year-old had to leave his chair just a month before the airline was grounded. An association of lenders led by the State Bank of India took over the airline. Unable to find a suitable buyer, the airline was grounded for an indefinite period. Before this, the Kingfisher airline headed by the fugitive businessman Vijay Mallya was grounded in 2012.

The vision of Naresh Goyal was bright indeed, but faulty execution and business model lead to its downfall. From this, the budding entrepreneurs and young minds enthusiastic about start-ups can learn a great deal. Let us look at the three major lessons that can be learnt from the colossal tragedy of Jet Airways.

• Rash decisions and faulty management are harmful to any business: Every business requires a strong business model and an efficient management team. For a large scale organization like the Jet, one team was not enough to cater to all the departments. Moreover, in spite of the warning of the professional associates and advisors, Goyal moved forward with the million dollar deal, keeping his company at stake. The founder of the company was rigid and rash in his decisions, like sacking 1900 employees suddenly post-recession.
• Keep your competitors closer: The civil aviation industry in India is one of the most dominant ones, but the cut-throat competition of this sector is very prominent as well. In this case, the promoters and owners of Jet misjudged the competitors like Indigo, Spice Jet and Go Air. All of them entered the market in the first decade of the 21st century. They understood and targeted the cost-sensitive domestic flyers to retain their position in the Indian skies, whereas the Jet only cared about corporate who consumed a much lower percentage than the regular domestic passengers.
• Keep your options open: When a company is running downhill, everybody’s life is at stake. The owner of the company, as well as the employees, must have their options open when they feel the dark clouds hovering over them. When Jet was grounded, thousands of employees lost their jobs. Some of them got an entry in Spice Jet but not all. For these kinds of situations, three things are needed, first being the emotional strength, second the backup funds or contingency funds, and third the backup plan. Goyal has said recently that he is thinking and planning of starting another airline, let’s see what happens in future.

The volatile market conditions and the steep competitions can be an obstruction in your way, but there ways to overcome them as well. There is a saying that “Man proposes. God disposes”. You never know what is there in future, what you think is right now, but that may not feel right in future. In order to avoid such business blunders and mental turmoil, you can take certain steps, like talking to the experts in detail. Years of experience, both good and bad, have honed their professional skills and business acumen.

It is good if you want to follow your passion and be your own boss. You want to avoid such mistakes, but who can guide you? Google will give you hundreds of websites, but an expert will guide you thoroughly in your journey. Do you want to talk to experts in detail? Talk to our niche skilled experts now to know the diverse competitive market in greater detail! We at Vedak have an exclusive pool of experienced industry professionals and veterans who have in-depth knowledge about the business nitty-gritty. Contact us to know more.