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Corporate Apr 5, 2012

With Kingfisher dying, Jet wants to leave AI behind too

By Sindhu Bhattacharya

Naresh Goyal's long-held ambition of making Jet Airways the largest Indian airline overseas is finally bearing fruit.

Already, the complete withdrawal of rival Kingfisher Airlines from international operations is benefiting Jet with higher yields (revenue per passenger). Now, simultaneously, Goyal is also frequenting the corridors of Rajiv Gandhi Bhavan, which houses the Civil Aviation Ministry, to make sure it takes the wind out of another rival -- Air India (AI).

Jet's overseas gamble also makes sense in today's high cost environment since ATF is cheaper for international operations since it does not attract sales tax. Reuters

Due to the national carrier's first right of refusal over international flights, it has always held the distinction of having largest number of international flights out of India; that number currently stands at 571 per week.

But now, Goyal wants to take his overseas operations from just 370 per week to a whopping 528 by the winter of 2012 - an increase of over 42 percent. That will bring competition right to AI's doorstep.

An AI official said Jet's ultimate aim is to overtake AI on the international operations and Goyal's airline is well poised to do this. Goyal declined to comment on the issue to Firstpost. But a top ministry official said on condition of anonymity that "Jet wants permission to add another 84 flights in the winter schedule. They want the permission in advance since this will give them enough time to tie up with new airports, hire staff at these stations and pitch for slots. The minister has anyway liberalised the policy on overseas flights where services can be allotted up to five seasons in advance. We are looking at their request."

Already, with a change in the ROFR (right of first refusal) policy recently, Civil Aviation Minister Ajit Singh has allowed Jet to operate 74 additional overseas flights from the ongoing summer schedule. These include new flights to Bangladesh, Kuwait, Dubai, Sri Lanka, Maldives, Singapore, Dar-E-Salam and Bangkok.

What Goyal now wants is permission for 84 more flights from the winter schedule, even as it begins services on the 74 new routes allotted last month. If all its pleas are heard, Jet Airways will be within striking distance of Air India, the largest international operator in our country, by this winter. As of now, AI has 571 international flights a week.

The AI official quoted earlier was all praise for Jet's strategy. "Jet has exhausted all options in the domestic market, it has operations on almost all possible routes already. What else can it do but expand internationally to grow? Anyway, its fleet strategy has always been excellent and if permissions come through, Jet will make profits on the new routes because its cost of operations is low".

So while Air India struggles to keep up with existing services and smaller rivals such as IndiGo and SpiceJet adopt a cautious approach to international operations, Jet could well reap the benefits of economies of scale and low cost of operations.

The AI official explained that in matters of fleet management, Jet has an inherent advantage over the national carrier. "If AI had to lease back some aircraft, it would take us more than a year with permissions needed from the board, the ministry, vigilance department etc. But Jet is quite nimble-footed because they can complete this process within two to three months. This airline could well overtake us eventually in international operations".

Jet's overseas gamble also makes sense in today's high cost environment since aviation turbine fuel (ATF) is cheaper for international operations since it does not attract sales tax, which is often as high as 25 percent of the ATF cost.

The ministry official quoted earlier said Jet has sought permission to launch 35 new weekly services to Germany and seven each to Qatar, Saudi Arabia, Sharjah, Vietnam, Sri Lanka and France from this winter.

by Sindhu Bhattacharya

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