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How did it all go wrong for Jet Airways?

Once the country’s largest, the first private airline in India, with unparalleled earnings, expansion, and demand, was none other than Jet Airways. Everything was going well for them until a terrible decision in 2007 caved their way towards diminishment.

In the early 1990s, India’s aviation market was deregulated. Naresh Goyal, an Indian travel entrepreneur, started Jet Airways in 1992. With Gulf Air’s help, which was the official airline of much of the Gulf, and Kuwait Airways. They didn’t start as an airline but rather as an air taxi service that used Boeing 737s to transport passengers on demand.

They were formally allowed to conduct scheduled passenger flights a few years later, in 1995. For the first time, Air India’s domestic subsidiary, Indian Airlines, had a competition. Jet Airways placed its first aircraft order with Boeing in 1996 for ten planes. They had already surpassed a 20% domestic market share that year. Unfortunately for Jet Airways, the government prohibited foreign airlines from investing in Indian airlines in 1997. Naresh Goyal, the airline’s founder, had to buy it back. The loss of experience from these international airlines may have played a role in Goyal’s poor decisions in the years that followed.

The airline experienced a lot of development in the following years; however, some years when it declared losses, which is to be anticipated of a rising airline. The airline began international flights in 2004 after receiving many major orders and improvements to Indian aviation legislation.

It was India’s largest domestic airline at the time. Then, in May 2005, they began flying to London, a giant stride for a young airline. Jet Airways was still India’s largest domestic airline in 2006, and their intention to buy Air- Sahara will only increase their size. Jet Airways presented a $500 million claim. Still, the government – unfamiliar with private airline mergers due to the market’s recent deregulation – took its time putting up new merger regulations, and the deal eventually fell through.

In 2006, air share was having financial difficulties due to unpaid leases on a number of planes. Some of them had been neglected to the point where they were no longer airworthy. They finally reached a new arrangement in 2007, for what appeared to be a better price of a few hundred million dollars rather than half a billion dollars.

Jet light was the new name for Air Sahara. Jet Airways grew in the years after that, eventually forming a co-chair arrangement with another full-service carrier, Kingfisher.

Both of these airlines were struggling financially at the time. This alliance aimed to gain greater economies of scale by integrating ground handling and other costs and reducing competition by working together to optimise scheduling.

Meanwhile, advertisements for low-cost airlines such as Indigo, Spice Jet, and GoAir began to sting. Jet Airways dropped ticket costs to compete with them. Forbes ranked Goyal as India’s 75th richest man in 2009, with a net worth of $700 million. This fueled an expansion drive, which ultimately led to Jet’s financial collapse. Jet has faced significant losses as a result of increased fuel costs and high taxes.

When the government approved foreign investment in the Indian air space in 2013, Naresh Goyal, the board of directors and chairman of Jet Airways, requested Etihad Airline, one of the world’s largest airline companies, to invest $380 million Jet Airways for the company’s future expansion.

Indigo continues its march amidst increased competition while Kingfisher is drowning, and Jet Airways is buried under a mountain of debt. Jet’s death was near as the debt burden became too great, and Indigo morphed into the long wolf, devouring all in its path. Throughout these years, the airline has operated at a far higher cost than its competitors, and it has paid higher salaries to its personnel. It pays more for almost all of the services it outsources than its competitors; it has greater sales and distribution costs than competitors; it has been paying commission to JetAir Pvt Ltd, owned by Naresh Goyal, continually.

The company’s operation structure becomes jumbled from 2013 to 2018, the reserves and net profit plummet and turn negative, and the general structure of the organisation deteriorates in 2018. Jet Airways experienced a major crisis at the start of 2019 when it could not pay its employees’ salaries. Jet also suffered a big loss of more than INR 32 billion.

Jet’s control over the company has come to an end. Goyal has been punished for his managerial style as well as his poor investment selections. Goyal was unable to address the company’s financial problems, and Jet could not find a major sponsor.

With nearly $4 billion in debt, Naresh Goyal and his wife both resigned from the company’s Board of Directors and decided to take over the problem to SBI Chairman Rajnish Kumar & Co. Both the ministry and Rajnish Kumar have vowed to provide more planes for Jet to save it from bankruptcy and that they will find someone to buy it.

Naresh Goyal has undoubtedly taught other airline businesses the importance of striking the right balance between short-term price cuts to attract customers and long-term investments and expansion ambitions. In the near term, capturing the market can put a company out of existence.

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Himanwita Mazumdar
Himanwita Mazumdar
Assistant Editor at Business Review Live. Currently pursuing Masters in Media and Communication Studies (MSc) from Savitribai Phule Pune University, India, with a Bachelors degree in English Literature. She specializes in Feature writing.