Media reports have pointed out that the airline faces significant headwinds  but the airlines that it is in trouble

Is Jet Airways in a spot of botherij Media reports over the past 24 hours would have us believe that the airlines promoter Naresh Goyal is looking to sell off a part of his stake in the airline. Jet Airways shares have plunged, losing 7.2 per cent in trading on Friday, and has lost over two-thirds of its value since the start of the year. The airline has reportedly sent an email to all of its staff saying that without a series of pay cuts, ranging up to 25 per cent, the airline might be forced to shut shop within sixty days. The airline has come out with a strong statement denying some media reports and even highlighted the fact that at the recently concluded Farnborough it added to its orders of new Boeing 737MAX8 aircraft which now total 225 aircraft in all that will be inducted into its fleet over the next decade. The Chief Executive, Vinay Dube also said that any talk of a stake sale was false.

But what ails Jet, the only surviving airline from the first era of private airlines in India. The airline recently celebrated its 25th birthday and also inducted the first fuel-efficient Boeing 737MAX8 into its fleet. And Jet Airways has faced trouble before, back during the downturn in the mid-2000’s, with the airline still reeling from the semi-forced acquisition of Air Sahara, Jet Airways was reeling. There was even a late-night press briefing by Vijay Mallya and Jet Airways chairman Naresh Goyal talking of an alliance. And while Goyal had the last laugh on Mallya, the competitive environment has changed a lot since then.

For one, there has been the emergence of IndiGo, an airline that has established a new template for low-cost carriers in India. IndiGo has eaten up marketshare from other airlines, and there is also the fact that the aviation market in India is not quite fair, because taxpayers effectively fund Air India. There is also the fact that the Indian rupee has depreciated significantly in the past six months and that coupled with increased aviation fuel prices have hit the profitability of all airlines, even IndiGo which has been a market darling ever since it listed, saw profits crash 97 per cent in the first quarter of 2018-19 compared to the previous fiscal year. IndiGo however also suffered from a slew of cancellations due to the tragicomic introduction of the Pratt and Whitney PW1100G engine on the airlines new A320neo aircraft.

One major reason for the dismal performance of airlines in India has been falling yields. Airlines, across the board from Jet Airways to Indigo have not been able to raise their revenue per seat-kilometer, a statistic the industry measures as RPK. In fact, IndiGo saw RPK fall five percent last quarter and that led to a decline in their share price. This explains why, despite airlines running full planes on most sectors in India thanks to booming demand, they are not making all that much money. The falling rupee coupled with the fat that aircraft and their maintenance is priced in dollars as well as increased oil prices while yields have at best flatlined mean that profitability is impacted.

But why have airlines found it difficult to raise pricesij Demand for airline seats is not elastic, other than a few sectors at some times of the year, higher prices usually means less demand. While there have been positive indicators of economic growth in the past few months, the economy is just about picking up but increased demand for air travel has not meant that passengers are willing to pay more. At the same time, schemes like UDAN have not really changed the fact that flying is restricted to 2-3 percent of the Indian population. While Indian airlines have a reported 1000 aircraft on order, they have miles to go before they regain some pricing power.