Thursday, March 28, 2013

“Sometimes, we Wonder why We are in The Airline Business at all!”

Operating costs have always been The Biggest Hurdle to Profit-Making for Domestic Airlines. It was no Different with Jet Airways. Sudheer Raghavan, CCO, Jet Airways, talks about how Jet Worked to return to Profitability since FY2007-08, and on The Most Recent Taxation Policy Recommendations by The Government.

Life in the domestic airline business has been characterised by pain. Since the start of FY2006-07, airlines in India have been caught in a dust-storm of ever rising fuel and operational costs, unfriendly taxation policies, crippled infrastructure, negative earnings, high debt and pricing issues. Although matters have improved over time, during the past five financial years, airlines in the country have burnt money to the tune of $4-4.5 billion. Even the once very profitable and India’s largest private carrier Jet Airways scampered around for the past three years with its tail on fire. No more. Good news is – compared to any time during the past five years, Jet’s P&L account looks healthier today, with net profits for the first nine months of FY2010-11 – amounting to Rs.13.42 billion (having recorded Rs.20.36 billion in negative bottomlines since FY2007-08). Even its balance sheet will appear prettier starting FY2010-11 – with the company set to reduce Rs.10 billion of debt each year, starting 2011, which will reduce its debt load from the peak of Rs.130 billion that it has accumulated so far. And much of this turnaround story has been scripted since Singapore-born Sudheer Raghavan stepped on-board Jet Airways in September 2007, as its EVP – Commercial. Today, Raghavan, leads Jet’s commercial activities as its CCO and handles everything from commercial strategy-making to cargo handling, e-commerce, marketing & customer services. Who better than him to quiz on the cost-cutting strategies that Jet undertook to become a leaner, more logical flying machine, and the policy headaches that still stare at the airline.

B&E: IATA agrees that multiple taxes and others levies have already been killing the profitability of airlines in India for a long time now. And at present, thanks to Union Budget 2011-12, we have the newly proposed hike in Service Tax. Will the airlines pass it all on to the passengers?
Sudheer Raghavan (SG): The hike in Service Tax will directly impact the profitability of the airlines. So, in this regard, we are left with little option but to allow the price of the ticket to reflect the impact. All the burden will have to be borne by the consumers, as the airlines – whose balance sheets are already over-stretched – are completely helpless. Even the stocks of listed airlines dipped after the budget increased the Service Tax on air travel by 2% from the present 10%. The industry needs relief, and not additional taxes.

B&E: So, do such multiple taxes put your airline in serious financial dire straits?
SG: Yes. Not just Jet Airways’ but the entire sector’s future is questioned. We already have so many taxes; and by imposing more of them, the policy makers are shackling us. We are in the industry that is affected by everything – weather, volcano and many more natural calamities. And to add to those, now, our policy makers are increasing and adding new taxes. Sometime, we wonder why we are in the airline business at all! With costs and taxes rising, prices will rise, and demand will fall – how are we to become a healthy sector then? And all that while on one hand, after some tough years, we are trying to get more efficient and recover costs. Why labour the airlines with this massive tax? The policymakers have to understand our situation.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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