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Jet Airways Problem Identification and solutionByMember : Ratan KumarCollege : IMI, New Delhi
Two key business problems in Jet Airways Attaining Profitability in domestic market Jet Airways finding hard to get investors
Reasoning behind choice of problemsAttaining Profitability in domestic market Fuel cost forms largest part of expense Fuel cost rose to 33.71% of total Income in 2011 as compared to 29.67% in 2010 Short haul Airlines: Lower fuel efficiency as take- offs and landings consume high amounts of jet fuel Sudden Spur in Fuel prices towards end of 2011 Domestic market :Highly price sensitive Jet Airways working below Break-even Passenger load Factor of around 80%
Two key business problems in Jet AirwaysJet Airways finding hard to get investorsCompany working on high debt to equity ratioof 4:1 - Highest in industryInterest coverage ratio of company is 0.99,Which is below 1Company has not paid dividend from past 5yearsNot paying dividend has negative signalingeffect
Analysis of root causeAirline industry in growth stage with excess capacity inboth domestic and international market Indian domestic traffic had a growth of 21% in 2011 Foreign Traffic had a growth of 23.8% in 2011 Stiff competition from Kingfisher, Spice Jet, Indigo and Go Air International Air Transport Association (IATA) downgraded the airline industry profit forecast in 2011 by 54% Threat ofPorters Five Forces Analysis: new Entrants Low Bargaining High Rivalry High Bargaining among Power of Power of existing Buyer Supplier competitor High Threat of Substitute Product or Services
Solutions to the two problemsReassess all short haul flights, discontinue those whereload factor is much less than forecastedTry reduce debt burden by selling off unprofitable assetsConcentrate more on attaining break-even passenger loadFactorIntroduce more International Flights Financial ImpactAttaining Break-even Passenger load factor helps payDividend which has positive signaling effectInternational Flights helps increase profit and increaseinterest coverage ration to acceptable limits
References http://www.jetairways.com/EN/IN/InvestorRelations/financials.aspx Annual reports http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/jet-airways-most-leveraged-in-indian-airlines-sector/articleshow/10728294.cms http://articles.economictimes.indiatimes.com/2011-11-12/news/30391209_1_kingfisher-airlines-international-routes-domestic-airline http://www.moneycontrol.com/ http://money.rediff.com/