How India’s low-cost airlines, once dismissed by Naresh Goyal, became his nemesis

In 2005, Naresh Goyal had written off low-cost airlines. The reasoning provided by the founder and chairman of India’s oldest private carrier was that since most Indian cities don’t have a second airport, all airlines end up paying the same operational charges. Thus, the economy players don’t have any significant advantage over their full-service rivals.

Fourteen years later, his Jet Airways is reeling under a mountain of debt and 12 straight loss-making months in its war with no-frills carriers.

The Mumbai-based firm has defaulted on bank loans. Its lenders are reportedly in talks with UAE’s Etihad Airways, which owns a 24% stake in Jet, for a turnaround plan widely expected to result in Goyal parting with his majority stake.

Such an exit would mark the ignominious end of a storied journey.

In the mid-2000s, the advent of low-cost carriers IndiGo and SpiceJet—India’s largest and fourth-largest domestic airlines by market share today, respectively—changed the dynamics of India’s aviation industry. In an extremely price-sensitive country, these new airlines began snatching market share from the full-service carriers.

Goyal’s firm decided to drop fares, which many believe was its undoing. By trying to match low-cost rivals’ prices, Jet hurt its earning margins despite the fact that India’s aviation industry has grown rapidly.

“Jet clearly had a good niche when they started. The moment they started competing with the low-cost carriers, they lost it,” said Ashish Nainan, aviation analyst at CARE Ratings. “When you provide more services and still want to match low-cost carriers’ prices, you’re digging your own grave.”


Leave a Reply

%d bloggers like this: