Picture: ISTOCK
Picture: ISTOCK

Troubled carrier Jet Airways India said it will sell a stake in its loyalty programme and cut as much as 20-billion rupees ($285m) in costs over the next two years as part of a turnaround plan after years of losses in a competitive market.

Announcing the biggest quarterly loss since 2015, the board of the Mumbai-based airline considered fundraising measures at a meeting to help revive the company, Jet Airways said in a filing to the stock exchange late on Monday. The management has been tasked to accomplish this in a "time-bound manner," it said.

"The air passenger traffic is extremely strong but it’s now on the incumbents how they deal with the financial problems," said Sanjiv Bhasin, executive vice-president at Mumbai-based IIFL Securities. "The good prospects of the aviation sector provide optimism that a dark knight, who can look beyond the negative rhetoric, may be willing to step in," he said.

Shares of the company rose 4.7% in Mumbai on Tuesday.

Jet Airways is struggling in a market where intense competition has driven air fares so low that airlines can barely cover costs. Profitability for local airlines is unlikely to recover in the near term as carriers plan to add about 100 new aircraft in the next five years, putting pressure on fares, Fitch Ratings said earlier in August. That will lead to some airlines scaling back operations, helping the bigger ones like IndiGo to consolidate market share, the agency said.

THE AIR PASSENGER TRAFFIC IS STRONG BUT IT’S NOW ON THE INCUMBENTS HOW THEY DEAL WITH THE FINANCIAL PROBLEMS

With the entry of low-cost operators such as IndiGo, run by InterGlobe Aviation, and SpiceJet, the market share of Jet Airways has more than halved in the past decade to about 15%. The Mumbai-based carrier has reported losses in all but two of the past 11 years and this month said it needed to raise funds to meet liquidity requirements.

Among the proposed steps is the sale of its stake in JetPrivilege, its loyalty programme, which grew 30% to 8-million customers in the year ended March 31.

Blackstone Group is in talks to buy a stake in the programme, people with knowledge of the matter said in August.

Jet Airways owns 49.9% of the programme, with the rest held by Etihad Airways, which separately owns 24% of the Indian carrier.

Besides cost reductions, Jet Airways has also proposed capital infusion and paring of debt that would result in a "significant" decrease in interest cost.

"Intentions are there, but details are not there," said Deven Choksey, MD at KR Choksey Shares & Securities. "Jet on its own won’t be able to survive."

Losses for the three months to June were 13.2-billion rupees, compared with a profit of 535-million rupees in the same period a year ago, Jet Airways reported on Monday.

Shares have tumbled 64% in 2018, shrinking its market value to $479m.

India, the world’s fastest-growing aviation market, is also one of the toughest in which to survive. Kingfisher Airlines collapsed in 2012, while Air India has survived on repeated state bailouts. At the same, the lure of the market, where air travel penetration is still low for its 1.3-billion population, has prompted Singapore Airlines and AirAsia Group to start local operations.

Bloomberg