The purpose of this report is to evaluate the strategic position of Jet airways. By doing this, it will identify the major strategic business units (SBUs) which Jet Airways has, the strategies adopted by Jet Airways, strengths and weaknesses, PESTEL analysis, business analysis among others. The report will concentrate on a case study titled “Jet Airways Expansion Strategy with Low-Cost Service: Will it pay off?” which is written by Rituparna Mukherjee, Amity Research Center.
Jet Airways is one of the leading private airlines in India. On May 8th 2009, it launched its second low-cost carrier called Jet Konnect as a response to the increased demand for low-cost. This was launched when the industry was facing reduced production due to economic slowdown. There was increased cutthroat competition and at the same time increased cost of Aviation Turbine Fuel, the problem of mergers and acquisition which posed a major threat to Jet Airways. The only solution was to introduce a cheaper domestic airline that would cater to the increased customer demand for a low-cost. This airline happens to be Jet connects and it was believed to help Jet Airways flights with the increased competition. The decision to launch Jet Konnect was made in order to avoid regulatory hurdles which would have become evident if the expansion took place through Jetlite.
The strategic business units (SBUs) of Jet Airways are Jet Konnect and Jetlet. Jet Airways acquired Jetlet in 2007 and it became its major subsidiary. It is now planning to launch a new airline called Jet Konnect in order to cater to the increased demand for low-cost services. Jet Konnect targets low-income earners in the Indian market. Jet Airways makes its money through the transportation of passengers and cargo using its aircraft. It has been in existence since the late 1990s and has benefited from the diversification of the aviation industry in India.
India (aviation) industry takes a good rank as far as the (fastest) growing businesses in the world are concerned. It recorded the highest growth rate in the year 2007-2008 and was ranked position eight out of the total number of the aviation industries in the world. Before 1992, the industry was composed of only two monopolies (Air India and Indian Airlines) which dominated the market. However, with the rise of demand for air travel, private airlines entered the industry in large numbers. These airlines are Jet Airways, Kingfisher Airlines, Paramount, IndiGo, among others. These private airlines occupied 75% of the total demand for air travel (both domestic and international) in 2009.
Jet Airways operate within two market segment: domestic and international. Its flights cover 18 international destinations. The company introduced a program referred to as Jet Privilege which is availed to customers who frequently use Jet Airway services. Other subsidiary services include Jet Airway LLC, Jetair private limited and Jetlite Limited. Jet Airways was affected by the world recession in 2008-2009 which led to an increased cost of fuel. Business and leisure trips were affected by the recession which was triggered by the US sub-prime crisis. The company was highly affected by the falling demand, debt, and huge losses. These huge losses were a result of price competition since all the airways tried to offer discounted prices in order to occupy a bigger market share. Because of the recession, Jet Airways launched its second LCC called Jet Konnect.
The following table shows the Quarterly results of Jet Airways for the year 2009 on its operation profits
——————- In Rs. Cr. ——————-1
|Mar ‘09||Jun ‘09||Sep ‘09||Dec ‘09||Mar ‘10|
In March 2009, sale turnover was relatively higher compared to June the same year. However, from June to December, sales turnover had been on the increase only to decrease in March 2010. This shows that the financial performance of Jet Airways in 2009 was relatively well but 2010 statistics are yet to prove the consistency in the trend. The same applies to other incomes and operating expenses. However, operating profit was highest in December and lowest in September.
Jet Airways is among the private airways in India that occupied about 75% of air travel in 2009. It started its operations in 1993 and was recognized as one of the fastest-growing airlines in the world. It operates both domestically and internationally. International destinations include New York, Hong Kong, Jeddah among others. In April (2007), JetLite was attained by Jet Airways. During the recession, Jet Airways’ market share fell from 17.9% in January to 16.6% in June.
Jet Airway’s major marketing strategy was Low-Cost Carriers (LCC) services which were initiated by Air Deccan. Jet Airways provided low-cost services for both domestic and international passengers. This led to an increase in its annual profit especially from 2004 to 2008. low-cost services targeted the low-income earners and middle businessmen who relied on other means of transport due to the high charges of flight. Initially, these low-cost services led to increased business which forced Jet Airways to look for other aircraft. However, due to the recession, Jet Airways was greatly affected and some aircraft were rendered unproductive. Jet airways felt the need to seek alternative services that would utilize the excess aircraft and prevent the company from regulations that might have forced it to disperse the aircraft to Jetlet. It launched Jet Konnect.
Human resource analysis
Jet airways growth is facilitated by HR. It is headed by competent staff that has the responsibility of hiring personnel through selection and recruitment processes.
- human resources are composed of talented personnel
- upon appointment, they go through a training process
- During the period 2004 to 2008, Jet Airways experienced a very low turnover rate which later increased as a result of the recession
- selection and recruitment processes normally took place during the high peak seasons
- employees were motivated to work harder through incentive schemes
- team empowerment nurtures a culture of innovation
- duties and responsibilities were stipulated by an organizational structure
The success of every organization is dependent on its personnel. Jet Airways has strong personnel who ensure the growth and development of the company through innovation and creativity. The human resources are appointed by the human resource manager who has the power to hire or fire2. HR is responsible for the day-to-day activities and is usually motivated through incentive schemes and training.
Jet Airways has developed a cost strategy and a differentiation advantage over its rivalry firms through:
- technological innovations
- utilization of its capacity
- geographical diversification
- interrelated strategic business units
- merging with weaker firms
- introduction of low-cost services
In order to maintain its market share and competitive advantage, Jet Airways diversified geographically through acquiring Jetlit. It has also introduced a low-cost carrier service in order to compete with its rivalry firms in the industry.
- strong foundation
- strong capital base
- Strategic expansion through customer-focused innovations
- high turnover growth
- a well-developed industry
- a strong market strategy
- strategically placed to fight competition
- a strong brand name3 good reputation among customers
- low-profit margins
- lack of a well thought future market strategy
- dependency on the domestic aviation industry
- disloyalty in mergers
- high-cost structure
- government regulation of the airline services
- taxation policies
- regulation on excess capacity
- Economic recession
- Competition on LCC
- Seasonality issues
- developed Indian economy
- lifestyle trends and consumer preferences
- demographic changes
- leisure activities
- increased spending
- Innovation capacity
- Changes in aircraft technology
- improved infrastructure
- Changes in weather patterns
- poor terrain
- Technical standards
- Competition regulation
- licensing and patent rights4
The external forces described above can help in the determination of the Jet Airways market growth (or decline) and the implication of its strategic business unit (Jet Konnect) if it becomes successful. If another economic recession occurs, the economic forces would have a considerable bearing on the future market strategies through ripple effects on the political and socio-cultural factors. Political factors put a restriction on the development of the industry by putting tough taxes and regulatory requirements. India has been experiencing low tariffs barriers which have led to an expansion of international trade thereby resulting in increased demand for airline services5. India’s economic growth potential due to its demographic advantage could therefore open up opportunities for industry development.
Porter’s five forces
Porter developed a structure for analyzing the nature and extent of competition within an industry. His argument was that, in every industry, there are at least five competitive forces that establish the nature of competition within that industry. These five forces are discussed below6:
Buyer’s bargaining power
Buyers have the ability to determine which products will move first and which will not. It is through buyers that a company realizes its competitive advantage in the market.
- High switching costs
- Buyers are not very many and are very concentrated
This is a strong force since the buyers have unlimited bargaining power
Competitive rivalry in the industry
Within an industry, there are businesses that compete with each other for the available market share. These businesses either specialize in the production of similar products or differentiated products. They compete with one another on the basis of:
- Low prices
- high exit barriers
- Little product differentiation
- high investment intensity
Though there are several companies that offer high quality and low-cost services, there is still a great rivalry in the industry as products are close substitutes for each other.
Threat of substitutes
A product is termed as if it meets the same needs as those met by a product from the same industry. Air Deccan as well as Kingfisher is one of the substitute services in the aviation industry in India.
Threat of entry
This is highly dependent on the available (entry) barriers. The higher the entry barriers, the fewer the number of competitors will be in the industry. In the Indian aviation industry, there is:
- Strong economies of scale
- Brand loyalty of customers
- Strong capital cost on entry
- Legal constraints
- Mergers and acquisitions
Jet Airways stands to win over the threat of entry into the market because; the government has put strong entry barriers.
Supplies’ bargaining power
- industry’s request flexibility
- Offered price and volume
- concentrated suppliers
- high (switching) cost
The supplier’s (bargaining) power is seen as weak (over the buyers) and could constantly lower their prices to ensure a share of the buyers’ (prospective) profits.
The following are the critical success factors for Jet Airways
- flight cost
- brand recognition
The critical success factors are the factors that Jet Airways have to consider if it has to succeed. They are also the factors that ensure the growth and development of the company7. The first and most important factor is flight costs. The lower the cost, the higher the demand and as a result, the returns become higher in terms of profit. Speed and quality is also a critical factor since the company deals with businessmen and professional people who value time8. Jet Airways is readily available and can be accessed by almost all categories of people. It has diversified its airlines in order to fit all groups of people.
Jet Airways has a brand name that is highly recognized in the domestic and international market and should aim at protecting it for future growth and expansion. It is also reliable.
- Emerging international markets
- The rise in leisure activities
- increased economy development
- Rise in per capita income
- Increasing technology advancements
- increased industrial development
- an unfulfilled customer need
- industry rivalry
- effects of economic recession
- cut threat competition
- Entry of new firms
- Strong government regulations
- The emergence of substitute products
Jet Konnect is a subsidiary of Jet Airways which endeavors to attract low-income earners in the suburb places in India by offering low-cost services. This is a strategy that has been adopted in order to fight the increased competition and also raise the sales revenue. Jet Airways believed that by introducing a subsidiary company that would focus on the domestic markets, its profit base would go up. By offering low prices on its services, Jet Konnect would be able to capture a bigger portion of the local market. However, it is not very clear what the company intends to do once the effects of the recession are over. I think that this is not a good strategy because, it means that when the recession is over the company will not be able to adjust its prices upwards, or if it does so, it will lose a significant part of the market which would not be beneficial. At the moment the marketing strategy seems to be appropriate because the company is already experiencing a shortage in its profit margin although it has not considered the long-run implication of the strategy9. This strategy does not seem to be productive after five years.
Jet Konnect was deemed to pick up very quickly because Jet Airways had a strong brand name that was well recognized by many customers, further, the reduction of prices would mean increased demand. It had an excess capacity that meant that it did not have to look for other aircraft but utilize the excess capacity.
The following are the unresolved issues in Jet Airways that are threatening the future of the company
- excess capacity
- decreasing flight costs
- expansion of the aviation industry
- increased rivalry
Proposed future strategies
- increasing marketing share by expanding its services
- diversification to other areas (domestically)
- expansion in the international market
- more rewards to human resources
Selection of winning strategy
|1||Expanding of services could increase its profits||Favorable response from existing customers||Accept|
|2||The geographical expansion could lead to increased demand||Other firms and the government might resist10||Accept|
|3||Could lead to an increase in its international profits||Could face entry barriers from other countries||Reject|
|4||Could improve the companies portfolio and productivity||Employees could respond positively to the change||Accept|
|1||A domestically recognized brand name||Too customer-centric||Emerging markets||Intense rivalry||Reject|
|2||Strategic expansion through customer innovations||Low profits margins||Emerging markets||Government regulation||Accept|
|3||An internationally recognized brand name||Dependence on Jet Airways||Increasing international trade||Entry barriers||Accept|
|4||Tactical leadership and effective management||Low profit margins||Expanding market||Effects of economic recession Ondolph, John, 2004||Reject|
|1||Requires additional human resource |
Existing marketing strategy
Additional working capital costs
|2||Additional working capital |
More human resource
Increased overhead costs
|3||Sophisticated technology infrastructure |
More skilled labor force
More innovative capacity
Winning strategy and risk assessment
Diversification to other areas (Domestically)
Expansion of the company’s services in the domestic market could lead to more returns than international expansion. Before the recession, the Indian economy was experiencing a steady growth rate which resulted in increased spending on leisure activities. However; airline services are not readily available in all areas. Most of the highly productive areas are not served by the airlines and it would be a calculated strategy for Jet Airways to consider expanding its services to these areas11.
Although the Indian economy has been doing so well and the future is promising, Jet Airways has to overcome some obstacles before it realizes its potential. First, there is the government requirement which it has to adhere to before being allowed to expand its services, increased capital costs, the requirement of the skilled labor force, and rivalry from other firms. To add to these risks, the company is not guaranteed a ready market in these areas making it a risky undertaking.
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