Explained: What exactly is happening at Jet Airways
Sunday, August 5, 2018 IST
NEW DELHI: The news of Jet Airways telling its employees to take salaries cuts has sent shock waves in the sector. Most airlines are battling challenges on the profitability front but the salary cuts at Jet have highlighted the problem starkly. Jet has informed its employees that the airline would not be able to operate beyond 60 days unless cost-cutting measures, which include pay cuts, are put in place, according to ET report that cited sources.
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What actually happened
Jet Airways has informed its employees that they would have to take an up to 25% cut in their salaries as cost of operations for airlines is increasing on the back of rising crude and a falling rupee. Salary cuts are in the range of 5% (for those earning Rs 12 lakh annually) to 25% (for those earning Rs 1 crore and above) starting this month. Jet said senior management had already taken pay cuts.
This decision hasn’t gone down well with the pilots, who have not agreed to a pay cut in a market that is struggling with a huge deficit of pilots, especially commanders. In a similar move last year, the airline had reduced the salaries and other benefits of about 350 junior pilots by about 30% from August.
Why the pay cuts
The airline says pay cuts are part of its cost-cutting exercise. “As part of its cost rationalisation measures, the airline continues to evaluate all initiatives to achieve greater business efficiencies. Payroll is one of the important components of cost structure and the senior leadership has undertaken a reduction in salary to lead by example,” the airline told ET.
In a statement, the airline said it was focusing on creating a healthier and more resilient business and that it had been implementing several measures to cut costs and raise revenue margins. The airline has also said that that it was committed to sustainable growth and was planning to add 225 B737 MAX aircraft. At least 11 of these aircraft would be inducted this year, it said.
Jet has refuted "speculative comments from certain vested interests", terming them "deliberate attempts to undermine Jet Airways’ transformation efforts".
Profitability challenges
After two consecutive years of profits in fiscal 2016 and 2017, Jet incurred losses of about Rs 76 crore during FY2018. Industry analysts say it is likely to report a loss of Rs 1,000 crore in the first quarter of the current fiscal. Jet is not the only carrier that has witnessed a decline in profitability. IndiGo,
India’s largest carrier by passengers flown, has reported a 91% drop in profits for the first quarter of this fiscal. The bottom line of airlines is getting hit due to high cost but lower yields in India, which is the largest growing market in terms of passenger growth on the globe. Analysts say fall in yields is due to airlines not being able to charge a premium on fares booked at the last minute.
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