Jet Airways salary cuts issue: Crisis brewing for quite some time

It seems Jet Airways has been in turbulence for long. The carrier, which initiated a salary cut for employees amidst a severe cash crunch, was tight-lipped about slashing salaries for at least last two months.

A question regarding salary cuts was raised during the management’s call with analysts on May 24 after the loss ridden fourth quarter financial results, but it refused to provide a specific reply, and instead claimed that they had managed to contain the manpower costs by improving productivity.

As per the analyst meet records, an analyst with a global investment service, referring to the salary cut asked the airline management as to what steps have been taken to reduce the cost on manpower side.

Responding to the question, Amit Agarwal, CFO and deputy CEO at Jet Airways, said that with regard to manpower, the annual inflation is around 5-6%.

Further, he said the carrier has been able to contain it by improving productivity.

The analysts’ concerns stemmed from the fact that a day earlier, on May 23, Jet Airways had reported a net loss of Rs 1,040 crore for the fourth quarter in comparison to the Rs 583 crore profit in Q4 FY17.

Like its rivals, Jet Airways too blamed the rising fuel price, as it constitutes around 45-50% of the total operational expenditure of the carrier for its precarious finances, apart from other factors like foreign exchange impact and one-time increase in maintenance cost of some of its aircraft.

Vinay Dube, CEO of Jet Airways during the same analysts call said that restructuring efforts are being done because at the end of the day the management do not want to be victims of the market.

Naresh Goyal promoted Jet Airways has been losing market share to its peers in the past several quarters, as the latest figures available with regulatory body Directorate General of Civil Aviation, indicating that it reduced to 15.4% in the domestic market by the end of 2017, from 15.6% at the beginning of the year.

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At 13.9% in June, the drop in the market share has been more severe this year.

The airline’s shares plunged around 7% since mid last week after reports came out about airline making salary cuts up to 15% for its employees, including expats pilots.

An analyst with one of the leading big four consulting firms when asked whether the industry can expect to see a spike in fares in the coming months on account of rising fuel prices said, “Since a lot depends upon supply and demand, there is a lot of capacity in the industry at the moment and it is increasing with each passing month. So to say whether there could a hike in fares in short or medium term would be highly speculative,” the analyst said.

Source: DNA Money