[Analysis] Intense competition means weak airlines like Jet Airways will be weeded out

On 17 April, Indian airline Jet Airways suspended all domestic and international flights after failing to find fresh funding. Professor Loizos Heracleous, an expert in the aviation and aerospace industries and professor of Strategy at Warwick Business School comments on the airline’s failure.  

“Finding new investors was always going to be a tall order for Jet Airways.

“The aviation industry is unattractive in terms of returns on investment at the best of times. Planes are high cost assets with little alternative use.

“Fuel accounts for around a third of total airline costs and they have no control over the fluctuating price.

“Increases in industry profitability after 2011 were aided by lower fuel prices. With fuel prices on an upward trend since 2016, the performance of some airlines has taken a hit.

“Airlines also face high levels of regulation, often aggressive unions, and the high bargaining power of buyers.

“Yet new airlines continue to enter the industry. In 2017 for example, 79 new airlines entered the industry globally, as 25 went bankrupt. That is an unsustainable rate of market entry and financially irrational.

“As a result competition and the passage of time will continue to weed out weak performers.

“Airline bankruptcies are an event that is here to stay. That is why consumers should always have a plan B and purchase their tickets in a manner that offers the possibility of a refund.”