Jet Airways tells employees without salary cuts it won’t last two months:
Jet Airways has reportedly informed its employees that a 5-25 percent salary cut is on the cards in order to trim operational expenses.
Having posted a loss of Rs 1,040 crore for the fourth quarter of fiscal 2018, Jet Airways is in serious damage control mode. India’s second-largest airline has already informed its employees that a 5-25 percent salary cut is on the cards in order to trim operational expenses. But things are reportedly so dire at the airline that it has to accelerate all cost-cutting plans.
Two executives told The Economic Times that Jet Airways has informed employees that the airline won’t be able to operate beyond 60 days unless cost-cutting measures are put in place. “We have been informed that the airline cannot run beyond two months and the management needs to cut costs through pay cuts and other means to ensure that it stays afloat beyond that. The airline did not inform us about all this all these years, which has dented the trust of employees in the management,” said a senior executive.
The airline has an annual salary bill of Rs 3,000 crore and the proposed salary cut is expected to reduce this expenditure by around Rs 500 crore. The revised salaries for managers to CEO are expected to be implemented from this month. Confirming the news, earlier this week Jet Airways said “Payroll is one of the important components of cost structure and the senior leadership has undertaken a reduction in salary to lead by example”.
Over the past few days, the management team – including the airline’s chairman Naresh Goyal – have apprised employees in Mumbai and Delhi about the airline’s worrying financials in face-to-face meetings, blaming rising fuel prices and major market share gains by IndiGo. The employees were also informed that the salary cut will be for 24 months, with no scope for refunds.
The daily added that these warnings of low cash levels have rattled employees at India’s oldest private sector airline, and triggered protests. While most employees are still trying to figure out what to make of these warnings, some believe that the situation has probably been exaggerated to make some employees quit.
But that seems unlikely with Amit Agarwal, the airline’s Deputy CEO and CFO, admitting on the last earnings call in May that “For the full year ended March 31, 2018, we reported a loss of Rs 636 crore as against a profit of Rs 1,499 crores for fiscal 2017 [including the impact of the switch to Indian Accounting Standards]”.
Significantly, he had told analysts that the fourth quarter results had been adversely impacted by factors like the “year-on-year impact of an increase in fuel prices by Rs 366 crore” and “mark-to-market adjustment due to weaker rupee of amounting to Rs 156 crore”. On the same call, CEO Vinay Dube had pointed out that the cut-throat competition in the business had caused airfares to largely remain flat over the last two years even as fuel prices doubled.
All these factors continue to be a concern, although oil prices have stopped flirting with the $80 a barrel mark of late. Industry analysts, in fact, say that the airline is likely to report a loss of Rs 1,000 crore in the first quarter of the current fiscal.
“In line with its stated focus of creating a healthier and a more resilient business, Jet Airways has been implementing several measures to help it reduce cost as well as realize higher revenues, for desired business efficiencies,” Jet Airways told the daily in a statement. “Some of these include sales and distribution, payroll, and maintenance, among many others. As part of this approach, the airline management is in dialogue with key stakeholders to enlist their full support and cooperation for realizing necessary savings across all parts of the business,” it added, although it did not specify any time frame.
But the state of its coffers hasn’t held back the airline from expanding its fleet. “The airline is committed to create a growth-oriented, sustainable future and a revitalized guest experience armed with the addition of 225 B737 MAX fuel-efficient aircraft, which will be inducted in its fleet over the next decade, and of which 11 are slated to join within this financial year,” it said.
Meanwhile, sources claim that Jet Airways has already started firing people across functions. “In the engineering department, head of the line for Delhi has been asked to leave. Job losses will start to happen in functions like cabin crew and ground handling,” said one. Furthermore, the airline has decided to waive the bond terms of seven years or Rs 1 crore for its first officers and the mandatory one year notice period for pilots, including commanders.
Industry experts believe that the situation is only going to worsen in the second quarter, and Jet is not the only one struggling. Last week, IndiGo, India’s largest carrier by passengers flown, reported a 96.5 percent plunge in profits at Rs 27.80 crore for the first quarter of this fiscal.