If Jim Collins Were to Analyze the Grounding of Jet Aiways …

10 09 2009

Thousands of passengers were left stranded in airports due to cancellation of 186 Jet airways flights last Tuesday. The flights got cancelled because 360 pilots reported sick

The flash strike by the Jet pilots is just a symptom of the larger problem that Jet Airways is in. It is a manifestation of the sickness that Jet Airways has got into. If I look at Jet through the model propounded by Jim Collins in his latest book How the Mighty Fall, then it is showing many signs of being in an advanced stage of failure.

In this book, the author Jim Collins based on a study of many large companies, proposes that most companies who fail, go through five stages.  Let us look at each of these stages in the case of Jet.

Stage 1:- Hubris Born of Success; – Jet Airways was very successful and became the market-leader in Indian aviation till 2006-07. It redefined customer service and was the toast of the business passengers. It is the sole surviving private airline among the many which were launched in the 1990s. It also made reasonably good profits till 2005-06. In 2005-06, it made a profit of Rs 452 crore on a turnover of Rs 6,088 crore. The success bred arrogance.

Stage 2 – Undisciplined Pursuit of More: – From 2005-06 onwards when the domestic aviation market was growing fast, Jet like other airlines expanded its fleet and network. In the eagerness to grab market share it bought Sahara in 2007.By the admission of Jet Airways CEO Wolfgang Prock Schaeur in Business World, “We have expanded rather fast.”

Stage 3 – Denial of Risk and Peril: – From early 2007 onwards the operating environment of the aviation industry has been very negative. The price of crude started going up and touched its peak of 147 $ in July 2008. The competition in the sector was severe and thanks to the slowing down of the economy, the utilization rates of Jet fell. Jet management behaved as if it was a temporary problem. They launched their international flights. They renamed Sahara as Jet Lite. Yet it continued to make losses quarter-after-quarter.

Stage 4 – Grasping for Salvation: – Using the Collins model we can say with reasonable degree of confidence that Jet is currently in Stage 4. This is a fairly advanced stage after which redemption is rather difficult.

A look at the ‘Markers for Stage 4″ for Jet is in order here.

  • A Series of Silver Bullets: – Jet tried a number of dramatic, big moves like launch of the international service. Even though it was a full-service carrier, it tried to position Jetlite as a low-cost carrier . It also launched Jet Konnect as a new service, which was neither full-serive nor a low-cost carrier. Now, the silver bullet is a 600 Mn $ cost reduction programme.
  • Panic and Haste: – Collins says that instead of being calm, deliberate and disciplined, people exhibit hasty, reactive behaviour bordering on panic. in 2008, when Jet fired 1.900 staffers at one go and then with government pressure Naresh Goyal, Chairman, Jet  made a spectacle of himself when he took the back. Clear demonstration of haste and panic. BusinessWorld reports that based on some insights, Jet Konnect was conceived in a four-hour brainstorming session. It may well be a record time for launch of any new brand, says BW.
  • Confusion and Cynicism: – The flash strike by the pilots stems out of the cynicism and absence of trust in the management. They want to form a pilots union to negotiate their case, which the management is responding by sacking the pilots leading the union. Passengers are totally confused whether Jet is a full-service carrier, low-cost carrier or something in-between. Their drop in service standards has led many long-standing Jet Privilege (JP) customers to shift allegiance to other airlines.
  • Chronic Restructuring and Erosion of Financial Strength ;- Jet has been making losses since the last eight quarters. It has a huge debt burden of 3 Billion $. It has not been able to raise any equity since its IPO in 2005.

Stage 5 – Capitulation to Irrelevance or Death; – This is the last stage of failure. There have been very few instances in business history where companies have recovered and renewed themselves after reaching Stage 4. Xerox is one such case. 

Will Jet Airways be able to pull itself out of the mess? Will Jet xerox Xerox ? 

The odds are clearly stacked against Jet.  

PS: Readers are advised to redeem their JP Miles at the earliest. They may be worthless before you know. 

–       G. Mohan

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2 responses

12 09 2009
Raghuvir

Good artcile Mohan. I will take your advise and redeem JP miles :). This reminds me of my organization – though I think we are have almost pulled back from the brink.

23 09 2009
Michael M. Lane

Mohan –

Thank you so much for reaching out. We are delighted to hear from you – and honored that you are finding our work useful.

The points you bring up in your analysis are certainly intriguing and interesting – but I’m afraid that without a more intimate knowledge of Jet Airways (which Jim and I lack), we would not be able to make any truly useful comments on your analysis.

I am sorry that I can’t be more helpful, Mohan. We wish you all the best in all to come.

Warm Regards,

Michael M. Lane

mike@jimcollins.com

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