CHAIRMAN'S STATEMENT AT THE 13TH ANNUAL GENERAL MEETING HELD ON 27 SEPTEMBER 2005
Jet Airways: Heralding a bright future for Indian aviation
My dear shareholders,
1.First of all, may I once more extend a very warm welcome to all of you.
2.Today is another milestone in your Company's history. It is the first Annual General Meeting after the Initial Public Offering which was completed in March 2005. The IPO was 16 times oversubscribed and raised approximately Rs. 1,900 crores. Your Company is utilizing the proceeds as mentioned in the IPO prospectus and has, among other uses, repaid high cost debt.
3.I thank all shareholders for this vote of confidence in the future of your Company. I also thank all our loyal customers for the confidence that they have reposed in us. For several years now, Jet Airways has been a standard bearer in India's aviation sector. Your Company is the market leader in what is now one of the fastest growing aviation markets in the world. Over the next three to four years, your Company is poised to take advantage of promising opportunities both domestically and internationally. Your Company is determined to once again place India and Jet Airways firmly on the global aviation map.
Benefiting from a growing economy
4.Your Company wishes to express gratitude to the Government for pursuing robust economic policies that have fuelled economic progress. Growth of the aviation sector is directly related to the overall growth of the economy. In terms of purchasing power parity, India is the fourth largest economy in the world. Additionally, our country has a growing middle class which according to various estimates consists of over 300 million people with individual purchasing power of approximately Rs. 2 lakhs per year.
5.Estimates by a large number of research bodies, supported by recent data over the past few quarters, suggest that the domestic Indian aviation market will continue to grow at above 20% each year over the coming 3 to 5 years. For the year ended March 31, 2005, the Indian economy grew by over 6% while the aviation sector overall grew by nearly 25%. According to the Directorate General of Civil Aviation, there were 18.6 million total domestic passengers in India in the year ended March 31, 2005. Air travel is being propelled by rising disposable incomes, increasing propensity to travel and availability of lower fares. As India's leading domestic airline, your Company is well placed to achieve growth rates that are broadly in line with the market.
6.Your Company welcomes recent initiatives allowing private carriers, including your Company, to fly overseas. This will allow your Company to capture the substantial growth in international traffic to and from India, a market that is also expected to grow in the region of 20% each year over the coming years.
7.Your Company is delighted with the progressive liberalisation of India's aviation sector and is at the same time acutely aware that sustained growth of air transportation is essential for our country's journey towards becoming an economic power. Your Company wishes to offer thanks to the Government - both past and present - in recognizing this and for taking bold steps to address a range of issues that affect all airlines and ultimately the travelling public. Thanks also go out to the Ministry of Civil Aviation, the Director General of Civil Aviation, the Airports Authority of India and the Bureau of Civil Aviation Security for their constant support.
8.Important initiatives to support the growth of the sector have already been taken by the policy makers and we believe several more are on the anvil. The long term health and success of the aviation sector, in your Company's view, is naturally dependent on the confluence of a number of favourable factors, including:
a.continued upgradation of airport infrastructure both at the major metros and in smaller cities and towns,
b.creation of a broad pool of talented and skilled employees including pilots and engineers and
c.a supportive environment for airlines in India to manage the impact of rising fuel prices, for instance through hedging
Your Company is committed to playing a leadership role in ensuring the sustained health of India's aviation sector.
9.Let me share with you the key performance highlights for the financial year ended March 31, 2005:
10.On every measure, therefore, your Company's performance for the year ended March 31, 2005 was outstanding.
11.Your Company's results bear testimony to the success of the strategy your Company has followed since we began operations in May 1993. The key components of the strategy are:
Executing on this clear strategy has allowed your Company to stay true to the mission statement of being the most preferred domestic airline in India and the automatic first choice carrier for the travelling public.Additionally, by ensuring that your Company constantly adheres to the highest standards of corporate governance, your Company provides shareholders with assurance that your investment is in safe hands.
12.During 2004-05, your Company maintained leadership in the domestic market with an estimated market share of 42.9%.
13.During the year under review, there were two major initiatives as part of your Company's commitment to passenger delight and to service excellence.
14.First, your Company's loyalty program - Jet Privilege - was completely revamped to give members more enhanced and flexible opportunities to earn mileage with the frequency of travel as well as through increased tie-ups with other international airlines, international hotel chains and other reputed service providers. You will be delighted to know that your Company's re-launched program won recognition at the prestigious Freddie Awards, held in April 2005, where your Company competed against loyalty programs of airlines worldwide. Today your Company's membership base is over 500,000 loyal customers.
15.Second, your Company successfully implemented a program throughout the organization called - Seamless Customer Care - to make each employee fully aware of his or her role in achieving excellence in every area of service delivery to the customer.
Enthusiastically implemented by young quality champions who report to senior management, the program has reinforced your Company's commitment to quality. Together with constant analysis of customer feedback, your Company's pursuit of excellence remains relentless.
16.In recognition of high service standards, your Company received three major awards during the year under review:
Your Company won these awards for the second year running.
17.Equally important are the comments your Company receives from passengers. Your Company receives over 60,000 such feedback forms every month. 95% of passengers who fill in service trackers on-board our flights rated your Company's service "excellent" or "good". Some of the many individual compliments received have been carried in your Company's Annual Report as testimony to the efforts every employee makes to provide outstanding service.
18.You will be pleased to learn that your Company has also played a key role in promoting foreign tourism into India and domestic tourism within India. Your Company's special “Visit India” fares which provide time-restricted unlimited travel to inbound tourists have proved to be very popular.In order to cater to growing tourist numbers to the state of Rajasthan, for instance, your Company has also enhanced capacity to the state by operating larger Boeing 737 aircraft instead of the smaller ATR aircraft and also operated additional flights to Jodhpur. For domestic travellers, your Company's “Jet Escapes” holiday packages to a variety of destinations within India have been very well received. Your Company's role in promoting tourism will now be considerably enhanced with the commencement of international operations.
19.Your Company has also undertaken a number of initiatives to deliver on our deep commitment to social causes, through initiatives such as our participation in the tsunami relief operations, where we operated 18 additional flights in 5 days between Port Blair, Chennai and Kolkata to enable swift evacuation of stranded residents and tourists, and through our financial contribution to the Prime Minister's Relief Fund. Your Company's unique inflight charity collection program “Magic Box” has raised over Rs. 6 crores which has been used for improvement of education and healthcare facilities in Maharashtra, developmental activities in Kargil and pre-schools for slum children in Mumbai. In addition, your Company recently launched an inflight safety manual in Braillle for blind passengers, becoming the first airline in India to launch such an important initiative.
20.Your Company's technical service reliability was maintained at over 99%. This compares with the best in the world and is a measure of our emphasis on on-time performance and attention to safety. Your Company's safety record remains among the best in the industry worldwide.
21.I am pleased to announce that effective yesterday, your Company is now a component of the NIFTY 50 index, further affirming your Company's position as one of India's leading listed companies.
22.In the current financial year despite
The operating performance of your Company remains robust and management remains committed to delivering b earnings growth.Opportunities and challenges
23.The future opportunities for your Company lie in capturing a share of the growing market for domestic travel in India, and also a meaningful portion of the international traffic into and out of the country.There were over 18 million international passengers in the year ended March 31, 2005, a market which grew by 20% over the previous year and is expected to grow at similar rates over the coming 3-5 years.Today, 3 out of every 4 international passengers into and out of India fly on non-Indian carriers. International passenger growth is being driven by more tourism, improved economic growth and resulting business travel, by increased consumer demand for holidays and visits overseas and finally by greater affordability. By capturing a meaningful portion of this traffic, your Company expects to be able to generate significant benefits for shareholders.
24.The problems faced by airlines around the world, set against a backdrop of rising fuel prices, underscore the challenging nature of our industry. As fuel prices have climbed, the inverse relationship between fuel prices and airline stock prices has once again been demonstrated. Despite this, compared to the IPO price, your Company's shares have been steady whereas the shares of airlines elsewhere in Asia, in Europe and in the US have suffered as much as double-digit percentage declines.
In India, with the expansion of the domestic aviation market, your Company has seen the entry of new carriers, many of whom are intending to pursue a "low cost" model.
Whilst your Company welcomes competition and the stimulus that it provides in enlarging the addressable market for air travel, we must remember that in India, more than two-thirds (2/3rd) of an airline's operating expenditure such as fuel, landing & navigation charges, lease charges and maintenance costs are not dependent on the business model.
Additionally, unlike in the USA or Europe, there are no secondary airports in India. Therefore, the opportunities to offer significantly lower fares on a sustained basis and still operate profitably, is limited. Various estimates suggest that the break-even load factors for some of the new entrants in our domestic aviation sector could be in excess of 85%. This high figure is a result of their unsustainably low fares, which bear little resemblance to actual costs that they are incurring, as well as to their salary levels in order for them to be able to successfully draw trained and experienced staff away from the incumbent airlines. Furthermore, as new entrants have much lower critical mass, they have more limited access to better pricing on purchased goods and services.
Jet Airways is well placed to obtain a meaningful share of the expanding market for air travel in India by continuing to offer a high quality product that offers outstanding value to our passengers. Your Company's efficient operations will ensure that we achieve sustained profitability through improved productivity and effective control of our unit costs.
In our view, in order to achieve economically feasible operations in the Indian market, the focus on a model such as the one followed by your Company, is essential. Your Company is committed to being a high quality full-service airline, while continuing to drive down unit costs.
25.Your Company also believes that the long term health of India's aviation sector depends on a number of factors, including the continuing upgradation of airport infrastructure the availability of trained manpower in sufficient numbers so that airlines can grow together and better serve the fast-growing passenger base and the ability of domestic airlines to ensure a disciplined control on costs.
26.With regard to airport infrastructure, your Company is pleased with the progress on the domestic terminal in Mumbai as well as the progress on the modernization of the international airports in Mumbai and New Delhi. Projects in Bangalore and Hyderabad are making good progress and your Company looks forward to the implementation of similar initiatives at other airports across India. This is clearly a priority, because, without the proper infrastructure in place, the projections for high growth in the domestic aviation sector may never be achieved. Your Company is already seeing the greater incidence of delays in flight schedules, resulting from more congestion in the air at the major metros as well as the underdeveloped infrastructure on the ground. This is a situation that Air Traffic Control has to contend with on a daily basis due to shortage of equipment and personnel and we thank them for their hard work round-the-clock to satisfactorily resolve this issue.
27.There is clearly a shortage of trained and skilled manpower in the aviation sector as a consequence of which we are seeing unhealthy competition for employees within India that is driving wages to unsustainable levels. Instead, by supporting the development of training schools across the country and sourcing available pilots and engineers from outside the Indian market as your Company is already doing, airlines can achieve outcomes that provide a large and steady stream of new employees in a manner that can be both cost efficient and conducive to profitable long term growth. In order to retain employees and better align their interests with those of shareholders, your Company expects to shortly implement an employee stock ownership program.
28.Finally, with fuel today accounting for over a third of an airline's operating costs, your Company would be encouraged to see initiatives that provide an environment for the airlines to control this line item, through for instance hedging their fuel requirements. Your Company's view is that this will go a long way toward ensuring rational pricing and healthy financial profits in the long term for all airlines.
29.During the year under review, your Company fully implemented a state-of-the-art Yield Management System. The system enables us to implement a dynamic pricing policy, depending on the available capacity on each flight, with a view to neutralizing the effects of lower yields by maximizing revenues per flight. Your Company is already seeing the positive results of this yield management system as we measure our passenger numbers and load factors against the new entrants in the domestic sector. Your Company will continue to leverage this system to maintain market leadership.
30.Your Company will additionally enhance market leadership and reduce costs through greater use of on-line bookings which was introduced in April 2004. The results of a recent promotion that your Company has launched to expand on-line sales have been encouraging, with the number of bookings on our online booking website doubling within a few days.
31.The final component of your Company's strategy to maintain leadership in the domestic market is to induct additional capacity on key domestic routes. The Boeing 737 Next Generation aircraft will remain the mainstay of your Company's domestic operations. Your Company has ordered ten new such aircraft scheduled for delivery between March 2006 and October 2007. Your Company will additionally lease 3 Boeing 737 Next Generation aircraft to support domestic operations.
32.Expanding operations internationally is a natural extension of your Company's strategy, since your Company already has one of the most comprehensive networks of any airline in India. Your Company commenced operations to Kathmandu in fiscal 2005, following the commencement of flights to Colombo in March 2004. More recently, your Company has commenced flights to Singapore, Kuala Lumpur and London Heathrow. Your Company's international operations have been well received and passenger load factors have generally exceeded expectations.
33.With regard to proposed operations to the US, your Company has already been designated by the Government of India and your Company's operating permit has been endorsed. In response to the baseless allegations that have been made against your Company in the US and the subsequent queries raised by the US Department of Transportation to the US Embassy in New Delhi, the Ministry of Civil Aviation has already submitted their favourable recommendation, which is being processed by the Ministry of External Affairs as per standard procedure. Your Company has fulfilled all remaining requirements for the US Department of Transportation approval. As per advice received from US legal counsel, your Company expects to receive US Department of Transportation approval shortly.
34.In the meantime, in order to maximise the utilisation and minimise the financial burden of the 3 A-340 widebody aircraft that your Company leased for the UK and proposed US operations, your Company entered into short-term sub-leases initially with Air India and more recently with Gulf Air. Your Company will also be launching a second service to London Heathrow from New Delhi at the end of October, which will allow your Company to further enhance utilisation of the A-340 fleet.
35.International operations form a significant part of your Company's future plans. With the continued robust growth of international air travel out of and into India, your Company is well placed to seize the opportunities pursuant to private sector domestic carriers being permitted to fly beyond domestic borders. Your Company's international operations will be supported by the reputation your Company already enjoys worldwide and the exceptional commitment of highly motivated and skilled management and staff.
36.To meet the needs of your Company's future international growth, orders have been placed for 10 Airbus-330 aircraft – of the 200 and 300 type - to meet the needs for Asian, African and European destinations and for 10 Boeing-777 aircraft for longer haul destinations including the United Kingdom and the United States. Your Company will additionally lease 2 new Airbus-330 aircraft for international operations. Your Company is confident that continuing high GDP growth in India, rising disposable incomes and growth in inbound and outbound tourism bode well for the continued success of your Company's international operations.
37.Your Company is currently evaluating financing opportunities in relation to the expansion of the fleet. Furthermore, as your Company is at a positive inflection point in its growth, your Company will follow a conservative dividend policy that allows your Company to retain and re-invest a substantial portion of our cash flow into growing your Company's core operations.
38.In closing, I would like to express our gratitude to the various banks, financial institutions, US Exim Bank and lessors of our aircraft for their continued support, to the Boeing Corporation, ATR, Airbus Industrie and CFM International, for their help and guidance with regard to our present and future fleet and to insurance providers for their support. Thanks are also due to all our suppliers of material and services, many of whom have become important stakeholders in your Company's future. Please also join me in thanking our employees, each of whom works tirelessly to ensure the success and growth of your Company. To give you an example of their commitment, during the recent floods in Mumbai, many of our employees worked tirelessly for 72 hours and more at a stretch without going home to their families, demonstrating exemplary sacrifice and dedication to passengers.
39.I look forward to your continued support and patronage as your Company enters an exciting and challenging - and I am sure rewarding - period ahead in the Spirit of New India.
© Jet Airways (India) Ltd.