*Sources: DTN News / The Wall Street Journal By Daniel Michaels
(NSI News Source Info) NEW YORK - July 2, 2009: Running an airline is a reliable way to lose money. The turbulent ride of India's Jet Airways shows why.
Naresh Goyal shook up Indian aviation when he founded Jet in 1992. With punctual flights, new planes and friendly service, Jet was the first carrier here to truly modernize air travel.
Jet controlled nearly half the domestic market by early this decade, with most of the rest going to state-owned Indian Airlines. In Jet's 2004 fiscal year, as many of the world's carriers were still recovering from the Sept. 11 terrorist attacks on the U.S., it outpaced the industry with net profits of $33 million. Jet's initial public offering, in 2005, valued Mr. Goyal's 80% stake at $2 billion. Now, Jet is scrambling to stay aloft.
Low fares from no-frills competitors ravaged revenue. Staff costs soared as rivals poached pilots and mechanics. Airport congestion in India made for a logistical nightmare -- forcing Jet to open an international hub 4,000 miles from home, in Brussels. Amid a glut of capacity, Jet's market share slid from a high of almost 49% in 2003 to roughly 25% this year.
The airline started posting sharp losses in late 2007. Jet eked out a net profit in its latest quarter by selling assets, slashing costs and booking tax credits, but the outlook remains tough.
"It's been hard," said Mr. Goyal, the 59-year-old founder, in an interview at his $15 million London townhouse. "We were making so much money, and now we're losing money."
The carrier's woes began as India's economy boomed in 2005, thus highlighting a broader problem for the global airline sector: Even in good times, the industry struggles to generate sustainable profits.
U.S. carriers have lost billions of dollars in recent decades despite soaring passenger numbers. Jet Airways has similarly struggled to capitalize on growth as it got squeezed between uncontrollable costs and increasingly unfettered competition.
Jet's slide can be traced to a sea change in the global aviation business. Deregulation, the rise of Internet ticket sales and other factors have made it easier than ever for upstarts to challenge bigger, established carriers.
In India, where state-run carriers and government policies stymied air travel for decades, the sudden transition proved tumultuous. Last year was particularly rough. The airline business floundered as fuel prices surged, the credit crunch hit and world-wide travel plunged.
Jet is reacting by cutting staff, closing offices around Asia and reducing flight frequencies. Searching for profitable routes, Jet recently took planes from India's crowded domestic market and expanded service to Dubai. It soon plans to start flying to Saudi Arabia.
A Jet flight attendant inside the business-class cabin of a Boeing 777-300ER aircraft on display at Chatrapati Shivaji International Airport in Mumbai, in May 2007.
Mr. Goyal cut his teeth in the airline business by working -- and sleeping -- at his uncle's New Delhi travel agency while he was an 18-year-old student. Seven years later, in 1974, he started his own agency, bankrolled by personal savings and a gold bracelet of his mother's that he pawned. As the Indian sales agent for overseas carriers including Air France and Hong Kong's Cathay Pacific Airways Ltd., he learned the ins and outs of upscale air travel.
Jet was one of several carriers launched after India began deregulating domestic aviation in 1991, and initial competition was fierce. Jet survived as rivals failed, thanks in part to Mr. Goyal's longstanding links to foreign carriers with which Jet cooperated to fly international passengers.
Although Indian law had granted state-owned Air India a monopoly on foreign flights since 1953, Mr. Goyal prepared for the day that Jet would be allowed to extend its network overseas. He entertained politicians, aviation officials and travel professionals in his London townhouse overlooking tony Regents Park. "I was convinced one day India would have to open up," he says. Anticipating the change, Mr. Goyal focused on creating a passenger experience to rival the world's best carriers. He poured tens of millions of dollars into cabin entertainment systems, ergonomic seats and staff training.
He also turned the trend of outsourcing to India on its head by hiring American pilots, recruiting managers from leading Asian and European carriers, and unabashedly aping the innovations of up-market trailblazing airlines such as Singapore Airlines Ltd.
"Naresh Goyal's policy of hiring expats broke the mold in India -- he was a pioneer," says Craig Jenks, president of Airline/Aircraft Projects, a global aviation consulting firm in New York.
In 2004, India allowed private airlines to fly overseas. Mr. Goyal jumped at the opportunity. He ordered 10 Boeing 777s, and fitted the first-class cabins with spacious private compartments modeled after those created by Dubai's upscale Emirates Airline. Jet's initial public offering in 2005 was 16-times oversubscribed amid national enthusiasm for the airline and its whole industry.
Jet Airways India Chairman Naresh Goyal, above, celebrates the carrier's new European hub at Zaventem Airport in Brussels in May 2007.
But Jet's success also spawned competition. Vijay Mallya, chairman of Indian brewing and distilling giant United Breweries (Holding) Ltd., launched upscale Kingfisher Airlines. It was meant to double as a flying promotion for his top beer brand, Kingfisher.
A tiny upstart launched in 2003, Air Deccan, proved even more damaging to Jet. Copying the no-frills approach pioneered by Southwest Airlines Co., it served secondary cities that Jet didn't touch. Deccan opened a floodgate by showing the low-cost model could work in India. In 2005, a group of entrepreneurs started a similar low-cost carrier, SpiceJet Ltd. That same year, a major Indian travel-services company started its own budget carrier, IndiGo.
Mr. Goyal fought back by acquiring no-frills competitor Air Sahara, which he rebranded as JetLite.
Indian carriers grabbed the spotlight at the 2005 Paris Air Show, the aviation sector's big industry event. There, they announced orders for planes valued at more than $15 billion. IndiGo ordered 100 Airbus airliners even before it secured government permission to start flying. Although Kingfisher had only been flying for two months, Mr. Mallya splashed out by ordering five Airbus A380 superjumbos, the world's largest passenger planes.
India's growing middle class was helping tug the global aviation industry from its post-9/11 slump. "Everyone is talking about China," observed Airbus Chief Operating Officer John Leahy at the Paris Air Show that year. "But the biggest growth story we see is India."
Foreign investors, financiers and leasing companies, all hungry for new markets, raced to bankroll India's breakneck airline expansion. Indians who had long squeezed onto wheezing, sweaty trains began jetting about the country.
Jet soon faced another hurdle: India's outdated aviation infrastructure clogged up. Air-traffic delays added 10% to flight times and cost $80 million in wasted fuel during 2006, Jet executives said, and things were getting worse. "The average 70-minute domestic flight spends another 35 minutes circling," Mr. Goyal complained last spring.
The lack of modern aircraft-maintenance facilities in India forced Jet to send planes overseas for routine upkeep, adding millions of dollars to its bills. The cost of retaining veteran mechanics, flight attendants and pilots soared as new rivals poached qualified staff.
Even Jet's budget subsidiary, JetLite, and other no-frills carriers struggled. "There are no low-cost airlines in India, only low-fare, no-profit carriers," Mr. Goyal said at a Jet media gathering in 2007.
Yet Indian carriers kept chasing market share by slashing fares and adding planes, even as losses ballooned.
By last June, Mr. Goyal saw that competition had made business untenable. "We're all in trouble," he lamented at an industry conference, saying each domestic carrier should slash capacity by 30%. Kingfisher's Mr. Mallya scoffed that Mr. Goyal "doesn't know how to do math."
But Kingfisher was losing so much money that it soon canceled airplane orders and new routes vital to its overseas expansion. In a sign of the industry's distress, the bitter rivals last October announced an alliance to share airport facilities, coordinate schedules and reduce capacity. The deal still faces regulatory approval.
Mr. Goyal had enjoyed a major edge over rivals in one key battleground: overseas flights. Indian deregulation in 2004 opened up international routes only to private carriers that had flown domestically for at least five years. Jet's experience allowed Mr. Goyal to move first, launching flights to Singapore, London and Kuala Lumpur in 2005.
Jet quickly grabbed traffic from state-owned Air India, which had struggled to compete globally due to its poor service. Wealthy Indians who had preferred foreign carriers such as British Airways PLC were glad to have a local alternative.
Ajit Balakrishnan, founder of India's largest Internet portal, says Jet staff "deliver a superb product" on the domestic flights he takes weekly from Mumbai, and so he jumped at the chance to fly Jet overseas. The 60-year-old veteran advertising executive often books on Jet, which began offering service to New York-area airports in August of 2007. He recommends Jet to foreign friends for its "modern luxury."
But Mr. Goyal's intercontinental ambitions faced huge obstacles at India's overtaxed airports. Flights from India to the U.S. or Europe require big planes to carry sufficient fuel, and big planes need lots of passengers to run profitably.
In mature markets, airlines generally fill long-haul flights with traffic from many smaller planes arriving at a hub for connections. To coordinate this, airlines need lots of boarding gates, airplane parking spots and runways slots. India's major airports lacked all of them.
Anxious to expand, Mr. Goyal hit on an unlikely option during a state visit to India by the King of Belgium in 2005: using the Brussels airport as a hub for North American-bound flights. The facility had sat largely empty since the collapse of national carrier Sabena four years earlier. Talks with Belgian officials at Mumbai's luxurious Taj hotel quickly yielded an action plan.
"It was a proper business meeting with an agenda," recalls Mr. Goyal, who was more accustomed to India's glacial bureaucracy.
Winning regulatory approval for the unusual arrangement from Belgium and the U.S. took months, but by late 2007, Jet's wide-body airliners were arriving in Brussels each morning from Delhi, Mumbai and Chennai, mixing passengers and departing again for New York's JFK International Airport, Newark Liberty Airport and Toronto. Another three planes did the same trip in reverse.
The four-hour Brussels stopover lengthens passengers' trip time compared with a nonstop flight. It also forces Jet to move hundreds of passengers and their bags quickly through a foreign airport at great expense. But thanks to close cooperation with the privately owned airport, which was hungry for business, Jet was able to offer nine different connections between Indian and North American airports, compared with only three connections possible with nonstop flights.
But as fuel prices rose in 2008 and America's financial problems rippled to India's outsourcing operations, Jet flights through Brussels grew emptier. Costs rose. Only weeks after adding a seventh Brussels flight last Oct. 31, from Bangalore, Jet reversed course on Nov. 25 and canceled the route, citing economic turmoil. Jet now serves 60 destinations, including 19 outside India.
"The crisis has forced us to look much more closely at costs," Mr. Goyal said at his London mansion.
Mr. Goyal says he remains committed to Brussels and predicts the North American operation will break even this summer. But many rivals doubt the long-term viability of a hub so far from home. "It doesn't work," says Pierre-Henri Gourgeon, chief executive of Air France-KLM SA, which operates huge hubs in Paris and Amsterdam. Successful hubs rely on big traffic volumes, which Jet cannot guarantee, he says.
Mr. Goyal says falling Indian wages now give him a leg up, because labor accounts for only around 15% of Jet's costs, compared with more than 20% for most Western carriers. Still, he says Jet will refocus on cutting costs and expanding in less-competitive markets of Bangladesh, Nepal and Sri Lanka.
"I want to learn how to buy my insurance for the next four years," Mr. Goyal said of his efforts to protect Jet. "I'm the biggest shareholder, so I suffer the most."
Write to Daniel Michaels at
daniel.michaels@wsj.com 
US Marines from the 2nd Battalion, 8th Marine Regiment of the 2nd Marine Expeditionary Brigade wait to get onto a helicopter as part of Operation Khanjar at Camp Dwyer in Helmand Province in Afghanistan on July 2, 2009. US Marines launched a major offensive into the Taliban heartlands of southern Afghanistan before dawn as President Barack Obama's new war plan swung into action. With dozens of aircraft ferrying out troops from various bases, the assault aimed to insert forces into insurgent strongholds in Helmand province in what officers said was the biggest offensive airlift by the Marines since Vietnam. Operation Khanjar (Strike of the Sword), involving nearly 4,000 US forces as well as 650 Afghan police and soldiers, would bring security to the Helmand River valley ahead of presidential elections on August 20, commanders aid.
Helicopters and heavy transport vehicles carried out the advance, with Nato planes providing air cover. UK-led forces in Helmand launched their own operation to combat the Taliban insurgency last week, in what the Ministry of Defence described as one of the largest air operations in modern times.
Thousands of British forces under Nato command have been fighting the Taliban in Helmand since 2006, but there has been criticism that they have been overstretched and under-resourced.
Security aim
Southern Afghanistan is considered a Taliban stronghold.
The security forces will build bases to provide security for the local people so that they can carry out every activity with this favourable background, and take their lives forward in peace
Gulab MangalHelmand Governor
"Where we go we will stay, and where we stay, we will hold, build and work toward transition of all security responsibilities to Afghan forces," said Brig Gen Nicholson in a statement.
At a briefing at the US military's Camp Leatherneck last week, he told personnel and embedded reporters: "One of the most critical things is to tell people why we're there, and we are going to have a limited opportunity to gain their trust."
The operation would have an initial highly aggressive stage lasting 36 hours, AFP news agency reported.
It aims to improve security ahead of presidential elections on 20 August, allowing voter registration where before there was none, Gen Nicholson said. 
US Marines from 2nd Battalion, 8 Marine Regiment of 2nd Marine Expeditionary Brigade wait to board helicopters as they leave to take part in Operation Khanjar - Strike of the Sword - at Camp Dwyer in Helmand Province on July 2, 2009. US Marines launched a major offensive into the Taliban heartlands of southern Afghanistan early on July 2 as President Barack Obama's new war plan swung into action. Operation Khanjar involved nearly 4,000 US forces as well as 650 Afghan police and soldiers, the Marine Expeditionary Brigade said, announcing the pre-dawn launch of the drive in southern Helmand province.
A US military spokesman, Captain William Pelletier, told the BBC there had been "no enemy contact" in the first hours of the operation, but one marine was slightly injured when an improvised explosive device detonated in the village of Nawa.
Nawa and nearby Garmsir - south of the provincial capital Lashkar Gah - are key targets in the operation, as the area is considered a refuge for militants and no US or Nato troops have previously operated there in large numbers.
Capt Pelletier said the US military was prepared for casualties, but stressed that "it is absolutely essential that no civilians be harmed".
Helmand Governor Gulab Mangal predicted the operation would be "very effective".
"The security forces will build bases to provide security for the local people so that they can carry out every activity with this favourable background, and take their lives forward in peace."
Troop numbers
I am convinced that the addition of those [US] troops is going to improve the security situation
General Jim Dutton Commander of UK forces.
As of June 2009, Nato's International Security Assistance Force had 61,130 personnel from 42 countries including the US, Canada, European countries, Australia, Jordan and New Zealand.
The US is the largest contributor, providing 28,850 soldiers.
It also has troops under Operation Enduring Freedom - mostly in the east of Afghanistan on the border with Pakistan - that are not under Isaf's command.
In December 2008 they numbered 17,100.
President Obama has pledged to send an additional 21,000 extra soldiers to Afghanistan, many of them redeployed from operations in Iraq, to help with training Afghan security forces and to tackle the insurgency.
Last week the commander of UK troops in Afghanistan, General Jim Dutton, denied that the battle against the Taliban was "a losing campaign".
Gen Dutton welcomed the planned increase in US troop numbers.
"I am convinced that the addition of those [US] troops is going to improve the security situation," he said.
