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Jet Airways should strengthen its Brussels hub, not shift to Munich

Editor’s note: This is Part 1 in a series of analyses answering the question: “What should Jet Airways do with its international operations?” Parts 2 and 3 will cover the idea of a Mumbai hub and the fate of Jet’s 777-300ER fleet.

Photo courtesy Jet Airways

Late last week, a report emerged from the Economic Times of India that India’s largest private airline, Jet Airways, was considering a shift of its scissors-hub operation for flights to North America from Brussels to Munich. While questions have arisen about the factuality of the report, the combination of such rumours and the fact that Jet Airways recently applied for 35 weekly frequencies between India and Germany lends credence to the idea that Jet might actually consider such a move.

While Munich would appear to have a larger origin and destination (OD) market with North America and India, Brussels has the edge to North America. Munich, lying close to the automotive heartland of Germany, and virtually all German automotive majors having a presence in India, has the traffic to and from India, it is also a full-fledged hub for Star Alliance member and global behemoth Lufthansa, who operates more than 250 flights per day in Munich. Supposedly, the shift in scissors operation would be in conjunction with Jet Airways’ entry into the Star Alliance global partnership of airlines.

However, it is doubtful that Jet Airways will be allowed entry into Star Alliance unimpeded. In August 2011, Air India’s long touted entrance into Star Alliance was delayed indefinitely, due to a variety of operational, financial, and service issues. However, reports that have emerged since that time give indication that one of the sticking points on Air India’s entry was that the Star Alliance insisted on the condition that Jet Airways be allowed to join the alliance simultaneously (listen to podcast here). Whether or not these reports are true, India’s government has taken a provocative stance, and is unlikely to allow the induction of Jet Airways without significant concessions from the alliance.

Regardless, there is a scenario under which a scissors hub in Munich just might be viable. The most important step for Jet Airways would be to secure antitrust immunity (ATI) and/or a joint venture with Lufthansa. This would allow the two airlines to coordinate on schedules, pricing, and service, as well as (most importantly) sharing costs and profits. Once this profit sharing plan is in place, it incentivises Lufthansa to slot Jet Airways’ flights into its current hub.

With that in mind, the potential exists for Jet Airways to integrate its scissors hub operations into the current Lufthansa hub structure at Munich. The current departure timings to North America from Munich are as follows (including Lufthansa’s partner airlines):

Newark: 0920 (United), Charlotte: 1125 (Lufthansa), Washington DC Dulles: 1140 (United), New York JFK: 1145 (Lufthansa), Toronto: 1150 (Air Canada), Philadelphia: 1215 (US Air), Chicago: 1235 (United), Newark: 1530 (Lufthansa), Chicago: 1535 (Lufthansa), Montreal: 1540 (Lufthansa), Los Angeles: 1545 (Lufthansa), Boston: 1555 (Lufthansa), Washington DC Dulles: 1555 (Lufthansa), San Francisco: 1605 (Lufthansa)

Current India operations are timed to arrive in the morning (from Mumbai) and around noon (from Delhi)

Currently, Jet Airways operates three sectors in each direction of Brussels; three to and from India – Mumbai, Delhi and Chennai and three to and from North America – Newark, New York JFK, and Toronto.

Under this hypothetical scenario, there is one potential path for Jet to follow. Their long haul flights should be integrated into Lufthansa’s afternoon departure bank and timed between 3:45 and 4:15 pm. Under this scenario, there would be overlap between Jet’s EWR service and Lufthansa’s, so the carrier would instead pair Mumbai service with Miami on a daily A330-200 service Mumbai-Munich-Miami. The Mumbai-Miami leg has more than 40,000 OD passengers per annum, the Munich-Miami leg has close to 50,000 OD passengers per annum, and the Mumbai-Munich leg has around 25,000 OD passengers per annum, for a sum OD of close to 115,000 passengers per annum. A daily A330-200 represents roughly 160,000 seats per annum, so when combined with new connections enabled by Lufthansa’s hub, the flight could be adequately filled.

Delhi-New York JFK and Chennai-Toronto services could be continued by simply substituting a Munich stop for the Brussels one once again retaining the usage of an A330-200. Finally, a Bangalore-Munich-Houston routing with A330-200 could be used to connect two Star Alliance hubs and feed Bangalore into the scissors hub. This routing would be more heavily dependent on connecting traffic from Lufthansa, and on connections with Latin America in Houston. All of these flights would be timed to arrive between 12 and 1 (with late morning departures from the Indian airports allowing for connections from other Indian cities).

Return flights for the 8 segments would work similarly, with early afternoon departures from the US (2pm~4 pm). Return flights would arrive in Europe in the early morning (6am~7 am), as do most trans-Atlantic flights, and then a departure bank back to India would leave around 9am~10 am.

This series of flights would maximise loads and utilisation of Jet’s flights thanks to the improved connections, especially on the long haul connections to the US which will improve the overall flight potential.

However, despite this potential viability, we feel instead that Jet Airways should maintain its scissors hub operation in Brussels, for a couple of important reasons.

The first is that OD between India and Brussels is more plentiful than to Munich, (roughly 140,000 annual passengers versus around 85,000 annual passengers) though Munich traffic is higher yielding. But even more importantly, OD traffic between Brussels and the US is more plentiful than from Munich (700,000 annual OD versus 600,000 – both estimated figures), and higher yielding. High-yield OD is critical to the profitability of long haul flights.

Secondly, Jet Airways has already built up significant loyalty in the Brussels-North America market, which is equally critical for the viability of these flights. Moving to Munich will mean that they would have to once again start from scratch in building customer loyalty, which is likely to be retained by Lufthansa anyway.

If Jet Airways can get a joint venture with Lufthansa in spite of the Air India-Star Alliance fiasco, then they can just as easily get a JV with Brussels based Brussels Airlines (with whom they already have a code-share agreement), who did not have as direct of a role in Air India’s deferral as Lufthansa, who sponsored the Indian national carrier’s entry into the alliance.

Once this JV is in hand, Jet Airways could proceed as follows. Brussels Airlines is already starting a daily Brussels-New York JFK flight to connect into their own African network, so with a JV, Jet could drop the Brussels-JFK segment of their flight from Delhi, and instead replace it with Chicago O’Hare (while Brussels-New York is a larger market, it also has much more competition). This route would continue to be served with an Airbus A330-200, while Mumbai-Brussels-Newark and Chennai-Brussels-Toronto will continue with their current equipment. Additionally, Bangalore-Brussels-San Francisco would be added daily using A330-200s.

While Bangalore-Brussels OD demand is very small, at just over 7,000 passengers per annum, there is a huge and well documented high-yielding OD demand between Bangalore and San Francisco (73,000 passengers per year) thanks to IT industry links, while Brussels-San Francisco is also a large market (57,000 passengers per year). This cumulative passenger base of 130,000 passengers should be more than enough (along with connections from both Jet Airways and Brussels Airlines short haul networks) to fill daily A330-200 flights on the 258 seat variant, or even 777-300ER of current configuration (it would provide for optimal utilisation of the 777-300ER fleet as one of few routes with huge high yielding OD traffic base).

Longer term, a second daily flight Mumbai-Brussels-Miami (50,000 passengers per annum Mumbai-Miami – 53,000 passengers per annum Brussels Miami) with low density A330-200, as well as a four times per week flight Delhi-Brussels-Vancouver (120,000 passengers per annum Delhi-Vancouver, 15-40 thousand passengers annually between Brussels and Western Canada) using a high density A330-300 (more on this in another part). Finally, a three times per week Chennai-Brussels-Los Angeles could be run with the same high density A330-300 to tap into the large OD market Chennai-Los Angeles (more than 15,000 passengers per annum) as well as Brussels-Los Angeles (69,000 OD passengers per year).

The aforementioned changes will allow Jet Airways to continue to grow critical mass at Brussels, and win an ever increasing share

So to summarise, here is our proposed structure of Jet Airways’ scissors hub in Brussels.

Near-term (within 1 year of writing):

Delhi-Brussels-Chicago O’hare: daily: A332
Mumbai-Brussels-Newark: daily: B77W
Chennai-Brussels-Toronto: daily: A332
Bangalore-Brussels-San Francisco: daily: A332 or B77W

Long-term (within 3-5 years of writing)

Delhi-Brussels-Vancouver: 4/week: A332
Chennai-Brussels-Los Angeles: 3/week: A332
Mumbai-Brussels-Miami: daily: A332

Map generated courtesy GCMap

About Vinay Bhaskara

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