Since I assumed my new role in Jet Airways, I have heard two things repeatedly, 'Full-service carriers (FSCs) are doomed to failure,' and 'A bankrupt airline cannot be revived and create value.' Those saying this point out that no airline in India has ever been able to revive after shutting operations. Bankruptcy, so far, has been a one-way street.
But, according to a recent McKinsey paper, 7 of the top 10 value-creating airlines in terms of cumulative economic profit - profit over the cost of capital - in 2012-19 were FSCs, and 4 of these 7 were FSCs that had undergone bankruptcy restructuring in the preceding period. These four generated $29 billion in cumulative economic profit post-bankruptcy over this period.
It would be helpful to define what makes an airline an FSC. It is not whether you serve free meals or not. It is:
Offering a choice of cabin classes.
A fleet that allows a mix of short- and long-haul routes, typically using a connecting hub-and-spoke model.
The existence of a frequent-flyer programme.
A presence on global distribution systems.
FSCs typically offer all of this, while low-cost carriers (LCCs) usually do not (although this line is getting blurred over time).
If we take a closer look at India, we see that no airline - FSC or LCC - has made a profit since 2019, and very few have ever made economic profit. Of course the pandemic came in the way in 2020-21. But in the last year or so, several major airlines across the world have returned to record profitability, while Indian carriers continue to suffer huge losses.
Read more at: https://economictimes.indiatimes.com/opinion/et-commentary/what-indian-carriers-need-to-learn-from-profitable-global-peers-that-found-the-winning-formula/articleshow/95985200.cms