Jet-Etihad deal

How Jet Airways (India) Ltd’s frequent flyer programme played a big role in the Jet-Etihad deal.

The Situation

In May 2012, Jet Airways (India) Ltd, then the country’s largest airline by passengers flown, reported a fifth straight quarterly loss and total debt that had ballooned to $2.5 billion. Jet Airways was struggling to stay afloat and looking for sources of ancillary revenue.

The Big Idea

Jet Airways runs a frequent flyer programme, JetPrivilege (JP), through which members can earn and redeem JP miles. The programme was managed and operated in-house. But Jet Airways’ senior management spotted a potential winner in the JP programme when in December United Arab Emirates-based Etihad Airways PJSC acquired control of Air Berlin Plc.’s frequent flyer programme for $240 million. Etihad holds a 29% stake in Air Berlin.

The Implementation

Jet Airways decided to leverage the evolving business by setting up a marketing services company as a 100% subsidiary and transferring the JetPrivilege programme to it. In the process, the JetPrivilege programme would be transformed into a larger, retail-based coalition loyalty programme.

Jet forged alliances with magazines (Magzter.com, Fine Wine and Champagne India, Filmfare, Femina,Lonely Planet, India Today and Top Gear), cab companies (EasyCabs, Jetfleet), retail companies (Raymond Ltd), and hospitality companies (Fairmont Hotels and Resorts) to get greater visibility for the JP programme.

The Management Payoff

The big announcement came shortly. On 24 April, Etihad Airways agreed to subscribe to 27 million new shares in Jet Airways at Rs.754.74 apiece. The value of this equity investment is $379 million, resulting in Etihad Airways taking 24% of the enlarged share capital of Jet Airways.

Apart from this, Etihad agreed to invest $150 million for a 50% stake in Jet Airways’ frequent flyer program JetPrivilege, subject to regulatory and corporate approvals and final commercial agreements that are expected to be completed in six months.