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Jet Airways posts loss on fuel costs, low fares

Jet Airways posts loss on fuel costs, low fares
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First Published: Sat, Jul 23 2011. 12 21 AM IST
Updated: Sat, Jul 23 2011. 12 21 AM IST
Mumbai: Jet Airways (India) Ltd, the country’s largest airline by number of passengers carried, slipped into a loss in the June quarter from a year-ago profit, owing to high jet fuel costs and the market shifting toward low-fare travel.
The carrier made a loss of Rs 123.16 crore in the three months to June, compared to a profit of Rs 3.52 crore in the year earlier. The June quarter is considered the second best for local airlines, next to the October-December period.
Sales rose 20.9% to Rs 3,320.93 crore, while jet fuel expenses shot up 57% to Rs 1,563.69 crore.
The loss was less than the Rs 281.75 crore estimate in a Bloomberg survey, pushing up the stock 2.36% to Rs 499.05 on the Bombay Stock Exchange on Friday. The benchmark Sensex rose 1.55% to 18,722.30.
Airlines are adopting a low-cost structure to stay afloat, said Vishwas Udgirkar, senior director and partner, Deloitte Touche Tohmatsu India Pvt. Ltd.
“The line between full-service carriers and low-fare carriers is getting thinner. As corporate travel moved to low-fare carriers during the economic slowdown in 2008, the pattern of Indian travel has changed,”Udgirkar said. “India is getting closer to the European market where the best airlines are low-fare carriers.”
The airline said in its annual report that it continues to monitor costs along with effective route rationalization.
“Jet Airways has been successful in using Jet Airways Konnect as a swing product, whereby we are able to switch from full service to Jet Airways Konnect and vice versa based on market requirements,” the report said.
Konnect is the no-frills, all-economy service of Jet Airways, with which it shares planes and personnel. Besides Konnect, it also operates a low fare unit JetLite (India) Ltd.
The airline is also adopting at least one low-fare carrier strategy to boost revenue without adding to costs—it may squeeze in more seats on planes. Besides this, Jet will add more flights to lucrative West Asian destinations. It will also use the Boeing 777 rather than the smaller Airbus 330 on long-haul routes.
India is a value-conscious market, said Neil Mills, chief executive of SpiceJet Ltd, the country’s second-largest low-fare airline. “In Europe, sheer volume has been created by low-fare carriers and India was a little behind. Now, India is catching up.”
He also said that one of the full-service carriers was dropping prices, forcing even low-fare carriers to reduce rates. He did not mention the name of the airline. Air India Ltd has dropped fares by 20% to win back passengers after a pilot strike in early May disrupted schedules.
Airlines tried to increase yields in April by avoiding discounts but this led to demand declining. In May and June, pricing was impacted by two big carriers dropping fare levels below costs, which eventually led to lower prices all round, Jet Airways said in a statement. It didn’t name the two carriers.
“Our higher bucket fares are not fetching the desirable demand and hence the yields are going down,” said a senior Jet Airways executive.
The company’s performance was better than expected mainly because of its international operations, said Mahantesh Sabarad, an analyst with domestic brokerage Fortune Equity Brokers (India) Ltd.
The other two listed Indian carriers are also expected to post losses. According to Bloomberg estimates, Kingfisher Airlines Ltd is expected to post a loss of Rs 377.3 crore and SpiceJet is seen making a loss of Rs 55.94 crore.
The outlook for the September quarter doesn’t reflect much of an improvement. Jet expects pricing trends to continue, putting pressure on yields in what already is the weakest quarter of the year.
“According to the Directorate General of Civil Aviation, the Indian domestic traffic for the year continued to show an impressive growth rate of 21%, thereby expanding the available air traffic market base of the country,” Jet chairman Naresh Goyal said in a letter to shareholders. “The growth, however, has occurred largely in the lower end of the price range. As a result, the company and industry have not been able to derive significant benefit in financial terms.”
The numbers reflect this. The seat occupancy required for profitable operations for Jet Airways went up to 86% in the June quarter against 80% in the year earlier.
JetLite also reported a Rs 5.2 crore loss in the quarter.
pr.sanjai@livemint.com
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First Published: Sat, Jul 23 2011. 12 21 AM IST