New Delhi: India’s biggest airline by passengers, Jet Airways (India) Ltd, is better placed to weather the current slump in aviation than its closest private sector rival Kingfisher Airlines Ltd, analysts said.
To recover costs in the first half of the current fiscal year to March, Kingfisher needed to fill 96% of seats on its domestic flights, compared with 82% for Jet, said a report by financial services firm CLSA Asia-Pacific Markets released on Thursday.
Also See Comparison between Jet and Kingfisher (Graphic)
Kingfisher and Jet—which together make up for 60% of the passenger market share in India—only managed to fill 60% and 68%, respectively, of their seating capacity from 1 April to 30 September, according to averages calculated by Mint on official data.
Indian aviation is facing difficult times as passenger numbers are declining on the back of an economic slowdown.
Jet reported losses of Rs236.18 crore and Kingfisher posted Rs626 crore in losses for the three months to December, pushing their balance sheets further into the red.
CLSA analysts Anirudha Dutta and Prakhar Sharma said in the report that they believed “Jet is in a much stronger position to weather these turbulent times,” when compared with Kingfisher.
Their conclusions were based on the fact that in the first half of this fiscal, Jet’s domestic revenues were 37% higher and profitability was superior to Kingfisher due to a higher share of full-service carrier operations, while the higher proportion of low-cost operations in Kingfisher’s operations dragged it down.
Full-service carriers typically provide frills such as on-board entertainment systems and meals, which are not available on low-cost flights.
Kingfisher acquired low-cost carrier Deccan Aviation Ltd and Jet took over budget carrier Jet Lite (India) Ltd, both in 2007. Jet now operates 480 flights a day with 111 aircraft and Kingfisher has 400 daily flights with 76 aircraft. Both the fleets include a few aircraft the firms have either grounded or leased out.
Dutta and Sharma said aircraft ownership was the key difference between the two airline companies. “Not only does Jet own 39 aircraft against 21 by KFA (Kingfisher Airlines), 18 of Jet’s owned aircraft are wide bodies. Difference in fleet ownership is reflected in Jet’s high debt levels of Rs153 billion (compared with) Rs53 billion for KFA. As per Jet’s management, 85-90% of the debt is towards purchase of aircraft at interest rates of 5-7%,” they said in the report.
Based on this, the analysts estimated the enterprise value of Jet at Rs237 billion, 73% higher than Kingfisher’s enterprise value of Rs137 billion.
Another New Delhi-based aviation analyst said the industry’s profitability will depend on events in the next six months. “Airlines continue to bleed heavily and while the... (jet fuel) price cut will help them get closer to break even, they will need to maintain rational pricing, high load factors, and focus relentlessly on cost optimization,” said Kapil Arora, an analyst with Ernst and Young Ltd, adding that the new fare wars are likely to create more problems for the full-service carriers rather than low-cost airlines, as the latter have leaner operating models.
Graphics by Sandeep Bhatnagar / Mint