Airlines may turn in profits on improved passenger volumes

4 min read 13 Jan 2010, 11:15 PM IST

P.R. Sanjai and Tarun Shukla

Airlines may turn in profits on improved passenger volumes

Mumbai / New Delhi: After several quarters of flying through turbulent weather, India’s listed airline companies are expected to report profits for the quarter ended December as more passengers took to the skies.

Also See Changing Fortunes (Graphic )

Four analysts and consultants interviewed by Mint expected low-fare carrier SpiceJet Ltd to post a quarterly net profit of at least Rs80 crore and Jet Airways (India) Ltd to post a small profit of at least Rs10 crore. Kingfisher Airlines Ltd, the third listed carrier, is likely to make an operating profit in the December quarter.

Airline revenues have been buoyed by an increase in passenger volumes as the Indian economy rebounded from the slowdown of early 2009 and lower fuel prices allowed carriers to roll back some of the price hikes that scared off fliers in 2008.

The Directorate General of Civil Aviation, India’s airline regulator, said on Wednesday that the country’s domestic airline passenger market expanded 7.5% in 2009 compared with 2008, a year when passenger numbers slumped. Nearly 3.07 million additional passengers took to air travel in 2009, taking the total number of passengers carried to 43.84 million—up from 40.77 million in 2008 and 42.85 million in 2007.

“December was a bumper month for all airlines. Though October and November were good in terms of seat occupancy factor, December was a blessing for airlines in terms of seat occupancy and yields. SpiceJet will take at least Rs80 crore home as profit while that could be Rs10 crore for Jet Airways," said an analyst with a domestic brokerage. He did not want to be identified as he is not authorized to speak to the media.

Consulting firm Centre for Asia Pacific Aviation (Capa) had predicted in a December report that Indian private domestic airlines are expected to make a combined profit of $250-300 million (Rs1,143-1,371 crore now) as early as the fiscal year ending March 2011 and that Kingfisher Airlines is likely to break even in the third quarter of this fiscal.

Two other airline consultants, who did not want to be identified as they are advising these carriers, predicted similar results.

The profit estimates suggest that India’s $14 billion airline industry is moving away from the crisis-proportion losses it totted up in 2008-09, when carriers collectively lost Rs8,557.37 crore.

The airline industry is expected to post a loss of similar magnitude in this fiscal, with national carrier Air India accounting for a significant part of these losses.

“The worst for aviation is clearly over... With the macro-environment turning optimistic and the cost curve of the industry at its bare bones, we expect cash losses of Jet to get limited, marking the beginning of a turnaround," Nikhil Vora and Shweta Dewan, analysts at domestic brokerage IDFC-SSKI Securities Ltd wrote in a December note.

A 7 January report, authored by Mahantesh Sabarad and Vijay Nara at domestic brokerage Centrum Broking Pvt. Ltd, said that Jet Airways is expected to post a marginal profit of Rs14 crore in the third quarter of fiscal 2010 against a loss of Rs214 crore in the corresponding quarter last fiscal. It also said the operating profit margin of this Mumbai-based carrier will be up to 19.9% from 11.8% in the third quarter of fiscal 2009.

In another report, Centrum Broking said SpiceJet’s improved operational performance would result in a turnaround by fiscal year 2011.

“Further, the likely restructuring of its balance sheet would make it one of the strongest players in the Indian aviation space with a positive net worth and near zero debt," it said. It did not comment on SpiceJet’s fiscal 2010 third quarter performance.

Domestic brokerages are yet to come out with earnings estimates for Kingfisher Airlines. Senior executives of three listed airlines declined to comment on their fianancial results that will be announced this month.

“More or less all three listed companies...would have made money in this quarter," said Kapil Kaul, India chief executive of Capa.

Kaul identified three reasons why these three listed airlines could be flying into profitability.

“First, the overall direction of the Indian economy is very positive—we expect it to grow at 8.5%—and the rebound in travel is because of underlying changes in the economy. Second, the airlines have cut costs, cut capacity. Third, full service airlines putting more capacity in the LCC (low-cost carrier) segment has been a game changer. If they had not, profits would have not come by. That has been the driver for the numbers."

He expects airlines can stay profitable if oil stays around $80 a barrel, near its current level.

In 2010, the concerns, however, will continue to be on the ability of Kingfisher, Jet and Air India to service their debt burden, Kaul added.

Investors have bet their money on a turnaround in the fortunes of listed airlines, whose shares have outperformed the benchmark equity indices since they rebounded off their lows in early March.

Graphic by Sandeep Bhatnagar / Mint

pr.sanjai@livemint.com

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Published: 13 Jan 2010, 11:15 PM IST

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