Mumbai: Jet Airways (India) Ltd, the country’s largest airline by passengers flown, and second largest low-fare carrier SpiceJet Ltd posted large losses in the September quarter as the aviation industry struggles with high jet fuel prices and excess capacity, and the Indian economy grows at a slower pace.
Jet Airways swung to a loss of Rs713.60 crore in the three months ended 30 September from a net profit of Rs12.40 crore a year earlier. Sales rose to Rs3,122.28 crore from Rs2,802.45 crore, up 11.41% year-on-year.
SpiceJet suffered a Rs240.06 crore loss in the quarter; it had a profit of Rs10.11 crore in the year-ago period. The airline’s sales rose to Rs759.02 crore from Rs602.99 crore—an increase of 25.87%.
Jet Airways chairman Naresh Goyal. File photo.
The third listed airline operator, Kingfisher Airlines Ltd, is yet to report September quarter financial results. In the peak of the travel season, the cash-strapped and debt-burdened airline run by liquor baron Vijay Mallya cancelled some flights for 12 days to 19 September, a sign of the turbulence India’s airline industry is passing through.
“Investing in airline stocks and making money are no more a story,” said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd, a Mumbai-based investment firm. “There could be trading opportunities, but certainly not investing at this point of time.”
Kingfisher Airlines’ shares slumped 9.45% to close at Rs19.65 on BSE on Friday as the benchmark Sensex lost 0.97% to end at 17,192.82 points. SpiceJet gained 3.62% to Rs24.30; Jet Airways rose 2.16% to Rs265.35.
Expenditure on jet fuel is the biggest operating cost for airlines. Domestic carriers have lost pricing power, given the prevalent demand-supply scenario, said Kejriwal.
Air fares have fallen because of excess capacity, while fuel costs have risen. India’s economic growth is forecast to slow to around 7.5% in the current fiscal from 8.5% last year, as demand slumps and production declines.
“The financial results of the two airlines will tell you a story about unexpected and drastic fall in average ticket prices by 10-12% in the September quarter compared to the preceding quarter,” said Mahantesh Sabarad, an analyst with domestic brokerage Fortune Equity Brokers (India) Ltd.
“Airlines brought in additional capacities at a time when traffic is growing slowly. The result was all (airlines) dropped fares and all bled,” he added.
Jet fuel costs at Jet Airways rose 50% to Rs1,491.18 crore in the September quarter. SpiceJet’s jet fuel costs rocketed 83.34% to Rs478.14 crore.
“Abnormally high fuel costs, a low-fares scenario induced by demand-supply imbalance, together with a depreciating rupee versus the dollar and fare cuts, coupled with the second quarter traditionally being considered the lean season, have all collectively impacted the second quarter performance,” said Nikos Kardassis, chief executive at Jet Airways.
SpiceJet CEO Neil Mills said the traditionally weak September quarter was made more challenging this year by high fuel prices, the depreciating rupee and an irrational pricing environment.
According to lobby group Federation of Indian Airlines (FIA), India’s aviation market continues to grow at an annual rate of 15%, but all domestic carriers are incurring significant losses by selling tickets at 30% below cost of operations.
FIA estimates that domestic carriers, excluding state-run Air India Ltd, have lost Rs2,400 crore during the April- September period.
The group, in a document, said between last year and the current year, costs have gone up by around 30%, primarily due to a 40% increase in jet fuel prices, higher landing and navigation fees, and bank lending rates. Average fares have declined by about 10%, it said in a report prepared in October.
Kingfisher Airlines was the first victim of high jet fuel prices and low fares. It cancelled 50 flights on Tuesday, more than the 31 it had decided to ground every day for 12 days.
Mallya, chairman of Kingfisher, said the airline is combining some flights on which there is less seat occupancy and informing and accommodating passengers accordingly.
“What is so criminal about combining flights when the load factors are lower? We are not a public sector undertaking to fly at losses,” Mallya said by phone.
Kingfisher is implementing an aircraft reconfiguration initiative that will require up to three aircraft to be out of service over the next three months at any one time, the airline said in a statement. As per a revised reschedule, it will operate 300 daily flights connecting 54 cities, down from its previous 340 flights.
“Kingfisher does not see any risk to its future or long-term viability,” CEO Sanjay Aggarwal said. “The whole Indian aviation industry is struggling due to high costs and lower yields. We are no exception. Like any other prudent business, we are taking steps to improve our financial performance.”