Mumbai: Jet Airways (India) Ltd, the country’s largest airline by passengers, posted its first profit in three quarters as it carried more travellers, cut costs and took advantage of cheaper aviation fuel and higher income from leasing planes.
It swung to a profit of Rs105.80 crore for the quarter ended 31 December, beating street estimates, from a loss of Rs214.18 crore. The last time profit crossed Rs100 crore was in the March quarter of 2006, although the carrier did breach the mark once in-between owing to a change in accounting policy to treat depreciation.
Strong recovery: Jet Airways chairman Naresh Goyal.
The earnings underscore the recovery in the country’s airline industry as carriers that posted a combined loss of $2 billion (Rs9,240 crore today) in fiscal 2009 and were expecting a similar loss this year, have been lifted by a resurgence in passengers amid signs of a strong recovery in the world’s fastest growing major economy after China.
“There was a strong recovery in operating margins. High seat occupancy, high yields and various cost initiatives led to a lower break-even seat factor,” said Jet Airways executive director Saroj K. Datta, who has been with the airline since its inception and has a total 48 years of industry experience. “We are cautiously optimistic about economic growth and its relative impact on the air travel market.”
Earnings at Jet Airways were aided by the Rs106.43 crore it earned from leasing its planes, up from Rs17.44 crore in the year before.
Encouraged by the results, Jet Airways rose 3.78% on the Bombay Stock Exchange on Monday to close at Rs539.20 as the exchange’s benchmark Sensex fell for a fifth day, losing 0.47%. In the past five trading sessions, the Sensex has shed 4.88% while Jet Airways has gained 6.36%.
With 29% passenger growth in the December quarter, Kingfisher Airlines Ltd made an operating profit of Rs11 crore for its domestic operations, although it posted a net loss of Rs419.96 crore.
Another listed company and low-fare carrier SpiceJet Ltd posted a record profit of Rs108.9 crore for the same quarter.
Jet Airways, which required a seat occupancy of 77.8% to break-even during the reporting quarter, scored 80% occupancy. The required seat occupancy, or break-even load factor of the airline, was 71.6% in the December quarter of last fiscal, when it posted 66.2%.
The outlook for the next 9-12 months is challenging, considering jet fuel’s price and sales tax structure, although demand has picked up and the airlines have managed to keep costs under control, said Kapil Arora, partner (aviation practice) with audit and consulting firm Ernst and Young.
Airlines will have to continue to exercise stringent cost-control measures and should not resort to irrational price wars, he said.
Jet Airways said, “trends for the next few months look healthy and the capacity situation seems to be under control. We expect to see premium (business and first class) demand revival in the next few quarters.”
Domestic yields have risen by 24% and international yields by 9%, said K.G. Vishwanath, vice-president, commercial strategy and investor relations. However, revenue in the December quarter was down 6.4% to Rs2,722.68 crore on account of capacity rationalization on international routes.
“Jet Airways has put up its most robust performance ever even as it is exposed to all vagaries of currency fluctuations and other domestic risks,” said a senior analyst with a domestic brokerage who declined to be identified as he is not authorized to speak to media. “I would consider giving its planes for leasing as its core operating revenue, apart from selling tickets, as it has managed to find takers for its planes in tough times.”
He’s not certain about the outlook over the next few quarters. “The impressive figures are largely on account of aggressive expenditure cuts,” he said. “One will have to wait and watch whether this could continue.”
Jet Airways has improved its performance over the second quarter with core operating profit (before non-operating income and mark-to-market gains) for the quarter at Rs16.8 crore against a loss of Rs428.20 crore in the second quarter and an operating loss of Rs290 crore in the corresponding quarter of 2009.
Among other things, it benefited from lower jet fuel cost (Rs887.86 crore, down 18.84%), a smaller employee remuneration bill (Rs289.76 crore, down 20.58%) and a decline in other operating expenses (Rs701.93 crore, down 26.04%).
JetLite (India) Ltd, formerly Air Sahara and now Jet Airways’ low-fare unit, also turned to a profit of Rs3.90 crore on revenue of Rs416.40 crore against a net loss of Rs22 crore and revenue of Rs439.70 crore a year ago. JetLite also reduced core operating losses to Rs11.40 crore from Rs129.8 crore.
In a separate development, the Jet Airways board gave in-principle approval for an acquisition of up to 26% (in cash and considerations other than cash) in MAS GMR Aerospace Engineering Co. Pvt. Ltd, an aircraft maintenance, repair and overhaul (MRO) venture being set up at the Rajiv Gandhi International Airport in Hyderabad.
MAS GMR Aerospace is an equal joint venture between Malaysian Aerospace Engineering SDN BHD, Malaysia, and GMR Hyderabad International Airport Ltd. On 16 September 2008, Mint had reported that Jet Airways is in talks with GMR Group to buy a stake of at least 24% in the MRO. Datta said the investment will help the airline get repairs done in India instead of overseas. “At this point, we have not worked out the investment details or savings on repair cost,” he said.