No smooth landing for Jet Airways
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Jet Airways (India) Ltd’s share prices shed more than 3% on Tuesday, a day the broader markets ended marginally higher. Perhaps investors had a hunch that the airline’s March quarter results, announced after market hours, would be disappointing. Indeed, the company’s fourth quarter numbers missed Street estimates.
For perspective, it made a stand-alone Ebitdar of Rs700 crore. In comparison, Edelweiss Securities Ltd and ICICI Securities Ltd were expecting Ebitdar at Rs840 crore and Rs870 crore, respectively. Ebitdar is short for earnings before interest, tax, depreciation, amortization and lease rentals.
With average fuel costs being higher year-on-year in the March quarter, that factor was expected to play spoilsport this time around. Not surprisingly, Jet Airways’ fuel costs as a percentage of revenue jumped 1,000 basis points to 29%. Employee expenses and aircraft maintenance costs too increased at a faster pace. A basis point is 0.01%.
The company’s revenue for the March quarter increased 3% year-on-year, faring better than the 0.6% revenue growth seen in the December quarter. Domestic segment revenue, which contributed about 45% of total revenue, grew by 9%. However, the international segment revenue fell 1.5%. That’s more than the 0.2% international segment revenue decline seen in the December quarter. It’s worth recalling here that Jet Airways had faced pressure in its international segment on account of demand problems in the Gulf Cooperation Council countries in the December quarter. The international segment has disappointed in the March quarter as well, with its profit declining at a faster pace compared to the December quarter. The company’s earnings conference call to be held on Wednesday should offer more insight on its international performance.
Nonetheless, Jet Airways’ reported net profit of Rs37 crore, almost 91% lower than the year-ago quarter, is a let-down. In fact, performance would have been more dismal if it weren’t for the robust other income growth.
What of the Jet Airways stock? The stock has underperformed the S&P BSE 200 index in the past one year. Even so, after touching a closing low of Rs340.55 on 26 December, the stock has risen 35% so far. The key question is whether this trend will be sustainable.
A relatively benign outlook on crude oil prices has helped. Higher fares will play a major role in boosting sentiment for airline stocks in general. For Jet Airways in particular, given that finance costs account for a huge proportion of its operating profit, a reduction in debt would certainly help.