Jet Airways: soaring high

The airline’s Ebitdar margin of 22.5% is reasonably higher than the 17% margin seen in the first half of this fiscal


Apart from the decline in fuel costs, slower growth in selling and distribution expenses at 8.5%, too, helped Jet Airways in the last quarter. Photo: Abhijit Bhatlekar/Mint
Apart from the decline in fuel costs, slower growth in selling and distribution expenses at 8.5%, too, helped Jet Airways in the last quarter. Photo: Abhijit Bhatlekar/Mint

The Jet Airways (India) Ltd stock jumped about 8% on Friday to Rs.571. With the airline company reporting better-than-expected December quarter results on Saturday, investors could be in for even greater gains.

Like every other aviation firm, Jet, too, gained a great deal from the declining fuel costs. As the chart alongside shows, stand-alone fuel costs as a percentage of operating revenue dropped to the lowest in at least the past 15 quarters to 24.5%. Sure, the falling fuel costs also meant lower fares. Still, a 70% year-on-year growth in Ebitdar to Rs.1,227 crore is not to be sneezed at.

Ebitdar—earnings before interest, taxes, depreciation, amortization and aircraft and engines lease rentals—is a profitability gauge for aviation companies.

Jet’s Ebitdar is 15% ahead of Edelweiss Securities Ltd’s estimates. Also, the airline’s Ebitdar margin of 22.5% is reasonably higher than the 17% margin seen in the first half of this fiscal.

InterGlobe Aviation Ltd and SpiceJet Ltd, with their low-cost structures, had reported Ebitdar margins of 38.7% and 34.7%, respectively.

However, apart from the decline in fuel costs, slower growth in selling and distribution expenses at 8.5%, too, helped Jet in the last quarter. That’s compared with as much as a 37% growth in the same for the first half.

Commenting on the results, Cramer Ball, chief executive officer, said: “The key achievements during Q3 have been lower cost per ASK (available seat km) excluding fuel and higher aircraft utilization.”

For the Jet group, cost per available seat km, or CASK, excluding fuel declined about 5% to Rs.3.20 and aircraft utilization stood at 12.7 hours per day, higher than the 11.6 hours per day in the December quarter last year. Revenue per available seat km, or RASK, though declined 5.4%, mainly owing to the 6.4% decline in the average fare per passenger.

What after a great quarter?

Much depends on the macro environment. 2015 saw 20% growth in passengers carried by domestic airlines, according to the Directorate General of Civil Aviation. It will help if the momentum continues. Despite the 8% increase on Friday, Jet’s shares are one-fourth lower from its annual high of Rs.776 seen on 13 January. One reason for that is crude prices have showed some strength of late. However, the bearish outlook on crude in the near future should offer some comfort for investors.

Meanwhile, the improving profitability has meant that Jet’s consolidated interest costs for the nine months to December, as a percentage of Ebitda (earnings before interest, taxes, depreciation, amortization), are one-third versus 110% last year. This is when interest costs have remained steady. While the improving profits augur well, Jet’s high debt is still worrisome.

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