Jet Airways has a bumpy landing in June quarter

Even though Jet Airways eked out a stand-alone profit of Rs.103 crore, investors may not give it any brownie points quickly


Employee costs, selling and distribution costs and other expenses at Jet Airways increased at a faster pace. Photo: Hindustan Times
Employee costs, selling and distribution costs and other expenses at Jet Airways increased at a faster pace. Photo: Hindustan Times

If there’s one thing Jet Airways (India) Ltd and InterGlobe Aviation Ltd’s June quarter results do, it is tone down the expectations for SpiceJet Ltd’s yet to be announced June quarter numbers.

Pricing pressure made life difficult for both aviation companies in the past quarter.

Sure, fuel cost savings have enabled airlines to report profits in recent quarters. But expectations have risen. Which is why even though Jet Airways eked out a stand-alone profit of Rs.103 crore, investors may not give it any brownie points quickly.

The airline’s Ebitdar rose 3.7% year-on-year to Rs.901.6 crore. Ebitdar stands for earnings before interest, taxes, depreciation, amortization and lease rental, and is an important profitability measure for aviation companies. For perspective, ICICI Securities Ltd was expecting an Ebitdar increase of 10.7%.

“IndiGo, operated by InterGlobe Aviation, suffered during the June quarter primarily because yields declined but Jet faced lower yields, along with higher-than-anticipated operating costs (excluding fuel),” says an analyst.

Jet’s employee costs, selling and distribution costs and other expenses increased at a much faster pace.

Fuel costs were lower year-on-year but higher sequentially. Aircraft fuel expenses as a percentage of revenue fell 500 basis points (bps), compared with the same quarter last year and 358 bps higher, compared with the March quarter. One basis point is one-hundredth of a percentage point.

The revenue decline of 2% year-on-year (y-o-y) to Rs.5,112 crore is unsatisfactory. The domestic segment revenue performance was more disappointing than the international segment. Domestic average fares declined at a relatively much faster pace than international fares during the quarter.

Meanwhile, lower crude prices and the stock market listing of larger peer IndiGo helped the Jet stock outperform the Sensex in the last one year. But in the recent past, its shares have underperformed. A bleaker outlook on yields suggests that the recent trend will continue. And then, finance costs, though one-tenth lower, year-on-year, accounted for a substantial 57.7% of operating profit for the June quarter. On a consolidated basis, Jet’s net debt stood at Rs.9,783 crore.

The seasonally strongest December quarter is what investors will watch for now. Passenger growth has been sustained. According to Directorate General of Civil Aviation data, passengers carried by domestic airlines in January-June increased 22.5% over the same period last year. However, until aviation companies are able to increase fares enough, more passengers flying will only act as a saving grace.

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