Why is Jet Airways flying high?
4 min read . Updated: 08 Feb 2016, 07:26 PM IST
PremiumThe airline's profit soared by more than seven times at Rs467.11 crore compared with a profit of Rs63.11 crore in the year-ago quarter
Mumbai: On 6 February, Jet Airways (India) Ltd reported a third consecutive profitable quarter during October-December. India’s second largest airline by passengers carried posted its highest-ever quarterly profit.
The airline’s profit soared by more than seven times at ₹ 467.11 crore compared with a profit of ₹ 63.11 crore in the year-ago quarter, beating street estimates.
Mahantesh Sabarad, deputy vice-president (research—equities) at SBICAP Securities Ltd said Jet Airways has gone back to one of the most profitable days. Jet Airways posted such stellar results in calendar year 2011 in all parameters, he said. Sabarad said the airline posted better results in earnings before interest, tax, depreciation, amortisation and rentals (Ebitdar) to revenue passenger kilometre (RPKM) basis and absolute Ebitda.
Jet Airways is sure flying high. Here are five things that have led to this performance.
Low fuel cost
In 2015, the price of benchmark Brent crude oil fell 35%, while in 2014, it fell 48.3%. In India, fuel costs account for about 45-55% of the revenue of domestic airlines, and a 4% drop in fuel cost adds around two percentage points to the operating margin of airlines.
Jet Airways had the lowest-cost quarter boosting its profit, said Sabarad.
The jet fuel expenses for Jet Airways for the reporting quarter was at ₹ 1,235.36 crore against ₹ 1,701.07 crore for the corresponding quarter of the previous year, registering a 27.37% decline.
High aircraft utilization
K.G. Vishwanath, a partner at consulting firm Trinity Aviation Consultants Pte, said the focus on operational efficiencies was starting to show results for Jet Airways. Vishwanath, who was also former vice-president (commercial strategy and investor relations) at Jet Airways, said the airline has registered one of the highest aircraft utilisation at over 13 hours on the Boeing B737 planes.
According to an investor presentation, Jet Airways posted aircraft utilisation of 12.7 hours a day for the December quarter, up 9.48% against 11.6 hours a day for the corresponding quarter of the previous year.
Airplane utilization is a key performance indicator for airline operations and a significant differentiator for domestic airlines.
Vishwanath said the strategy of Jet Airways was not adding new aircraft but increasing available seat kilometres (ASKM) with the existing fleet. Jet Airways had 12,617 million ASKMs for the December quarter, up 10.99%.
In fact, Jet Airways had 116 planes for the reporting quarter, one plane less compared to the corresponding quarter of the previous year.
“Despite not adding much capacity, Jet Airways’ passenger numbers grew faster than the industry for nine months of the current fiscal," Vishwanath said.
Ruthless cost cutting
Cramer Ball, chief executive officer, Jet Airways, said the key achievement during the third quarter has been lower CASK (cost per available seat kilometre), excluding fuel. CASK, one of the key competitive dynamics, for Jet Airways was at ₹ 3.20 for the third quarter of the current fiscal against ₹ 3.36 in the year-ago period.
Another airline executive, requesting anonymity, said Jet Airways has adopted a ruthless network redesign to drop poor routes and add good ones.
Jet Airways also got its balance sheet fixed by repaying over ₹ 2,700 crore debt in nine months of the current fiscal.
Say no to discounts
Vishwanath said Jet Airways has managed to hold yields and did not participate in fare discounting. He said the airline did not chase market share and instead focused on results. Jet Airways maintained its market share of 21.2% for the December quarter.
“The margin expansion is coming through both unit revenue increase and unit cost reductions. This is clearly showing the strong focus of the leadership team to regain the numero uno position which it had ceded to IndiGo," Vishwanath said.
He said the airline is setting itself up for steady growth over the next few years.
The December quarter is also the peak season for airlines because of travel during festivals and year-end holidays.
Impact Etihad Airways
Jet Airways further enhanced its synergies with partners, expanding its codeshare partnership with strategic partner Etihad Airways PJSC, which has a 24% stake in Jet Airways. Overall codeshare traffic witnessed growth of 28% from 416,816 passengers carried in Q3FY15 to 534,104 passengers in Q3FY16, with codeshare traffic with strategic alliance partner Etihad Airways and its partner airlines growing by 86%.
Jet Airways, together with Etihad Airways, now has the largest market share in Indian international traffic.
“Jet Airways will get more benefits on costs as the financial situation improves and will be able to negotiate better terms on contracts along with Etihad Airways group of airlines," Vishwanath said.
What next?
Amit Agarwal, chief financial officer at Jet Airways, said the airline continues to montior cost reduction and productivity enhancement measures. Agarwal said Jet Airways has a net debt of ₹ 11,384 crore and out of this ₹ 4,666 crore is aircraft related loan. In an analyst call on Monday, he said the airline has paid ₹ 860 crore during this quarter. The chief financial officer admitted that there are pricing pressures from the rival airlines with fuel prices going down. CEO Ball said the cost reduction efforts have resulted in drop in non-fuel expenses of the airline. “Nothing is off from the table. The airline is examining every single cost items," Ball said.
