Mumbai: Financially-troubled Jet Airways (India) Ltd has sought to avoid a fare war with rivals as part of its strategy to boost yields.

The decision, however, resulted in the airline’s passenger load factor declining from 86.8% in the March quarter to 80.4% in the June quarter, considered a busy period for local airlines due to the holiday season. Load factor also fell from 81.7% in the year-ago period.

Jet Airways, controlled by entrepreneur Naresh Goyal, posted losses in the March as well as the June quarters. During the period, its revenue grew at the slowest pace among domestic listed carriers—InterGlobe Aviation Ltd, which runs IndiGo and SpiceJet Ltd.

Jet Airways’ chief financial officer Amit Agarwal told analysts at a post-earnings conference call on Tuesday that price wars are not beneficial for airlines.

“But certainly, the market has an appetite to be able to absorb fairly substantial growth in capacity," he added.

In the June quarter, IndiGo had the largest sequential rise in revenue of 12% to 6,511.97 crore, while SpiceJet recorded a 9.7% increase to 2,199.7 crore. Consolidated revenue at Jet Airways grew 0.98%, sequentially, to 6,257 crore.

The strategy of not matching the fares of competitors on a few routes has impacted the passenger load factor of Jet Airways, which continues to face pressure on yields, SBICap Securities said in a 28 August report.

“Though the management is evaluating all possible options to raise funds and expedite its turnaround strategy of reducing costs and enhancing revenue, it is racing against time in the current adverse industry scenario of rising competition amid cost pressures," it said.

Also, during the quarter, Jet Airways incurred finance cost of 252 crore, much higher than IndiGo’s and SpiceJet’s 92.73 crore and 30.24 crore, respectively.

Earlier this week, directors on the Jet Airways board had approved a turnaround plan for the airline, which includes a cost reduction programme of more than 2,000 crore over two years, improve pricing, better inventory management, leveraging its JetPrivilege Programme, capital infusion and fleet simplification.

Going ahead, if this turnaround plan fructifies, it is expected to bring down the finance costs significantly.

Airlines have been hit hard by rising jet fuel prices coupled with a weaker rupee. Intense competition has meanwhile hindered their ability to raise fares sufficiently to cover the higher costs.

IndiGo’s fuel expenses rose 16% sequentially in the June quarter to 2,715.64 crore, while Jet Airways’ consolidated fuel bills rose 12% to 2,451 crore. SpiceJet saw a sequential rise of 12% in fuel expense to 812.44 crore in the June quarter.

Agarwal said Jet Airways is on track to cut non-fuel costs by 12-15% over the next 18-24 months.

Some analysts, however, said that the cost cutting targets are ambitious, amid a lingering fare war for market share. “In our view, any recovery from the prevalent pricing war remains elusive," said an Edelweiss research report on Jet Airways dated 28 August.

“We conservatively estimate CASK (ex-fuel) to fall 10% to 2.9/km by FY20," Edelweiss said. Cost per available seat kilometre (CASK) is a key measure of operating efficiency.

In July, IndiGo recorded domestic market share of 42.1% carrying 4.86 million people. Jet Airways, along with JetLite, recorded 15.1% domestic market share with 1.74 million passengers. SpiceJet had a market share of 12.3% and flew 1.42 million passengers during the month, according to data from the Directorate General of Civil Aviation.

Meanwhile, Jet Airways hopes yields will rise in the coming quarters. “We think that the pricing environment will improve," Agarwal said. “So hopefully that happens soon."

Close