High prices, competition may hurt airline results

High prices, competition may hurt airline results

New Delhi: India’s three listed airlines may have made losses in the quarter ended June, owing to high jet fuel prices, excess capacity and fierce competition for passengers, analysts said. Two of the carriers made profits in the last fiscal.

The quarter is considered the second best for domestic airlines, next to the October-December period, which is dominated by the holiday season.

“On the operating level front, (it’s) not so good a quarter for the airlines sector," said Rashesh Shah, analyst at Mumbai-based brokerage firm ICICI Securities Ltd. “All three companies are going to report a loss on an operating level even though the top line will continue to grow healthy."

Listed carriers Jet Airways (India) Ltd, Kingfisher Airlines Ltd and SpiceJet Ltd together command a 60% market share.

Jet Airways is estimated to have made a loss of Rs335.8 crore, Kingfisher Airlines a loss of Rs377.3 crore and SpiceJet a loss of Rs75.5 crore, Shah said.

This compares with a profit of Rs8.4 crore for Jet Airways, a profit of Rs55.22 crore for SpiceJet and a loss of Rs187.35 crore for Kingfisher in the year-ago period.

Jet Airways is expected to have lost Rs500 crore “driven by the sustenance of high crude prices (brent around $120) over the entire quarter" despite an “overall revenue growth at 13%", said Mumbai-based IDFC Securities Research, which does not track Kingfisher and SpiceJet.

Shah also said jet fuel, 30-50% of an airline’s costs in India, would be a key reason for the losses, besides competition.

“Average jet fuel costs have inched up again by over 14% quarter-on-quarter to Rs63,086 per kilolitre and players have been unable to pass this burden fully on to passengers due to a fresh breakout of competition from Air India," Shah said in the ICICI Securities earnings preview for the sector, estimating operating margin at a negative 2.8% for the quarter.

Air India, with about 15% market share, reduced its fares at the beginning of the year to win back lost market share.

An aviation analyst who declined to be named expects Jet Airways and Kingfisher to post losses and SpiceJet to make a modest profit. In April, Centre for Asia Pacific aviation India said India’s private carriers will make a combined profit of $350-400 million for the fiscal ending 31 March 2012 and state-owned Air India will post a loss of $1-1.25 billion, assuming average oil price at $85-95 per barrel.

The number of airline seats in the domestic market has also grown drastically compared to the last fiscal, with over a dozen Kingfisher Airlines Airbus A320 aircraft, which had been grounded because of maintenance issues, coming back into the system, said a private airline official who declined to be named.

Boeing India’s president Dinesh Keskar, however, said he does not see overcapacity yet. “Industry capacity is in balance right now and as long as additional capacity matches the growth of 15%, the supply demand balance will continue."

Fuel cost went over $110 a barrel in April-June, but fares didn’t rise accordingly. “That period would contribute to losses," he said, adding he does not expect all three airlines to make losses.

With cheap Air India tickets available on most routes, low-fare airlines have been hardest hit, according to the private airline official cited above.

On Thursday, Jet Airways closed at Rs488.90, up 1.77%; Kingfisher ended at Rs39.30, down 0.63%; while SpiceJet rose 0.47% to close at Rs32.10 on the Bombay Stock Exchange on a day when the Sensex closed at 19,078.30, up 1.88%.