On Friday, jet fuel prices were raised by a steep 7.6%. Crude oil prices form a major portion of the operating costs for aviation companies. According to the latest results of SpiceJet Ltd and Jet Airways (India) Ltd, fuels costs accounted for about 48% of total operating costs.

According to the latest results of SpiceJetand Jet Airways, fuel costs account for about 48% of total operating costs. Photo: Mint

What about the current quarter? The September quarter is not really the best for aviation. Moreover, passenger traffic is slowing. For July, domestic traffic declined by about 10%. “Despite a seasonally weak quarter, domestic ticket prices have not come down during the quarter. The pricing discipline among the carriers will likely keep the yields close to the 1QFY13 levels," wrote analysts from Bank of America-Merrill Lynch in a note to clients last week.

So far, since the beginning of this fiscal year, SpiceJet and Jet Airways shares have fared better than the benchmark Sensex index. Needless to say, an appreciation in the Indian rupee and improvement in passenger traffic data will help. For Jet Airways though, balance sheet concerns (high debt) remain and, as a result, higher interest costs continue to massively eat into profitability. For the June quarter, finance costs as a percentage of operating profit stood as high as 54% for Jet Airways.

Although recent numbers have improved for SpiceJet and Jet Airways, it is important to note the slower-than-anticipated growth in supply had played a key role in boosting performance. One analyst sums up the situation aptly, “If Kingfisher were functioning properly in the market currently, it would have been a bloodbath." In the near future at least, the scenario looks challenging. The festival season (the December quarter) may bring some reason to cheer.

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