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Jet Airways outperforms as Kingfisher sinks

Jet Airways outperforms as Kingfisher sinks

Mumbai: The Jet Airways stock has nearly doubled year to date outperforming not only the BSE 500 index but other listed carriers such as Spice Jet and Kingfisher Airlines.

Jet Airways is steadily gaining market share because of flight cancellations and financial turmoil faced by Kingfisher Airlines. Jet Airways plus JetLite climbed up the pecking order to become the market leader in aviation space since December and has regained the number one spot. Jet Airways’s market share stood at 29.2% in March compared to 27.6% in December. On the other hand, Kingfisher Airlines slipped to the bottom with a market share of meagre 6.4% in March against 12.1% in December.

On average, load factor is expected to rise to 77% in the fourth quarter compared to 75.1% in the December quarter and 73% last year. India Infoline estimates load factors at 78.7% in FY13 compared to average of 75.8% in in FY12.

In the first nine months of FY12, total revenues of Jet Airways rose 13% to 10,900 crore, while it reported a loss of 938 crore compared to profit after tax of 1,34.1 crore for the first nine months of FY11 due to rising fuel costs and interest burden. IIFL estimates 23% revenue growth in FY13 and Ebitdar (Earnings before interest, taxes, depreciation, amortization and rentals) margins to recover to 15% in FY13 compared to muted growth 0.5% in the first nine months of FY12.

However, in the near term gains for the stock could be capped. All airlines have raised fares by 10-15% in March after a 5-6% hike in November as Kingfisher cut down its operations. A steep rise in airfares could weigh on passenger volume. Still, passenger volumes are expected to grow at 12% for Jet Airways, slightly higher than 7.5% growth for the entire sector in FY13. The airline has introduced many cost cutting measures such as reducing IT overheads, manpower expenses, and leasing its aircraft. However, yields will improve only marginally as much of the revenue gains will come from economy class operations, said analysts.

Jet Airways will continue to face the heat from rising oil prices and a weakening rupee as well. Brent crude futures were hovering around $118/bbl and the rupee depreciated over 6% since the past three months. Fuel costs have risen 56% in the first nine months of FY12 compared to last year.

Jet Airways will not benefit from Foreign Direct Investment in aviation because majority stake is owned by Naresh Goyal, who is a non-resident Indianl. Like other carriers, Jet Airway will not be able to import ATF (Aviation Turbine Fuel) directly because it does not have necessary infrastructure or expertise; as a result it will continue to pay heavy state taxes. Lastly, the airline is still bleeding red ink with debt burden of 13,942.6 crore which will continue to weigh on the interest cost burden as the company paid an interest of 4,452.7 crore in the third quarter alone.

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