Home > market > mark-to-market > Are investors pricing in the worst for Jet Airways?

Jet Airways (India) Ltd will announce its June quarter (Q1) results today, the release of which was deferred on 9 August. Its shares declined by more than 8% on 10 August in reaction to the news. Sure, the stock did recover in the following days but that did not sustain. At present, the shares are still lower by 8.6% since the deferment of its results.

Over the medium term too, investors have lost. So far this fiscal year, the Jet Airways’ stock has more than halved. Are investors pricing in the worst then?

Many analysts shy away from answering that. “As such, there is an imminent need for liquidity which will determine the short-term stock performance," says Ansuman Deb, an analyst at ICICI Securities Ltd. He notes that the stock is under duress due to the bleak earnings outlook coupled with high interest payments and trade payables due in fiscal year 2019. “Several assets are hypothecated and the current crude/currency situation will make lenders cautious against the company," adds Deb.

In this backdrop, what should investors expect from Jet Airways’ Q1 results? Well, everyone pretty much agrees that the airline’s June quarter losses would be more than the March quarter. InterGlobe Aviation Ltd’s (which runs IndiGo) and SpiceJet Ltd’s miserable Q1 results don’t encourage any optimism either.

According to data from the Directorate General of Civil Aviation, Jet Airways flew 475,000 fewer passengers (combined—domestic, international and Jetlite) in the June quarter compared to the March quarter.

According to the airline’s June 2017 quarter presentation, average fare per passenger was 7,233. Assuming average fares remain the same year-on-year (aviation is a seasonal business), its passenger revenues are likely to decline by 344 crore compared to the March quarter. On an average, aviation turbine fuel prices have increased 7.6% sequentially. Jet Airways’ capacity or available seat kilometres increased about 1.7% quarter-on-quarter.

As a result, fuel costs can be expected to increase by about 192 crore sequentially. Prima facie, assuming everything else remains the same, Jet Airways’ losses for the June quarter can be expected to be higher by about 535 crore compared to the March quarter, when it reported a loss of 1,040 crore.

It’s worth remembering here that SpiceJet’s and IndiGo’s June quarter numbers also included the adverse impact of rupee depreciation. Investors should watch for that in Jet Airways’ numbers too.

More importantly, announcements, if any, on cost-reduction initiatives and the turnaround plan—matters which the company said it will take up during the board meeting—will be crucial for the stock.

However, the environment for the aviation sector itself remains challenging, thanks to the high cost environment (fuel, rupee depreciation). Pricing isn’t improving what with airlines launching a series of discounts in the recent past.

For Jet Airways, in particular, its high debt makes matters worse. Unless pricing improves meaningfully, the turbulence should continue for the aviation sector.

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