Shares of Jet Airways (India) Ltd rose 4.6% on Tuesday, a generally upbeat day in the equity markets. Are the June quarter (Q1) results, announced after market hours on Monday, so impressive?
Far from it. It was expected that the airline’s losses will increase sequentially. That has happened. On a consolidated basis, the loss has increased to ₹ 1,324 crore, compared with ₹ 1,039 crore in the March quarter. For Q1, there was also the impact of mark-to-market forex loss worth ₹ 344 crore. Spreads (RASK less CASK) have further declined on a sequential basis (see chart). RASK is revenue per available seat kilometre and CASK is costs per available seat km; these are unit measurements for airlines.
What explains the optimism in the Jet Airways’ stock then? Simply put, it’s the lack of negative surprises. The stock has been under pressure for a while and this is a small relief rally. As of now, the airline has managed to instil some confidence with no adverse audit observation, says Ashish Shah, an analyst at IDFC Securities Ltd.
In its press statement, Jet Airways has said upfront that the airline continues to be a going concern.
Jet Airways garnered $300 million through a combination of debt, and sale and leaseback incentives. This money was used to reduce net debt to ₹ 7,364 crore as on 30 June, a reduction of ₹ 785 crore compared to March-end. “The money raised has also helped the company fund the cash losses worth about ₹ 1,000 crore for the June quarter," added Shah.
Jet Airways has forthcoming debt repayment obligations worth ₹ 2,200 crore for this fiscal year. Meeting those obligations is not going to be easy. Much depends on the progress on infusion of capital and the monetization of the airline’s stake in its loyalty programme, two key proposals that the board considered. The outlook for the stock also depends to a large extent on developments relating to these two factors.
As mentioned in this column earlier, the outlook for the aviation sector in general remains tough. In the current September quarter (typically a lean one), airlines face higher costs (crude oil, rupee depreciation) and pricing pressures. In its earnings conference call, Jet Airways said the domestic market is facing relatively more pressure on the yields front.
Additionally, it doesn’t help that airlines launched a series of discounts in the recent past. All this means that cost concerns and lack of meaningful increase in fares are likely to keep sentiments subdued for airline stocks, even as India remains a fast-growing aviation market. For Jet Airways in particular, reduction in debt and the ₹ 2,000 crore-plus cost- reduction programme over the next two years, are key factors to track.