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Jet Airways’ bumpy ride

LiveMint logoLiveMint 27-05-2014 Mobis Philipose

Jet Airways (India) Ltd and SpiceJet Ltd were expected to report record losses this year, as pointed out in a Mint report a month ago, based on research by Capa. The aviation consultant had estimated consolidated losses of between `2,100 crore and `2,200 crore for Jet, saying it will completely offset Etihad Airways PJSC’s investment of around `2,000 crore.

Things seem to have turned out to be far worse. Jet has reported a consolidated loss of `4,130 crore, although this includes a fair amount of one-time costs such a write-off of `700 crore on the company’s investment in JetLite and an expense of `936 crore categorized as maintenance one-offs. Even if we exclude one-time items, the loss is still little higher than Capa’s estimate of roughly `2,500 crore. But cash losses will be lower and it’s unlikely that Etihad Airways’ cash infusion has been wiped out by the losses in 2013-14.

Domestic passenger traffic growth has been sluggish for most of the last year. It grew by only 4.55% in the year ended 31 March for the sector, and by 0.8% in the March quarter. In Jet’s case (along with JetLite), it fell by 3.8% in the March quarter, which is a reason losses have mounted. After all, the drop in customers has resulted in a drop in load factors.

Earnings before interest, tax, depreciation and amortization (Ebitda) and aircraft lease rentals stood at only `57.5 crore in the March quarter, or about 1% of consolidated revenues. Jet Airways’ stand-alone operations made about 2% of revenues as profit at the Ebitdar (Ebitda and rent costs) level, while Jetlite operations lost 8.5% of revenues.

It’s clear from passenger growth details that JetLite operations are being curtailed. It, therefore, makes more sense to look at consolidated numbers. Things have clearly worsened compared with the December quarter, when the company reported an Ebitdar margin of 9.6%.

Of course, costs have increased as well. Cost per available seat kilometre rose by 4.8% year-on-year last quarter on an aggregate basis and by 11.8% excluding fuel costs. Meanwhile, revenue per available seat kilometer was flat at year-ago levels, thanks to the continued discounting in fares. These numbers include Jet’s international operations and exclude Jetlite and skew the picture, as international operations have seen a decline in cost measures and an increase in revenue measures. In other words, the situation in the domestic segment is far worse than these numbers.

There are no signs that things will improve in a hurry. On the contrary, the entry of Air Asia and its expected strategy of offering discounted fares is likely to make the situation worse. It’s little wonder Jet’s shares have more than halved in the past year, with investors quickly getting over the enthusiasm about Etihad’s investment in the company.

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