Jet Airways crashes to record quarterly loss

Written by fe Bureau | New Delhi | Updated: Oct 24 2013, 10:09am hrs
Jet Airways on Wednesday reported its biggest ever quarterly consolidated net loss of R998.5 crore in the three months to September as the carrier aggressively discounted prices in a weak quarter and a depreciating rupee pushed up aviation fuel costs.

The airline has in the first half of FY14 already used up 60% of the funds forthcoming from the equity investment by the Abu Dhabi-based Etihad Airways, analysts pointed out. Etihad will invest R2,060 crore in Jet Airways in return for a 24% stake in the company in a deal expected to be concluded in a week.

In the same quarter last year, the airline had posted a consolidated net loss of R166 crore. As of September 30, the airline had accumulated losses of R4,802.62 crore since it listed in March 2005. The airlines market cap has crashed to R2,990.61 crore as on October 23, 2013, from R11,259.68 crore when it listed. The companys equity capital as of March 31, 2013, was R86.33 crore, while the reserves and surplus were a negative R4,28.86 crore.

Consolidated operating revenues for the airline during the quarter were up 1% at R4,607.9 crore from R4,563 crore in the same quarter last year. The airline blamed the lean season, the economic slowdown and the weakening currency that pushed up fuel prices as the main causes for the losses.

The Indian aviation industry witnessed increasing cost challenges, mainly due to rupee depreciation against the US dollar, high fuel prices and increase in airport charges in certain stations putting pressures on the bottom line, said Jet Airways CEO Gary Toomey.

In the current scenario, Jet Airways has managed to remain competitive through a series of planned steps, such as discontinuing loss-making routes and stringent cost control measures. The ongoing initiatives will augur well for the airlines performance in the quarters to come.

But even as the Jet management points fingers to factors out of its control that ultimately led to the losses, the airlines heavy discounting during August-September to increase load factors proved costly. According to a statement from Jet Airways, average passenger yields decreased 11% to Rs 7,376 from Rs 8,335.

On a standalone basis, Jet Airways cost per available seat kilometre (ASKM) or the cost of providing each seat went up 19.2% to Rs 4.34 while revenue per ASKM or the revenue earned from each seat went down 2.1% to Rs 3.46. This meant that the airline was losing Rs 0.88 per seat and its break-even seat factor was a near impossible to achieve 98.2%.

Jet Lite, which operates the low-cost Jet Konnect brand, didnt fare much better either, with its cost per ASKM rising 9% to Rs 4.47 while its revenue per ASKM went down 6.3% to Rs 3.30, giving it a break-even seat factor of 94.6%.

Consultants criticised the pricing policy of Indian airlines during the second quarter of 2013-14.

Robust domestic traffic growth in August and September was driven by promotional fares and comes at a cost to the balance sheet, said aviation consultancy firm Centre for Asia Pacific Aviation in a note released on Wednesday morning. Indian airlines have unfortunately repeatedly demonstrated their ability to undo months of hard work with just a few weeks of irrational pricing, as a result of which profitability remains elusive.

The weak rupee during the quarter also didnt help Jet Airways. While the airline earns nearly 60% of its revenue from international operations, its international earnings in dollar terms went down 12% to $413 million from $471.1 million last year.

The rupees weakness against the dollar meant that both lease rentals and the airlines fuel bill went up during the quarter. Aviation fuel expenses went up 7.6% during the quarter to Rs 1,810.80 crore, while aircraft lease rentals went up 37.8% to Rs 428.55 crore.

On a standalone basis, Jet Airways had a net loss of Rs 891.01 crore during the second quarter compared with Rs 99.67 crore in the same quarter last year. The airlines standalone net revenues increased 1.3% to Rs 4,194.7 crore from Rs 4,137.63 crore in the same quarter last year.

While Jet Airways announced the results after trading hours, analysts were expecting a weak show from the airline. On Wednesday, the airlines share closed 0.43% lower at Rs 346.05.