Airlines may fly into losses in June quarter

Written by Shaheen Mansuri | Mumbai, Jul 7 | Updated: Jul 9 2008, 04:52am hrs
With the June 2008 quarter results around the corner, aviation analysts and financial planners feel that the sector will remain in the red for the current fiscal. Traditionally, the April-June quarter is considered strong due to the holiday season but this time, coupled with high inflation rate and turbulent capital markets, airlines are unlikely to post profits due to high operating costs.

Says Gaurang Shah of Geojit Financial Services, The losses in the sector are mounting each passing day. Jet fuel prices have increased more than 50% since January 2008 due to which airlines have bloated fuel bills in their balance sheet. Secondly, the airport infrastructure fee is also high and with poor load factors, airlines cannot battle high operation costs.

Sandeep Shenoy, strategist, Pioneer Intermediaries, adds that even the revenues might be lower in the quarter due to high interest rates and depreciation costs. Meanwhile, Rajeev B Batra, executive director KPMG, India told FE, The airline sectors profitability, revenue and yields are predominantly driven by economic and external factors and this makes it most vulnerable to even the slightest variation in economic growth rates, currency fluctuations and most importantly, oil prices. The June quarter will see substantial losses due to high inflation and volatile capital market.

However, an investment banker adds that in the near future, going by the underperformance of the sector, smaller buyers might exit to minimise losses since it is impossible for them to fund the aircraft acquisition and cannot service the cost of interest apart from the high fuel bills.

Also, shares of private carrier Jet Airways reached a 52-week low at Rs 308 on July 2, compared to Rs 1,049.80 on December 19, 2007 on the Bombay Stock Exchange. Deccan Aviation Ltds stocks too nosedived from Rs 335 on December 19, 2007 to Rs 54 on July 2. Similarly low cost carrier, SpiceJet also took a beating as its share price plummeted to Rs 20.50 on July 2, 2008 from 104.80 in January 2008.

In the year 2007 April-June quarter, Deccan had posted a net loss at Rs 173.09 crore, SpiceJet reported a net profit of Rs 18.54 crore and Jet reported a net profit of Rs 30.88 crore.

This quarter, there could be losses for all the listed airlines, adds Shah.