Distressed profitability amid adverse cost structure (CASK ex-fuel at 60% higher than Indigo) renders balance sheet vulnerable,” the Edeweiss report said.
With lower revenue per available seat per kilometre (RASK) compared to its peers than cost incurred, along with stagnant revenue from international operations and likelihood of cost increase in future due to increase in the fleet size, Jet Airways may find it difficult to repay its huge debt of around Rs 8,000 crore and maintain profitability in coming quarters, brokerage firm Edelweiss said in its note on the company. “Owing to high cost structure (cost per ASK ex-fuel 60% higher than Indigo, 25% higher than SpiceJet), Jet Airways continued to clock negative unit cost (RASK-CASK) which is loss of Rs 0.1 per kilometre compared to the profit of Rs 0.6 per kilometre for IndiGo and Rs 0.3 per kilometre for SpiceJet. We believe, this significantly limits its ability to repay large debt Rs 8,100 crore,” Edelweiss noted in its report.
Almost 73% of the the total debt of the airline is dollar denominated. During April-June FY18, the airline reported an increase in total expenses due to rise in fuel bill and employee costs. This took a toll on the EBITDAR (earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs) which decreased by 2.14% y-o-y to Rs 1,005 crore. As a result of slower-than-expected growth in the international business, especially due to the subdued demand in the Gulf sector, the operating parameters also suffered during the quarter. “We factor in lower growth (FY17-19E EBITDAR CAGR at 7%; Indigo: 29%, SpiceJet: 24%) as international operations are likely to continue to struggle. Distressed profitability amid adverse cost structure (CASK ex-fuel at 60% higher than Indigo) renders balance sheet vulnerable,” the Edeweiss report said. Due to a slowdown in the Gulf economies, contribution of international revenues to the overall top line in the first quarter declined to 54.35%, compared with 58% in the year-ago period.