The pleasure of profits in the first quarter (Q1; April-June) is going to prove short-lived for domestic airlines as pain, in the form of losses in Q2 (July-September), will likely return and grip them, if Jet Airways’s numbers are any indication.
The airline, second only to the privately held Indigo in terms of market share, reported a whopping Rs100 crore Q2 loss.
The saving grace was that it still beat the Street’s expectations of a deeper loss, and, thanks to forex-related gains of `80 crore, tax reversal of Rs9 crore and duty drawback benefit of Rs140 crore, appeared better than what it was this time last year, when losses touched Rs714 crore.
“We were expecting a loss of around Rs 206 crore,” said Mahantesh Sabarad, senior vice-president of equity research at Fortune Securities." In response, Jet’s shares – market cap: $563 million or Rs3,092 crore – closed 3.1% up on the BSE whose Sensex ended 1% higher.
Jet’s loss symbolises the plight of domestic airlines (though it is Kingfisher’s troubles that best exemplify the industry’s worrisome state).
Pain seems everywhere, not just in high fuel prices and rupee depreciation vis-a-vis the US dollar, but also in high debt, lean season and economic slowdown, all of which have savaged air-ticket sales.
Jet bemoaned as much in its statement on Friday. It noted that fuel rates increased around 17% on-year, a portion of which was passed on to passengers in the form of increase in fuel surcharge during Q2.
This cost Jet its leadership position (which IndiGo wrested). Jet’s domestic and international traffic dropped 6.6% and 2.1% on-year respectively.
Jet is now “focused on removing loss-making routes, network rationalisation and selectively adding routes which made economic sense”, said Nikos Kardassis, Jet’s CEO.
Analysts such as Mahantesh Sabarad, senior vice-president of equity research at Fortune Securities, feel pain may persist for a while.
“Jet’s winter schedule is weak, down 13.5% on-year. Shrinking margins of Jet Lite are a concern and may affect their financials. The global environment is not conducive for air travel, so international routes may suffer.”
Like Jet, listed competitor SpiceJet is expected to travel from Q1 pleasure — net profit of Rs56.15 crore on sales of Rs1,466.69 crore — to Q2 pain shortly.
As for Kingfisher, the other listed airline, there won’t be any pain-pleasure drama. Its Q1 loss was Rs650.79 crore and sales just Rs301.38 crore. Q2 numbers will confirm it’s still a pain-pain, loss-loss story.