Airlines seem to be finally emerging from their two-year flight of turbulence when passenger traffic dipped, operating cost shot up due to higher oil prices and fares slipped to very low levels on sagging demand and competition.
Improving airline yields — or net revenue per seat — and load factors in the last three months are providing tailwinds to domestic carriers, which are steeped in losses, to fly towards profits.
And if the current trend continues through this month — December — then this quarter may see many local airlines breaking even or even making a small profit.
Sanjay Aggarwal, chief executive officer (CEO) of SpiceJet, said given the robust demand, his airline is expecting to record profits in this quarter.
“If the current demand trend persists then we will break even. Hopefully, we may even make some money in the current quarter,” he said.
The budget airline had posted a loss of around Rs 18 crore in the December quarter last year due to the slump in domestic demand with the global economic meltdown.
Bigger rivals Kingfisher Airlines and Jet Airways had lost Rs 626 crore and Rs 236 crore respectively in the same quarter last year.
Going by Jet’s performance in terms of load factor and yield till now, analysts said the Naresh Goyal-owned airline may also be able to achieve breakeven in the third quarter of this fiscal.
Anand Kumar and S Arun, analysts with Bank of America Merrill Lynch, said a good December will enable Jet to break even in the third quarter itself.
“Jet is expected to post strong passenger growth numbers and yields in December on the back of the ongoing holiday season. This should enable Jet to break even for the first time in the last seven quarters,” Kumar and Arun wrote in a note on Monday.
The two said the airline’s focus on its low-cost arm Jet Konnect and route rationalisation have helped it to post strongest passenger growth in last three years.
Last month, the airline’s passenger traffic growth of 33% was higher than the industry growth of 29.8%.
Jet’s domestic yields have also jumped 20% in the ongoing quarter over the last quarter. Kumar and Arun expect it to be strong in the coming period also.
“We expect yields to remain firm on the back of curtailed supply. We expect domestic yields to rise by 10% to Rs6.22 per revenue passenger kilometre in FY11 (as against earlier estimate of 8.5% rise in domestic yields).”
SpiceJet’s Aggarwal said his airline’s yields were up by around 25% over the last quarter. He said if today’s favourable trend in load factors and yields does not reverse then it would be smooth flight for the local carriers in 2010.
“We are seeing the gap between demand and supply narrowing. We estimate that if demand continues to look up then by third quarter of next calendar year the gap will completely disappear,” said Aggarwal.
An industry expert said the average load factor of airlines is currently hovering between 76% and 78% compared with 70% in the September quarter, while yields are higher by 15-20% over last quarter.
“And since the operational cost of airlines have not changed much during the same period, all this is helping airlines move towards profits,” he said.
However, some analysts feel profits of Jet for this quarter may not be sustainable in the next fiscal.
“This is a temporary phenomenon. Jet will be able to breakeven (in current quarter) but they will not be able to sustain the same in the coming quarters. It will take them some more time to breakeven completely. By FY11, the airline will be able to see sustainable profits,” said an analyst with Centrum Broking, who did not wish to be named.
He, however, believes SpiceJet may be able keep up its performance in the coming quarters.
“They (SpiceJet) will continue to perform better than other airlines. SpiceJet has its costs under control and had made profit in the June quarter (of Rs 26 crore against a loss of Rs 129 crore in the same quarter last year),” the analyst said.
Comments