The clouds over the Indian aviation sector are only thickening. The financials of most airlines are in such a mess that chances of any immediate improvement look quite remote. What makes the conditions more scary is dire warnings from analysts who predict higher loss estimates for the current financial year.
In fact, there are a couple of factors ganging up here — a rupee on a downhill journey, weak operational performance and high jet fuel costs, which all are playing out to keep profit expectations depressed for FY13 as well.
Usually, the December quarter is one of the brightest spots for the Indian airline industry. But this time around, it may be a different story altogether. Both Jet Airways and SpiceJet, which reported a profit for the December quarter last year, are expected to run up significant losses.
Analysts Mark Webb and Rajani Khetan wrote in an HSBC note on SpiceJet on Wednesday: “Despite the third quarter being seasonally the strongest, we expect SpiceJet to post a loss ofRs49.8 crorealthough we believe losses will narrow from the second quarter of FY12 due to a sequential increase in yields.”
SpiceJet’s profit stood at Rs94.4 crore in December quarter of FY11. They are not off the mark when they put down the expected losses to costlier fuel and rupee depreciation, coupled with lower load factors.
Jet Airways, the largest airline by market share, is also in a spot of bother. The analysts, in another note on Jet Airways, have forecast a loss of Rs370 crore for the December quarter at the group level. It’s in stark contrast to a year earlier when Jet Airways had posted a profit of Rs140 crore.
The assessment of losses by another market maven from a domestic brokerage firm is mostly on the similar lines.
“We expect Jet Airways to report a loss of Rs380 crore and SpiceJet could report losses Rs67.2 crore,” said the analyst, who did not wish to be identified.
Prospects for the whole of current fiscal do not look too alluring either. Most broking firms have further revised their loss estimates for airlines, albeit with a further upside. The HSBC duo has revised the total loss estimate for Jet Airways for the current fiscal to close to Rs1,678 crore from its previous forecast of Rs1,146.5 crore.
SpiceJet is no better, which is expected to run into a loss of Rs409.2 crore this fiscal, against an earlier estimated Rs374.5 crore.
Kingfisher Airlines, one of the three listed players, is going through a difficult phase, too. While most brokerage firms have dropped coverage on the airline, the general expectation remains bleak. Some analysts expect Kingfisher to cloak in losses similar to Jet Airways, if not higher, for the current financial year. “The expectations that the airline’s losses would not be higher than Jet Airways are basically on the fact that shutting down the low-cost segment may have helped cut costs,” reasoned an analyst on condition of anonymity.
Whatever hopes analysts had about airlines showing some profit indications in the upcoming fiscal have now been dashed by new loss estimates.
“I expect losses to continue in FY13 for SpiceJet, high fuel prices and impractical ticket prices being the main reasons for the loss expectation,” said Sharan Lillaney, an analyst at Angel Broking.
The HSBC team, which had earlier forecast profit for both Jet Airways and SpiceJet in FY13, has now put likely losses at Rs172.6 crore and Rs79.6 crore, respectively.
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