Slow run

The consolidation in the domestic aviation industry and Jet Airways’ focus on reducing costs may have benefited the latter, but Jet is yet to come out of the woods. A prominent player in the aviation space, Jet reported a net profit of Rs 30.88 crore for quarter ended June 2007 (Q1) against a loss of Rs 44.98 crore in Q1 last year, thanks to foreign exchange gain of Rs 129 crore. Excluding that, Jet would have incurred a higher loss, consequent to a 50% jump in depreciation to Rs 132.78 crore.

While Jet’s revenues grew 11.3% to Rs 1,806.60 crore, it was supported by the increase in number of flights and capacity in the international operations. Revenues doubled to Rs 435.77 crore influenced by better seat factors on Asean (73%) and SAARC routes (average of 74%). Seat/load factors in the aviation business are akin to capacity utilisation in manufacturing business.

The local market continues to be characterised by stiff competition in terms of pricing as well surge in capacity (up 38%). Thus, Jet’s load factors fell by about 4% to 71.2% and revenues fell marginally (by 2.81%) to Rs 1,351.50 crore; margins too slipped.

Notably, Jet’s effort to control costs seems to be paying off and was also supported better yields and lower fuel prices (by 4%), which is visible in the small increase in operating margins. However, fuel prices have risen lately and any further rise can potentially offset efforts towards improving profitability.

Going forward, Jet has major expansion plans for its international operations with launch operations on three international routes expected in the next quarter, which though will add to costs initially. Also, traditionally the second quarter is considered as a weak quarter.

Meanwhile, Jet’s acquisition of Air Sahara (now JetLite) is seen as a positive in the long term. Their combined domestic market share is around 31-33%. Jet has also been successful in increasing the number of aircrafts (of Sahara) in operations to 20 compared with a total of 24 aircraft, with the balance expected by October 2007.

However, JetLite’s performance will only be consolidated with Jet’s, at the year-end.
According to Bloomberg, four out of seven analysts consider Jet a good bet. The stock though is down 13.2% to Rs 707.80 in the last one month, to some extent due to fear on account of rising crude prices and, can be considered for long-term.

Contributed by Vishal Chhabria & Pallavi Pengonda