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Jet, SpiceJet soar on misfortunes of rivals

Turn in fortunes mainly due to passenger traffic growth by 10% & 26%

Abhineet Kumar  |  Mumbai 

Despite a bleak operating environment, and have flown into the black. The turnaround may have more to do with their embattled rivals than anything else.

Someone’s adversity almost always means another’s good fortune and this has certainly been the case with and SpiceJet, who have clawed their way back into the black after five consecutive quarters of losses. Whom to thank for such good luck? Why, crisis-ridden rivals and Air India, of course. The Vijay Mallya-promoted Kingfisher Airlines' sharp slashing of capacity and industrial action at the government-controlled Air India's long-haul route have helped both Jet and report higher yields respectively for both domestic and international operations.

In fact, improved first quarter results of Jet and have come despite considerable operating hurdles. The April-June quarter this year saw a 13 per cent rise in turbine fuel cost and the rupee depreciated 24 per cent versus the US dollar over the past year. This was in addition to the imposition of levies and charges related to improving the infrastructure at the Delhi airport's T3 terminal.

In the black
Despite these impediments, Jet reported a net profit of Rs 24.7 crore for the quarter, up from a net loss of Rs 123 crore in the same quarter of the previous year. Similarly, reported a net profit of Rs 56.2 crore, against a net loss of Rs 72 crore in the year-ago quarter. This included receipt of warranty claims worth Rs 12.9 crore from an engine maker that the company treated as one-off income.

This fortuitous turn in fortunes for the two carriers is primarily because passenger traffic for both grew by 10 and 26 per cent, respectively, despite the overall domestic traffic growing a scant one per cent. “Jet and Spice Jet's return to profit can be completely attributed to the sharp capacity cuts by Kingfisher,” says Jasdeep Walia, an analyst with the Mumbai-based brokerage, Kotak Securities.

One of the benefactors, Kingfisher, is now operating 20 planes on about 120 flights a day, down from 66 aircraft and around 340 daily flights in March 2011. In terms of market share, it has slumped to sixth from second, and is struggling to clear Rs 7,000 crore in debts to airports, tax men and oil The carrier reported a net loss of Rs 650 crore in the quarter, more than doubling the loss of Rs 263.54 crore it made in the same period a year ago. The losses have forced it to end international operations and delay deliveries of the Airbus SAS A380 to beyond 2016.

Jet's return to profit has also been boosted by a gain on sale and lease-back of two aircraft as well as the sale of two engines, amounting to Rs 75 crore in the quarter. But, this alone would not have been enough to counter the negative impact of the Rs 410 crore spent on higher fuel cost and a Rs 117-crore hit due to foreign exchange losses. (Click for tables & charts)

Higher loads
A higher load factor, or percentage of seats filled with passengers, of 82.7 per cent, up from 78.5 per cent, has been a key booster of Jet’s revenues. Sales from domestic operations, which accounts for 44 per cent of company's total, was up 33 per cent to Rs 2,068 crore; it also achieved a 10 per cent higher yield (average revenue per passenger). International operations, which contributed 56 per cent to the total, amounting to Rs 2,644 crore, were propelled by a 21.2 per cent jump in yield. This has been clearly possible due to an increase in fares by Jet, after the reduction of services by Kingfisher and

Commenting on capacity and passenger traffic growth, Sudheer Raghavan, chief commercial officer, Jet Airways, in an analyst conference call, says, “Here we are seeing that the two are now fairly closely intertwined…And, given that scenario, I expect the yield or the fare increase, that we have put in place up to now, to hold, and probably even increase.”

While both and Jet have seen their vital statistics improve, fortune has overwhelmingly favoured one player. “Although the troubles facing and Kingfisher have been positive for all other carriers, Jet has been, and will continue to be, the largest beneficiary,” says the Centre for Asia Pacific Aviation, in a report.

“Kingfisher’s dramatic contraction, from 66 to 16 operational aircraft, of which half are regional ATR aircraft, has thrown the domestic business market open to Jet. Similarly, the temporary industrial action on Air India’s long-haul international routes has driven North American and UK traffic to Jet,” adds the report.

Spicing it up
The grounding of planes by Kingfisher created a 12 per cent cut in the overall domestic capacity of around 400 aircraft. Billionaire Kalanithi Maran-promoted leveraged this opportunity to increase its fleet to 39 from 28 a year ago by deploying especially smaller Q400 Bombardier aircraft, thereby bringing a 16.7 per cent rise in seat capacity. SpiceJet, in fact, outperformed the industry by increasing its market share to 18.6 per cent from 14 per cent a year ago, and dislodged from the third position. The company was able to achieve this because Chief Executive Officer chose to focus on routes where the competition was limited.

was also able to record a higher load factor of 80.3 per cent, up from 78.9 per cent a year ago, and generated a 23.9 per cent rise in yield. Its revenue, on a year-on-year basis, improved 55 per cent to Rs 1,460 crore, as the number of passengers rose to 3.26 million from 2.58 million in the same period.

There are others who have benefitted from the airline industry’s market share shakeup. At the end of July, IndiGo emerged the largest Indian carrier, gaining 27 per cent market share against Jet’s 26.6 per cent in the month. At a time when others dithered over bringing in new aircraft, IndiGo continued to expand its weekly capacity by over 30 per cent in a year. This is unlike Jet, which merely increased its capacity by changing aircraft configuration and adding more seats for its Jet Konnect services.

How long will these airlines be able to capitalise on their recent good fortunes? SpiceJet’s Mills says:" We are confident of maintaining our profitable position as we continue to improve our operational efficiency." The company's plan to directly import aviation fuel, the first one to get such a permission from the government, is likely to take off at the end of the current quarter, further boosting its revenues.

But now, with the likelihood of a change in the policy on foreign direct investment in aviation, which could revive Kingfisher as well as the government’s desire to urgently resolve Air India's issues, it is anybody’s guess if Jet and will be able to continue their winning streaks.

Meanwhile, the ones not cheering the turn of events are the airline passengers who have witnessed an unprecedented rise in fares. This is sure to continue as long as some airlines underperform, practically handing over their business to ever-grateful rivals.

First Published: Tue, August 21 2012. 00:42 IST