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Surprise profits show worst over for stronger airlines

INDIA-AIRLINES-SPICEJET-KINGFISHER:Surprise profits show worst over for stronger airlines

Reuters  |  By Anurag Kotoky</p>NEW DELHI  

new Delhi  August 6, 2012, 15:07 IST

new Delhi  08 06, 2012, 15:10 IST


For India's healthier airlines, the worst is behind them as drastic flight cuts by embattled former No.2 Airlines enables the others to raise ticket prices.

Market leader Jet Airways and third-placed SpiceJet, which unexpectedly reported quarterly profits last week, were upgraded by Bank of America-Merrill Lynch to 'buy.'

The carriers should post smaller losses this financial year and turn profitable in the year ending March 2014, the bank said on Monday.

"The recent first-quarter of and our own checking of ticket prices every two weeks suggests that pricing recovery has already started. appear to have achieved some ticket price hikes in the last three months," it said.

"We expect another hike may come during the third quarter, which is the peak season," Anand Kumar and S. Arun, analysts at Bank of America-Merrill Lynch, wrote in a note to clients.

Passenger yields on Jet's domestic flights rose about 9 percent in the quarter to end-June, while average revenue per passenger at jumped 24 percent. Yield is a measure of the average fare paid by passengers for a particular distance.

Challenges remain for an industry plagued by high fuel taxes and airport charges, stiff competition, subsidised losses at state-owned Air and regulatory uncertainty.

Kotak Institutional Equities maintained its 'sell' rating on Jet on Monday, citing the company's high leverage, but said improving yields are a positive for the industry. It has a 'buy' rating on SpiceJet, a budget carrier.

"From here, any reduction in costs could lead to significant improvement in profitability as the sector has high operating leverage," analyst Jasdeep Walia wrote in a note.

In the fiscal year that ended in March, of India's six big airlines, just one, unlisted IndiGo, turned a profit while the industry lost a combined $2 billion.

(Editing by Ryan Woo)

First Published: Mon, August 06 2012. 15:07 IST