An uphill climb ahead for Jet Airways

A lean September quarter, coupled with rising crude oil prices, can dent margins

The Jet Airways stock fell over a per cent on muted near-term outlook as well as a disappointing margin in the June quarter. Its consolidated net sales were up 9.5 per cent at Rs 5,951 crore. It was broadly in line with analysts' estimates, led by an 8.1 per cent growth in passenger traffic, while the rest was accounted for by a higher yield. Demand weakness in international business (Middle East) limited revenue growth. 

Average fare per passenger was up 3.4 per cent to Rs 7,233. Higher costs, both on account of fuel and maintenance cost, dented the earnings before interest, depreciation, tax and amortisation, which stood at 6.5 per cent, lower than the Street's estimates of 7.7 per cent.

The outlook for the September quarter could be worse, given the double whammy of a lean season and a rise in crude oil prices. Fuel costs could move up as crude oil prices have increased 13 per cent since June quarter.

Besides, the company is struggling to improve its market share, which remained at around 17-18 per cent for over a year and a half, with most of its incremental capacity being deployed in international routes and capacity additions in domestic routes are not as aggressive as IndiGo or SpiceJet. 

Capacity additions for the sector were 14 per cent more over the year-ago quarter, while for Jet Airways it stood at 6 per cent.

This also reflected in the passenger growth. While the number stood at 18 per cent for the sector, for Jet it was less than a third of that during the quarter.

An analyst at a domestic brokerage said the market share could stabilise at current levels and the company would be able to improve the same once it starts getting the deliveries for Boeing 737 Max.

Deliveries for the 75 planes on order are expected to start from the June quarter of the next financial year.

Though cost as a percentage of revenue is similar to that of IndiGo and SpiceJet, the company lags behind them in revenue growth. IndiGo and SpiceJet's June quarter revenues were up 23-25 per cent, while Jet's number was half of that.

Higher revenue growth was largely on account of better passenger volumes. Both SpiceJet and IndiGo carried 18-20 per cent more passengers, while that of Jet was in single digit.

What is positive for the company is that it has been able to reduce interest costs by nearly six per cent to Rs 197 crore. The company has been able to bring down its gross debt by about Rs 400 crore.

However, at the net profit level, Rs 114 crore of other income from the share of profit of its project in Bandra Kurla complex in Mumbai was the saving grace. Else, it could have slipped into the red.