Jet Airways: Lean season, bleak quarter

Lean season blues added to woes for the airline that included a five day pilot strike this quarter.

Revenues dipped 34.4 % y-o-y to Rs 2020 crore. Revenue passengers travelling this quarter were down 1.2% to 2.79 million. As airfares were also low through Q2, lower yields compounded the seasonal issues.

Expenses were lower this quarter (down 33.3% y-o-y), to Rs 2315 crore primarily due to significantly lower fuel costs (about 54% y-o-y). However, cost rationalization is evident with expenses trending down across the board. This trend has reversed already as fuel costs were up 22% over Q1.

EBITDAR (earnings before interest, tax, depreciation, amortization and rent) margins in the quarter improved to 10.6% from -6.10% last year. Operating margins (Ebitda to sales) clocked in at 3.25% against -6.94% last year.

Interest costs in the quarter surged by over 50% translating to higher bottom line losses. The airline posted a Net loss of Rs 406 crore, compared to a loss of Rs 384.5 crore in Q2FY09.

Robust tailwinds

Performance parameters, however, are looking up. The sense is that yields and traffic has bottomed and will improve especially as the third quarter coincides with the peak travel season propping year-end numbers. Also, the seat factor (a ratio of passenger-kilometers flown to available seat kilometers) has improved to 77% from 66.3% last year.

International operation revenues were down over 26%, y-o-y given the sluggish demand especially in the premium segment. The positive is that seat factor has averaged over 80% across geographies. The EBITDAR margin was 25% compared to -9.5% last year.

Domestically, the seat factor has risen to 69.8% from 66.9% in Q2FY09, while industry traffic was up 24%. Fares have been in an upswing so yields are expected to improve going ahead. The industry capacity domestically has dipped 3% y-o-y and 11% from peak levels in August 2009 according to BoA -Merril Lynch estimates. The changed supply- demand dynamic should work in the favour of airlines supporting fare hikes and improved yields in the future.

The stock closed at Rs 407 on Oct 28 2009. It is trading at a one-year forward P/E ratio of 14.28x based on 2011 EPS estimates of Rs 28.6 according to Bank of America-Merril Lynch.