Jet Airways: Air pockets ahead

Fewer passengers and higher costs continue to weigh on the operations of Jet Airways.

The economic slowdown has resulted in a 20 per cent decline in standalone passenger volumes in the March 2009 quarter for the airline resulting in 8 per cent y-o-y dip in revenues to Rs 2,566 crore. If it posted a net profit of Rs 53 crore, it was only because of a one-time Cenvat credit of Rs 350 crore.

On the back of capacity rationalisation, restructuring of operations, lower fuel costs and improved profitability in its international business, the company’s opm improved to 20.8 per cent in the March 2009 quarter vs 7.7 per cent in the March 2008 quarter. Aided by lower fuel expenses, this is the second consecutive quarter of operating profit margin improvement on the domestic and international routes. Even its low-cost subsidiary, Jet Lite, has seen similar trends.

However, this subsidiary is also its biggest headache. Of the Rs 961 crore consolidated loss for 2008-09, two-thirds is on account of Jet Lite. With costs largely remaining the same, Jet Lite’s gross revenues per passenger is half that of Jet’s. In the low-cost carrier business, severe competition and higher fuel costs meant that Jet Lite needed 93 per cent loads to break even; it managed just 68 per cent.

But even after a tough year, the outlook for 2009-10 is not exciting as the company management expects demand to remain sluggish in both domestic and international sectors. The lean season would mean that the June quarter numbers would reel under the pressure of poor loads and dipping prices translating into lower profitability. The launch of no-frills operation, Jet Konnect, to link up smaller cities may help the company take a shot at regional markets and improve revenues to a small extent while keeping costs low.

Fuel cost is at half its peak from August 2008, so there would be some savings there. However, the muted growth outlook for the current year means that the company is unlikely to report a net profit in 2009-10. The Jet stock declined 8 per cent after the weak performance on Tuesday, but is up 38 per cent over the last month, and trades at Rs 280.

Associate with RAM PRASAD SAHU and VISHAL CHHABARIA