Weak quarter for Jet Airways

Domestic market remains a concern as load factor and margins fall in Q1, weak rupee eats into profitability

The first quarter was largely expected to be a non-event for Jet Airways, as the Street was expecting the airline to report a loss. Compared to a profit of Rs 33 crore in the June quarter last year, the airline has reported a loss of Rs 354 crore this year. However, analysts believe it is more concerned about the airline's falling market share in India.

The airline has reported a fall of 15 per cent in the total number of revenue passengers (in India and abroad) carried during the quarter to 4.13 million. As a result, the consolidated load factor also declined to 78.4 per cent during the quarter, compared to last year's 82.7 per cent. Analysts say the airline has been steadily losing share in the domestic market and is down to 24 per cent this year from last year's 27 per cent. The consolidated margins, too, have declined to 11.5 per cent during the quarter from 16.1 per cent last year.

While margins in the international segment have risen by 40 basis points to 17.4 per cent, in the domestic market, Jet's margins have plummeted to 3.6 per cent from 15 per cent last year.

The airline has attributed the financial impact on several factors such as higher landing and navigation costs in all metros, increments to employees, the rupee's depreciation and aircraft on the ground. The rupee's fall has impacted the company by Rs 132 crore. Rashesh Shah, aviation analyst at ICICIDirect, says the first quarter was a non-event for the company as the focus will now be on the airline's deal with Etihad. Once through, the deal will help Jet improve its footprint globally, which is where the airline is doing well. The airline also is committed to reducing debt by Rs 1,500 crore each year. The deal will give the airline the additional Rs 3,000 crore.

Analysts say even though the company has reported an operating profit of Rs 529 crore in the first quarter despite the fall in the rupee, it is due to its international operations, which account for 60 per cent of revenues. However, analysts believe all the impact of the weak rupee is not visible in Q1. During May and June, air turbine fuel prices had declined marginally, while it went up in July. This, along with the rupee's full impact, will be visible in the second quarter. Analysts say what the market wants to hear is the manner in which the Jet-Etihad partnership plays out operationally.