Indian Airline NEWS: Jet Airways' growth momentum likely to sustain; fuel cost a worry

Jet Airways (India) Ltd.
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The third-quarter financial performance of Jet Airways India shows the company's operations are improving. The momentum is likely to sustain in the next three quarters as well, given its cost rationalisation in the past and the upward trend in passenger traffic .

In the December 2010 quarter, the company's net profit rose by 11.7% to 118 crore from the year ago. The company benefited from the 14% growth in passengers and also the conversion of its low-cost carrier (LCC) to full-service carrier and rupee-denominated debt to dollar-denomination. By December 2010, the Mumbai-headquartered company had converted debt of about 2,000 crore of its total debt of 13000 crore into the dollar-denomination, helping it save 5% on interest costs. Also, the flexibility to convert LCC traffic into full services resulted in enhanced yields.

The company's domestic and international operations, on a quarter-to-quarter consideration, have generated positive growth in yields. In the December 2010 quarter, yield for the company's domestic operations increased by 6.3% to 5.69 on a year-on-year consideration. Sequentially, considering the company's September 2010 quarter, the yield for domestic operations increased by 16%. It also pushed the company's earnings before interest, depreciation, tax, amortisation and rental (EBIDTAR) - a variable for operational performance - in the December 2010 quarter to 851 crore, a YoY growth of 17.4%.

In the March 2011 quarter, due to seasonality of business, the company's yield, calculated as revenue per kilometre per paid passenger, may fall 3% from 5.7. This fall, however, would be cushioned by three factors. The March 2011 quarter will see higher traffic due to the cricket world cup, ensuring continued momentum in traffic in the industry, which is growing at a healthy rate of 19%. Jet Airways, with the biggest market share of about 26%, will benefit from this.

The company will also benefit from shifting a significant part of the capacity of Jet Konnect - a no-frills carrier - to its full services carrier Jet Airways. It has converted about 54% of its Jet Konnect traffic to Jet Airways. Further, its new routes, including Johannesburg and Milan, which it launched last year, are expected to breakeven in the near term.

The only concern is the negative impact of crude oil prices. For Jet, the per litre expense on aviation turbine fuel has increased by nearly 14% since December 2010. Its near-term performance will also hinge on the extent to which the company can pass on the increase in fuel cost to travellers.

NEHA JAIN

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