Jet Airways flies into Rs 55 cr net loss in Q2

Fare wars, spiralling costs and ambitious route expansion have saddled Jet Airways with a net loss of Rs 55.13 crore for the quarter ended September 30, 2006, against a net profit of Rs 68.59 crore for the quarter ended September 30, 2005.

Total income for the same period, however, rose by 37.53 per cent to Rs 1,821.23 crore from Rs 1,324.24 crore in the corresponding quarter last year.

As a result, Jet Airways' net loss for the half year ended September 30, 2006, was Rs 100.11 crore, against a net profit of 163.93 crore in the same period last year. Total income from operations rose by 31.10 per cent for the half year at Rs 3,499.99 crore, from Rs 2,669.60 crore in the corresponding period last year.

The half-year losses would have been much higher had it not been for profits from sale and lease-back of three aircraft amounting to Rs 161.69 crore.

Jet Airways attributed the losses to fare discounting and increases in fuel prices and other operating costs. Around 65 per cent of the airline's tickets were sold at discounts this quarter compared with only 35 per cent last quarter. As a result, the airline's operating profit margin declined to 5.07 per cent in the reporting quarter from 20.66 per cent during the corresponding quarter last year.

The bulk of the losses came from international operations. These contributed to 17 per cent of Jet Airways' revenue but it ran up a loss of Rs 111.4 crore during the reporting quarter. "International operations were one of the major factors for the losses. There was an increase in manpower costs due to higher salaries of pilots, engineers and others involved in overseas operations," said a Jet Airways spokesperson.

The Jet Airways scrip declined by 1.89 per cent on the Bombay Stock Exchange (BSE) to Rs 616.15, against yesterday's close of Rs 628.

Analysts said the Jet Airways results reflected the intense competition in Indian aviation and added that the airline's losses were above industry expectations.

Budget carrier Air Deccan recently surprised analysts by posting a net loss of Rs 340.55 crore for the 15 months ending June 30, 2006. SpiceJet, another budget carrier, posted a loss of Rs 17.81 crore for the quarter ended August 31.

"The estimated loss was in the region of Rs 130 crore but the loss, including profit on sale and lease-back of aircraft, is Rs 216.82 crore. Apart from high jet fuel prices, pricing pressures amid high competition and lower load factors did the damage," said Edelweiss Securities analyst Gautam Sinha Roy.

The first and second quarters were traditionally characterised by lower seat factors, said Kalpesh Parekh, assistant vice-president, ASK Raymond James. "But the loss is slightly on the higher side due to fuel prices. The softening of fuel prices will be reflected only in the next quarter," he added.

Air Deccan Chief Operating Officer Warwick Brady pointed out that the net loss of Jet Airways showed the future of Indian aviation lay with budget airlines. "The average cost of operating a seat for Jet is 70 per cent higher than Air Deccan. We had posted loss due to aggressive expansion, but best management practices and cost cutting measures will turn the situation around," he added.

While yields have been under pressure, Jet Airways' fuel bill shot up by 70 per cent to Rs 679.19 crore in the reporting quarter from Rs 399.64 crore in the corresponding period last year.

"Fuel costs were higher by Rs 172.60 crore during this quarter compared with the same period a year ago. Included in this figure is an impact of approximately Rs 27 crore due to congestion-related delays at major airports such as Mumbai and Delhi. Fuel surcharges did not help us recover the additional impact," Jet Airways said.

Employee remuneration, too, zoomed by 81.09 per cent to Rs 224.65 crore in the quarter ended September 30, 2006, from Rs 124.05 in the quarter ended September 30, 2005. Personnel costs were higher mainly due to the increase in staff strength from 8,189 to 9,340.