Jet Airways hits an airpocket in Q2

Airline reports a loss of Rs 890 crore as yields drop and operating expenses shoot up

The earnings season has been led so far by companies that have benefited from the sharp fall in the rupee. The trend seems to be turning with the likes of Jet Airways reporting a massive loss of Rs 890 crore in the second quarter.

A number of factors have come together during the quarter to hurt the company's revenues and profit. For starters, air turbine fuel (ATF) prices rose by 10 .5% sequentially and 8% year-on-year.

The rupee too wreaked havoc as it weakened by over 10% during the quarter. These factors further accentuated the company's financials in a seasonally weak quarter.

Jet Airways reported a 1% year-on-year growth in its sales to Rs 4,607 crore and a consolidated loss of Rs 998 crore during the second quarter. Analysts say that the market was expecting a loss of Rs 500 crore but the Rs 890 crore loss has come as a big surprise.

During the quarter, the total number of passengers grew by 12% compared to the corresponding quarter last year and yields decreased by 11%, which hurt profitability. In its domestic operations, the company's departures increased by 8.8% and passenger load factor increased 4.7% year on year to 70.3%.

Despite the increase in load factor, domestic revenues fell 2% year-on-year to Rs 1,618 crore during the quarter. Analysts say this is is primarily due to promotional schemes launched by the airline during the lean season. Overall operating expenses have sharply risen by 23.6% to the corresponding period last year. Aircraft lease rentals have jumped 35%.

The company has blamed its dismal performance on the lean season and economic slowdown which pushed yields down per passenger. Also, increases in airport charges in select Indian airports have further driven cost pressures resulting into losses.

Apart from these factors, Jet has also stated that there have been instances of aircraft on ground, the impact of which was approximately Rs 123 crore. These aircraft will be leased out in the next few months. The international operations also saw gross revenues per passenger in dollars fall 24% to $229.6 compared to the corresponding quarter last year. However, thanks to the rupee's fall, this fall was only 10% in rupee terms.

The third quarter is expected to be much better than the second, analysts believe as it's a seasonally strong quarter and also the currency has stabilised at current levels for now. Also, once the Competition Commission of India clears the deal with Etihad, Jet will see a fund infusion of Rs 3,000 crore.

The airline beleives that Q3 will reflect high seasonality, which will help to improve yields. Also, the company has revised fares upwards towards the end of the second quarter, which will start reflecting in the coming quarters.