DGCA data shows that passenger volumes went up 5.5 per cent between the January to November 2009 period over the same period in 2008.
While 2008-09 was a disaster for the sector which recorded a year-on-year de-acceleration for the first time since 2002 due to the global downturn, passenger volumes since the start of 2009 have been on the upswing. DGCA data shows that passenger volumes went up 5.5 per cent between the January to November 2009 period over the same period in 2008. A large part of this increase has come during the August to November 2009 period when passenger volumes numbers have increased between 25-30 per cent year-on-year. Analysts expect the trend of double-digit growth in passenger volumes to sustain on the back of improving economic outlook.
With demand creeping back, airlines have, since July, been adding capacity, albeit in a gradual manner. Strong demand since then has meant better capacity utilisation with loads hovering at the 75 per cent range, considerably better than the 70 per cent loads during the September 2009 quarter. This has given airlines better pricing power, with some airlines mulling fare hikes on select routes from the current month.
Fuel, which makes for 40 per cent of the operational cost, however, could play spoilsport. ATF prices have risen by 60 per cent to Rs 41 a litre since its lows in May 2009. Despite the rise, it is still 10 per cent below year ago figures. With strong demand and higher ticket prices, this might not be an issue yet for the players, unless crude oil prices gain momentum for current levels of $82-83 a barrel. Notably, the companies have also been able to cut costs, which is evident in their September 2009 quarter results, which has seen losses decline year-on-year.
The markets have thus far responded positively to the improved performance. While the Sensex gained 12 per cent since August 2009, the stock prices of Jet Airways and Spicejet have doubled. Kingfisher Airlines, too, has shown a 35 per cent gain during this period. While there has been in improvement in the operational environment, funding will continue to be a key challenge for Jet Airways and Kingfisher.
The Street will keep an eye out for fund raising efforts of Jet and Kingfisher, both of which are sitting on debt of Rs 14,000 crore and Rs 6,000 crore, respectively, creating high interest cost pressures. While both firms are planning to raise about Rs 2,000 crore, which could reduce debt, profits are some time away. On the other hand, with little debt on its balance sheet and stable operational parameters, analysts believe that Spicejet will breakeven at the net level in 2010-11 and could return upwards of 30 per cent from these levels.