Passenger traffic growth could be sluggish given the weakening economic environment both at home and abroad.
High aviation turbine fuel prices are already pushing up Jet Airways’ operating costs. Now, with the global economic environment weakening and a slowdown already evident in the home market, the carrier could see passenger traffic falling sharply. In the June 2008 quarter, international routes contributed nearly half of Jet’s revenues of Rs 2,899 crore, up from around 35 per cent in FY08.
However, these overseas routes are vulnerable to a sharp slowdown. In the home market too, planes are likely to be less filled in the coming months. June and July 2008 saw the airline carrying fewer passengers – the number of tickets sold was down by about 7 per cent and 9 per cent y-o-y respectively.
The load factor for the airline, at 67.4 per cent in the June 2008 quarter, saw a fall of 170 basis points y-o-y, though it picked up somewhat in July and August to about 68 per cent. That was despite seat capacity for the industry having been scaled back by about 15 per cent this year. Most airlines are now operating on fewer routes.
With ticket prices having been hiked by 5 -10 per cent in August, passenger traffic could be hit. According to DGCA, domestic air passenger growth has slowed considerably and declined by about 17.4 per cent y-o-y in August 2008 to 2.92 million passengers. So if fares remain high, seat factors may continue to remain low even during the holiday season.
That means more pressure on Jet’s financials. In the June 2008 quarter, Jet’s consolidated revenues grew 46 per cent y-o-y to Rs 2,899 crore. However, the company had operating losses before rentals of Rs 244 crore -- in the June 2007 quarter, the airline had posted a profit of Rs 223 crore. The main culprit was higher crude oil prices, which rose156 per cent y-o-y. Besides, interest costs increased 109 per cent.
The Jet Airways stock has underperformed the market, coming off by 57 per cent since the start of the year, while the Sensex has lost around 31 per cent. It could be a while before crude prices come off to levels at which airlines can afford to cut fares. Until that happens, there’s unlikely to be a rush for plane seats. Or for aviation stocks.
