2019 started on a good note with a big relief coming from lower aviation turbine fuel (ATF) prices, as crude oil prices are relatively lower at the moment. While Jet investors await more details, the good news for the industry is that the skies are clearer now in contrast to the cost pressures faced last year.
“While efforts are being made to rationalize costs and rejig the existing network to reduce losses, adequate capital support to execute the plan will be key for the airline’s revival," wrote analysts from SBICAP Securities Ltd in its Jet result review report on 15 February. Jet’s board has approved a bank-led provisional resolution plan, which estimates a funding gap of ₹8,500 crore to be met by equity infusion, debt restructuring and sale/sale and lease back/refinancing of aircraft, among others. It reported massive consolidated loss of ₹732 crore for the December quarter. Jet has its own peculiar financial problems. “The scale of the problem is not large enough yet to warrant a cut in earnings estimates, although the situation needs close monitoring," said an analyst, requesting anonymity. IndiGo is facing a challenge because of a shortage of pilots, which is beginning to bite. For instance, some analysts are concerned that SpiceJet’s profits were boosted by an unusual jump in its other operating income. In short, passengers have had to pay more to travel. Improving pricing at a time when load factors have dropped essentially means that the quality of traffic has improved, pointed out Deb of ICICI Securities. One hundred basis points equal one percentage point. Jet’s load factors declined marginally, supported to an extent by a decline in its capacity. IndiGo and SpiceJet saw their load factors drop 320-340 basis points on a year-on-year basis. However, it’s worth noting here that airlines have settled for lower passenger load factors in the bargain.
SpiceJet and Jet both have seen their yields for the December quarter increase in a similar range as that of IndiGo’s. Note that IndiGo was facing pressure in the lucrative 0-15 days segment for three quarters prior to the December quarter. This improvement in our performance was largely because of improvement in yields, especially in the 0-15 day booking window during these months," IndiGo’s management said in its post earnings conference call. “We saw a much better revenue performance (per available seat kilometre) in November and December.
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