Jet Airways held a conference call to discuss quarterly and nine months ended results and future growth plans. Wolfgang Prock-Schauer, Chief Executive Officer (CEO), addressed the call.
Highlights for quarter ended December 31, 2008 vs. December 31, 2007
Operational
- System-wide ASKMs of 8,114 million, up 23.2%
- System-wide RPKMs of 5,369 million, up 17.9%
- System wide seat factor of 66.2% vs. 69.1%
- 2.56 million revenue passengers carried, down 13.1%
Financial
- Revenue of Rs 3063.1 crore (US$ 628.8 million), up 21.7%
- Loss before tax Rs 249.8 crore (US$ 51.3 million) vs loss of Rs 130.4 crore (US$ 33.1 million)
- Loss after tax of Rs 214.2 crore (US$ 44.0 million) vs loss of Rs 91.1 crore (US$ 23.1 million)
Highlights for nine months ended December 31, 2008 vs. December 31, 2007
Operational
- System-wide ASKMs of 24,684 million, up 47.3%
- System-wide RPKMs of 16,466 million, up 43.5%
- System wide seat factor of 66.6% vs 68.4%
- 8.54 million revenue passengers carried, up 3.5%
Financial
- Revenue of Rs 9220.7 crore (US$ 1,883 million), up 36.5%
- EBITDAR of Rs 75.3 crore (US$ 15.5 million)
- Loss before tax Rs 609.1 crore (US$ 125.1 million) vs loss of Rs 38.4 crore (US$ 9.7 million)
- Loss after tax of Rs 455.3 crore (US$ 93.5 million) vs loss of Rs 31.9 crore (US$ 8.1 million)
Financial results of Jet Lite for the Q3 and year ended December 2008
- Achieved seat factor of 67.8% (v/s 71.6% for Q3 FY08)
- Achieved Revenues of Rs 474.1 crore (US $ 97.3 million) v/s 429.9 crore (US $ 109.1) for Q3 FY 2008.
- Loss after tax of Rs 22.0 crore (US $ 4.5 million) v/s Rs 86.0 crore (US $ 21.8 million) for Q3 FY’08
- The change in livery and new branding for Jetlite is nearly complete.
- The synergies in processes and costs are starting to show effect and the management is confident that with some recovery in the traffic volumes as well as improvement in product quality and will be able to get to profitability.
Domestic operations
Domestic operations accounted for 45.7% of operating revenues (Rs 1382.1 crore, US$ 283.75 million) as compared to 63.5% (or Rs 1539.7 crore, US $ 390.6) in the third quarter of the last year.
The Company achieved a domestic seat factor of 62.4% in the quarter ended December 2008 versus 72.3% in the same period a year ago.
During the quarter with the fuel prices going down, there was a decrease in the fuel surcharge levels in Dec’08. Despite this, the domestic operations showed an increase in yield by 23.3% over the same period a year ago. As compared to Q2 this year, domestic yields were up by 4.4%
The Company recorded a pre-tax loss on domestic operations of Rs 130.7 crore (US $26.8 million) versus a loss of Rs 14.4 crore (US $ 3.7 million) in the same period a year ago.
The key factors affecting the domestic performance in the third quarter included:
- A general slowdown in traffic due to pressure on corporate traffic and the general recessionary impact on leisure traffic has led to an 18% decline in overall market in Q3 this year. To some extent, the reduction in traffic over last year that the company has seen over the last few months is also an impact of capacity reduction in the industry.
- This was further accentuated due to the unfortunate terror incidents in Mumbai in November 2008.
- Reduction in ATF prices helped in reduction of operating costs as compared to the previous quarter. The average rate of ATF for the quarter was Rs. 45.10 per litre, which was higher than Q3 FY 2008 rates by close to 2% and lower than Q2 FY 2009 rates by 33%. The break even load factors have reduced to 67% on the domestic business.
- If capacity is sustained at current levels and airlines don’t add any further routes/ aircraft, the management of the company expects the Industry seat factors, which are currently in the mid to high fifties to show an improvement in the next few quarters. The overall industry, though, is expected to post losses for the year.
- The company was also impacted due to the depreciation of the Rupee from Rs. 39.42 to a dollar in Q3 last year to close to Rs. 48.71 in Q3 FY 09.
- The company has carried out a capacity reduction exercise in the domestic market, whereby 4 – 5 of its aircraft are rendered surplus. These aircraft will be returned to the lessors between January and May 2009.
International operations
The revenues from its International operations now account for 54.3% of operating revenues (Rs. 1640.7 crore, US $ 336.83 million) as compared to 36.5% (Rs 886.3 crore, US $ 224.85 million) in the third quarter of last year.
The Company achieved a seat factor in international operations of 67.8 % for the quarter (66.4% a year ago).
The increases in all other costs were in line with the increase in level of operations and in most instances even lower than that of the same period last year and the company will continue to closely monitor its costs as part of the turnaround/ improvement program.
The break even load factors have reduced to 74% which is achievable taking into account the current operating environment.
The pre-tax loss on international operations was Rs 119.1 crore(US $ 24.4 million). As against this, the company had a pretax loss of Rs 115.9 crore (US $ 29.4 million) in the same period a year ago.
As a result of network rightsizing, the company had instances of aircraft on ground and the impact on account of this amounted to Rs 44.8 crore (US $ 9.2 million) for the quarter.
The company has discontinued its Amritsar – London route w.e.f. December 1, 2008 and its Mumbai – Shanghai – San Francisco w.e.f. January 13, 2009. This will help up reduce losses on the International operations and also help release these surplus aircraft.
The company has been able to place out its excess capacity and as of now it has leased out 5 of its wide body aircraft. Over the next few months, the management expects to place out another 4 aircraft.
Other Highlights of the call
- Despite a significant drop in crude oil prices, airlines across the world are experiencing turbulent times. IATA has forecast a demand drop for this year as well as next year to the tune of 3%.
- The global recession is set to impact travel with corporate earnings slowing down and companies postponing their growth plans. The management expects this phase to continue for the next few quarters.
- In India, the company have also been impacted by the recent terror incidents which will impact traffic flows into India for the next few months
- Even under such circumstances, the company has been able to maintain its operating margins and in fact have been able to improve margins on its International business. This is largely due to rationalization of capacity and have managed to increase/hold yields even in a falling fuel price environment.
- The overall goal for the next year is to achieve break-even. This could even be a small profit.
- As per the Management of the company if ATF prices remain at current levels; Jet could post small profits in FY10. However, the FY10 profitability would largely depend on load factors and pick up in travel
- The Aggregate Market Share of Jet Airways (18.2%) + Jetlite (7.8%) is 26.0%
- Yields is likely to decline 10-12% in quarter ended Mar’09 to improve load factor. Hence the passenger traffic is expected to increase by around 15%.
- The Shanghai- San Francisco route has incurred loss of $9 million and for Amritser-London route was of $ 3.5 million.
- The load factor for the month to date Jan’09 on the domestic route is around 64-65%, while that on the International route is around 78%.
Outlook
The domestic industry capacity will be flat for the next few quarters and with the increase in traffic over the next few months, the management of the company believes that the industry seat factors will trend up. The incremental traffic, though, will be at lower yields.
The company has eliminated its highest loss making routes from the International network and have right sized its capacities on the North America routes.
With much lower capacity on the International routes, the management expects to achieve higher seat factors and as of now, it has seen a good buildup of traffic. The overall ASEAN and Gulf routes have been profitable and some of the USA routes are also showing a healthy trend
The management expects corporate traffic to be subdued in the current quarter because of the economic slowdown. This impacts yields as well as front end load factor. The full impact of the ATF price reductions will result in lower operating costs.
Starting April 2009, the company plans to lease out 4 more B777 aircraft. In addition the company will be phasing out 3 B737 classic aircraft whose leases expire in Q4 FY 2009 and not replace them.
Focus on domestic market consolidation will continue and so will cost reduction initiatives. Over the next few months, the company will rationalize workforce.
The company has renegotiated various agreements for goods and services including for maintenance services, crew layover, procurement, etc, the impact of which will be seen starting the current quarter
From a working capital standpoint the company has received funding of close to Rs 1250 crores from the Indian Banks, and expect to draw down additional term loans in the next few weeks. Plans are to raise Rs 750 crore more through loans in the next few weeks. This would give sufficient liquidity for operations.