Saturday, August 11, 2018

Jet Airways: Cost-cutting measures may not be good enough

The airline sector witnessed a smart recovery in its credit and stock ratings a few years ago on the back of improving passenger load factor and a sharp decline in fuel prices. However, now the reversal of oil prices have put the operational performance of Indian carriers through a trial by fire. And it’s no surprise that the one weakest on the cost curve, Jet Airways, is worst hit.

If we look at the last quarterly result, operating expense, excluding one-time maintenance cost, was up 21 percent year-on-year (YoY). High expenses were mainly on account of fuel cost which rose 30 percent YoY and accounted for 32 percent of the operating expense. While the operating income was up 9 percent, higher passenger growth and resultant higher passenger load factor were offset by lower yields. The standalone result at the operating level was a loss of Rs 765 crore.

Declining yields because of intensified competition is a glaring concern. In the last two years, Jet Airways’ quarterly revenue yields have declined by around 13 percent. Spread between revenue per available seat kilometer (RASK) and cost per available seat kilometer (CASK) has sharply declined to negative territory.
10/08/18 Anubhav Sahu/moneycontrol