Tuesday, August 28, 2018

Why Jet Airways’ cost cutting plan won’t cut ice

Jet Airways has had the unique ability of getting into and out of dire financial situations. The last time it was rumoured to be going under, after it posted an EBIT loss of Rs 434 crore (that’s before interest payments) in FY2012, it managed to swing a deal involving sale of a 24 percent stake to Etihad Airways for about $380 million in 2013. Can it pull out another rabbit this time? That’s the question the street is asking, as oil continues to boil.

The promoters, one must admit, have the ability to pull rabbits out of hats when matters are pushed to the brink. The same, however, cannot be said about how the company manages costs and cash flows. To give you a sense, in FY18 for a similar range of revenues Rs 23,000-25,000 crore as IndiGo Airlines, it had employee costs that were about Rs 500 crore higher, finance costs (of course) were also about Rs 500 crore higher—even as total liabilities (debt + net payables) were at similar levels. But what’s most startling is that Jet spent near Rs 3,900 crore on selling & distribution while IndiGo spent just about Rs 735 crore. SpiceJet with revenues of about Rs 6,000 crore also spent just about Rs 210 crore in a year on driving sales.

What is even more notable is that the selling & distribution expenses for Jet have moved up from about Rs 1,500 crore in FY2012 when revenues were at Rs 16,700 crore to Rs 3,900 crore in FY2018 for revenues of about Rs 24,500 crore.
28/08/18 Sonal Sachdev/CNBC TV18