NEW DELHI (Reuters) - Jet Airways (JET.NS), India's biggest airline, posted a surprise quarterly profit on Friday after its strong financial position relative to two troubled rivals enabled it to raise fares and attract more passengers.
The unexpected profits posted by Jet and by second-biggest budget airline SpiceJet (SPJT.BO) earlier in the week have raised hopes for at least a partial recovery of India's ailing airline industry after its carriers lost a combined $2 billion last year.
India's airlines have suffered from high fuel costs, below-cost fares in a highly competitive market and tough regulations in one of the fastest growing markets in the world.
Kingfisher Airlines (KING.NS), once the country's No. 2 carrier, is struggling under $1.4 billion in debt and is flying just a fourth of its fleet. State-run Air India AIN.UL has been propped up by a $5.8 billion taxpayer bailout but had to cancel flights after being hit by a pilots strike.
Their woes have driven passengers to stronger carriers such as Jet, SpiceJet and privately held IndiGo, which was the only money-making airline in the country in the last fiscal year.
"These companies are major beneficiaries of a reduction in supply overall ... these companies are gaining market share, increasing their load factor and improving their yields," said Rashesh Shah, an analyst with ICICI Securities.
Jet Airways said it earned 247 million rupees on a standalone basis for April-June, its first profit in six quarters, compared with a loss of 1.23 billion rupees a year earlier.
YIELDS, INCOME, SHARES UP
Passenger yields on its domestic flights rose about 9 percent in the quarter to end-June, while yields at Jetlite, its low-cost arm which operates under the JetKonnect brand, jumped over 43 percent.
Yield is a measure of the average fare paid by passengers for a particular distance.
Total income from operations jumped 31 percent to 43.45 billion rupees.
Jet's shares, valued at about $580 million, closed up 0.77 percent at 374.30 rupees, compared with a 0.15 percent fall on the 30-share benchmark index, after rising as much as 4.6 percent on the National Stock Exchange.
Analysts said Jet and SpiceJet may not be able to sustain their recovery if fundamental problems are not addressed, including high fuel costs, a fall in the rupee and high airport charges.
"The results of Jet and SpiceJet are positive at net level largely due to sale and lease-back and revenue from other income, but things have been much better in the last three to six months," said Kapil Kaul, regional head at Centre for Asia Pacific Aviation, a consultancy.
Jet earned 523.7 million rupees in the quarter ended in June from the sale and lease-back of planes, it said in a statement to the stock exchange.
"High crude prices, rupee depreciation and a slowdown in the economy will impact the operating margins in the short term," Jet said.
In India, state taxes of up to 30 percent significantly raise the price of jet fuel, which accounts for about half of an airline's costs.
"Structural issues such as crude oil price volatility, rupee devaluation, inadequate airport infrastructure, high airport charges, FDI (foreign direct investment) by global airlines, opening of bilaterals and lack of skilled manpower continue to dog the industry," said Amber Dubey, head of aviation at KPMG.
Foreign airlines are not allowed to take stakes in India's domestic airlines, and the government has been sitting for years on a proposal to allow them to take up to 49 percent.
New Delhi's airport has been termed the world's costliest by the International Air Transport Association, an industry group representing more than 80 percent of global airline traffic.
"Imposition of higher user charges and levies at Delhi T3 airport will lead to the airline's passing on the costs to passengers, which in turn may affect the passenger growth and/or ability of the airline to increase fares," Jet said. (editing by Jane Baird)