Higher yields,cost cutting spares Jet the blushes in Q3

New Delhi: Higher yields and stringent cost management have saved Jet Airways the blushes for the third quarter ended December 31, 2012.

The airline today reported a Rs 85 crore net profit - a vast improvement over the Rs 101.22 crore net loss in the corresponding quarter of the previous year. Total income from operations rose to Rs 4,205.77 crore in the October-December quarter ended 2012 from Rs 3,939.16 crore in the year-ago period.

A profitable airline, even if the profit is for one quarter only, would make a better acquisition target than a loss making one . Jet's results could not have come at a better time since the airline is in the final stages of announcing an equity deal with Etihad Airways.

Debarka Banik/Flickr

A profitable airline, even if the profit is for one quarter only, would make a better acquisition target than a loss making one . Debarka Banik/Flickr

Two things helped Jet turn around year-on-year in the December quarter: higher yields which means it earned more revenue per passenger and relentless cost cutting.

Jet Airways' yields improved by 18.6%, which was perhaps a function of the airline's ability to raise prices in a quarter when almost every other airline also raised ticket prices.

As Kingfisher Airlines fell off the aviation map and other airlines also turned cautious in adding capacity, industry wide yields improved. But this pricing ability has already reduced in the current quarter, when all domestic airlines have launched a silent fare war in what is typically seen as a lean quarter. The company says that though advance bookings for the current March quarter "show encouraging trends, they will reflect some seasonality." In other words, despite competitors continuing to be cautious in adding capacity (offering more seats in the domestic market), yields in the current quarter may not remain as high as in the December quarter.

Besides vastly improved yields, Jet has also been on a stringent cost cutting and route rationalisation drive and this has helped matters considerably. The airline has withdrawn loss-making international flights such as Mumbai-Johannesburg, Brussels-JFK and Chennai-Brussels, which has helped improve its overall international performance. It has also been focusing on raising ancillary revenues (such as charging for e-ticket printouts etc) besides rationalising overall costs.

Recently, it reduced the number of expat pilots (who command much more salary than Indian pilots). Where does the airline go from here?

If the Etihad-Jet deal is indeed signed and sealed soon, Jet will draw many benefits. These include availability of much cheaper fuel at Abu Dhabi, much better connectivity which can be offered to fliers via Abu Dhabi for destinations in the Americas. It has already enhanced code share with Etihad and any equity deal would offer synergies to Jet with Etihad's marketing, sales and other networks. All in all, route expansion could happen without commensurate additional costs if the alliance is forged.

Jet CEO Nikos Kardassis said today that "All of our efforts on revenues, costs and network side have resulted in turning around the airline operations. This is despite higher fuel prices and rupee depreciation impact that we have had in the last few months. The combined impact of higher yields and lower costs (ex fuel) have resulted in significantly lowering the breakeven seat factor levels in the business. We continue in our endeavor on cost cutting measures, exploring various avenues of ancillary revenues and process improvements across all segments of the business, which will help us improve the business further."

In the low fare subsidiary JetLite too, the Jet group has seen significant improvement in financials. Net profit for the quarter stood at Rs 8 crore against a net loss of Rs 21.6 crore in the year ago period. Yields were up 17.1% and revenue was Rs 518.7 crore.

Updated Date: Dec 20, 2014 16:38 PM

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