Jet Airways posts strong growth in Q3 fiscal 2011 – an analysis

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Aided by the resurgent Indian economy, improvement in global business and leisure travel, Mumbai based Jet Airways group (Jet Airways, Jet Airways Konnect, and JetLite) posted strong results for the third quarter of fiscal year 2011, which ended December 31, 2010

Profit before tax for group for the quarter increased a whopping 122% from Rs. 109.8 crore (US$ 23.6 million) to Rs. 243.5 crore (US$ 54.5 million) compared to Q3FY2010 on the back of an 18.8% increase in revenue to Rs. 4001.7 crore (US$ 895.1 million).

Operations highlights for quarter when compared to the same quarter a year ago (excluding JetLite) include:

• Capacity measured in available seat kilometers (ASKMs) up 12.5% to 8,866 million
• Performance measured in revenue passenger kilometers (RPKMs) up 11.5% to 7,032 million
• Number of passengers up 15.3% to 3.94 million
• Average seat factors up down from 80% to 79.3%
• Addition of seven new aircraft (six ATR-72-500s and one Boeing 737-800)
• Overall cost per ASKM (CASK) increased 2.1% to Rs. 2.90 on the back of fuel price increases. Without fuel costs CASK was reduced 3% to Rs. 1.66. Overall revenue per RPKM increased 7.4% to Rs. 3.92 taking gross revenue per km up 25.9% from Rs. 0.81 to Rs. 1.02.
• International CASK decreased 3.1% to Rs. 2.27 reflecting the airline’s cost efficiency vs. rising fuel prices. International revenue per RPKM increased 6.5% to Rs. 3.01, taking gross revenue per km up 54.2% from Rs. 0.48 to Rs. 0.74.
• Domestic CASK increased 7.8% to Rs. 4.06 reflecting the exaggerated effect of domestic over-taxation on fuel prices. Domestic revenue per RPKM increased 6.3% to Rs. 5.69, taking gross revenue per km up 87.34% from Rs. 1.58 to Rs. 2.96.
• Overall average gross revenue per passenger increased 3.7% from Rs. 7,493 to Rs. 7,226. Due to stronger Rupee this increased 7.9% when measured in US Dollars from $155.3 to $167.6.
• International average gross revenue per passenger decreased 0.4% to Rs. 12,652.
• Domestic average gross revenue per passenger increased 6.2% to Rs. 5,210.

Financial highlights (excluding JetLite) include:

• Revenue up 19.7% to Rs. 3,515.2 crore (US$ 786.3 million)
• EBITDAR up 17.4% to Rs. 851.1 crore (US$ 190.4 million)
• EBITDAR Margin at 24.5% in Q3 FY11 versus 25.0% in Q3 FY10
• Profit before tax up 106% to Rs. 217. crore (US$ 48.7 million)
• Profit after tax up 12% to Rs. 118.2 crore (US$ 26.4 million)

Note: Rates of exchange used 1 US $ = INR 44.705 for current quarter and 1 US $ = INR 46.530 for previous year same quarter.

Observations:

• The consistent improvement in EBITDAR margin despite higher fuel costs is mainly due to improved yields, high levels of seat factor and other cost efficiencies.
• Jet Airways achieved a yield improvement of 16% in Q3FY11 over Q2FY11 whilst JetLite achieved a yield improvement of 11% in Q3FY11 over Q2FY11.
• This performance is despite higher costs of fuel during the quarter, where the price of fuel went up by 5.0 % as compared to Q2FY11 and by 12.0 % as compared to Q3FY10.
• The Jet Group continues to maintain its leadership position in the Indian aviation industry with the highest market share of 25.9 % for the quarter ending December 2010.

The airline released the following outlook statement

The robust growth in the Indian domestic market is on the back of healthy GDP growth and continued business confidence. Airlines have achieved high levels of seat factors as well as yield growth. The industry traffic grew by 19.0 % in Q3 FY 2011 as compared to Q3 FY 2010. Q4 passenger bookings show encouraging trends, however it will reflect seasonality.

Our International operations which continue to achieve seat factor of over 80% for more than a year is now experiencing a healthy operating margin which augurs well for the future. The routes which we started in the last few quarters are fast maturing and with the help of strong hub network, they will get to profitability much sooner than our earlier routes.

Crude oil prices, in the recent past have been increasing and we believe that the impact of such costs will be passed on to the customer in the short to medium term without unduly affecting demand growth. The demand – supply equation in the domestic market continues to be under control and over time, this will result in improved revenues per departure for the industry.

Jet Airways currently operates a fleet of 97 aircraft, which includes ten Boeing 777-300ER (out of which seven are leased to Turkish Airlines and Thai Airways), 12 Airbus A330-200 aircraft, 55 Boeing 737-700/800/900 aircraft and 20 ATR 72-500 turboprop aircraft.

The full investor presentation can be read below.