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India’s largest private airline, Jet Airways, trimmed its losses by almost 39% to Rs.217 crore (approx. US$ 36.17 million at an exchange rate of Rs.60=$1), in the first quarter of fiscal 2014~2015 which ended on June 30, 2014, when compared to the same period a year ago. Much of this performance increase is due to the financial and operational lifeline thrown to the Indian carrier by Abu Dhabi-based Etihad Airways PJSC which has invested over $750 million in Jet and holds a 24% stake in the Indian airline.
Operating revenue of Rs.4,685.6 crore was buoyed 17% primarily by the increased traffic being routed through Abu Dhabi. In a release Jet Airways said “Codeshare traffic surges by 157 per cent from 45,971 passengers carried in Q1 FY14 to 118,253 in Q1 FY15, primarily driven by the strength of Etihad Airways’ alliance”.
Expenses excluding interest and depreciation outpaced revenues and increased 18.6%, but thanks to the financial assistance received from Etihad and Abu Dhabi institutions, Jet has been able to retire some high cost debt thus reducing its interest burden by 17% from Rs.234.1 crore to Rs.194.3 crore. Jet has also disposed several assets including wide-body aircraft and reduced its depreciation by 10.6% to Rs.196.3 crore, thus capping the overall expenditure at Rs.5,015.6 crore, an increase to 15.3% .
Highlights of results
- Total losses cut 26% by Rs.90.4 crore to Rs.258 crore from Rs.348.5 crore in Q1 fiscal 2013~2014
- Total Jet Group combined revenue up 12.8% by Rs.570.8 crore to Rs.5,040.1 core from Rs.4,469.3 crore in the same period last fiscal
- Total passenger revenue up 11.1% by Rs.427.1 crore to Rs.4,262.6 crore
- Code-share traffic up 157% to 118,253 passengers, primarily driven by the strength of Etihad Airways’ alliance
- International operating results improved by 86 per cent. The airline claims its international operations are profitable, but this is due to foreign exchange gains and contributions towards maintenance that are receivable from lessors.
- Seat factor up 2.3% to 80.2% from 77.9% in the same quarter one year earlier
- Jet loses Rs.0.29 per available seat kilometre (ASK) it flies overall. Overall RASK (revenue per ASK) is Rs.3.77 up 4.6% and CASK (cost per ASK) is Rs.4.06 up 3.7% outstripping revenue by almost 7.7%. Domestic RASK is Rs.4.89 and CASK is Rs.5.67 a loss of 15.6% or Rs.0.78 per ASK up from Rs.0.72 per ASK from the same quarter a year earlier. International RASK is Rs.3.24 and CASK is Rs.3.30 a loss of 1.9% or Rs.0.06 per ASK.
- Cargo revenue up 10.2% by Rs.33.6 crore to Rs.363.3 crore compared to the same period in the earlier year
Analysis of Jet Airways’ Q1 FY2015 results
Jet continues its loses. This is the sixth consecutive quarter the airline is in the red. After a disastrous fiscal 2013~2014, it is plain to see that Jet Airways has achieved some semblance of correction thanks mainly to the investment by Etihad, not just financial but also operational and managerial. Financial support has allowed Jet to reduce debt and trim interest payouts, and Etihad has leased the many idle wide-body aircraft from Jet providing the airline vital financial support.
Operationally, Jet says “economies of scale and cost saving opportunities offered by the airline’s equity partnership with Etihad Airways through shared resources and facilities, and collaborative procurement has also been responsible for significant savings.”. This is good. As an example Jet Airways says it “has renegotiated maintenance contracts which have resulted in savings of about Rs.270 crore.”
The RASK and CASK figures show significant insight in to Jet’s operations. Despite the domestic side contributing only about 40% of the total business, Jet loses a whopping 15.6% on its domestic operations wiping out any profits made by its bigger and more lucrative international division. It would be natural to question why is Jet operating in the domestic sphere at all, but the domestic network is critical to feeding the international network.
However, Jet is optimising its route network, and is re-configuring all its Boeing 737-800s to a standard 12 business class and 156 economy class seating. The airline has to gird up to face a formidable competitor in Vistara the new full service carrier being promoted by the Tata-Singapore Airlines joint venture. The video below outlines Jet Airways and Etihad Airways strategy for the next three years.
Indians may not like it, but Jet is becoming highly dependent on feeding Etihad through Abu Dhabi. The improvement in international performance is almost totally due to the 157% increase in “code-share traffic”. Future international expansion plans of the Jet, such as planning flights to the Seychelles where Etihad has a 40% stake in Air Seychelles demonstrate the influence of the gulf carrier in network planning. But if this is what is required to save Jet and bring it back in to the black, go for it.
Jet Airways is hampered by India’s downgrade by the US Federal Aviation Administration which prevents it from commencing new flights to the US. It plan to operate a second daily to New York via Abu Dhabi was dashed thanks to the downgrade. Etihad now operates that flight. For the New Delhi-Abu Dhabi-San Francisco flight due to commence on November 18, Jet will further dry-lease one of its Boeing 777-300ERs to Etihad to operate the service.
The airline has also announced it is discontinuing its low cost JetKonnect service and will consolidate in to one single full service brand – Jet Airways. Stay tuned for a detailed story on this.
Jet and Etihad seem to be moving in the right direction. This is a vindication of Etihad’s strategy for expansion through equity stakes and deep code sharing. The strategy of providing synergies in aircraft acquisitions, engines and parts, maintenance and other services helps reduce costs. With that taking over of ADAT, Etihad will be able to provide MRO services at competitive rates to its affliates. Etihad’s strategy helps turning around its ailing partners; Air Seychelles is profitable but it takes longer to turn around the larger partners like Airberlin and Jet and now Alitalia.
Its good to see ray of financial and operational improvements returning to 9W. But this is clearly due to the partnership with EY. In the last few months two family members and myself have used this 9W-EY routing to get to Europe and the connections work really well. Needless to say the FFP benefits. As much as we dislike it, its one of the reasons EY invested in Jet. To act as a feeder to EY, so that EY can realize its ambition of global airline.