New Delhi: The aviation industry had been in news recently with consolidation happening all across the sector. Indian’s market share in May was 21.7 per cent compared to 20.8 per cent in the case of Jet Airways.
At the beginning of this year Indian had only 17.1 per cent as compared to Jet Airway’s 23.7 per cent. However, aggressive marketing and lower prices has helped the public sector carrier to step up its market share.
And in terms of performance of scrips, Deccan Aviation, Jet Airways and Spice Jet respectively have beefed up gains by 38 per cent, 32 per cent and 21 per cent in the last three months.
Jet Airways numbers
After some quarters of weak performance Jet Airways recently declared strong operational Q4 and FY07 results. In Q4 it posted a 61 per cent fall in net profit. The net profit stood at Rs 880.1 million against Rs 2.27 billion. The company’s revenues rose 21.7 per cent YoY to Rs 19.8bn, revenues, with domestic revenues rising 11.7 per cent, and international revenues rising 100 per cent.
Load factor in the domestic market, at 70.3 per cent and international load factor, at 76.7 per cent, was sharply higher due to increase in share, partly aided by strike by competition.
There was 431bps rise in margins to 23.2 per cent, on the back of lower fuel, SG&A and aircraft maintenance expenses. As a result, EBITDAR increased 49.5 per cent YoY to Rs 4.6bn.
In a significant change from the earlier quarters, Jet’s international operations have turned profitable.
Beginning August this year, Jet will start flying to New York, Toronto, Johannesburg, Nairobi, Hong Kong and Dubai, launching a new flight almost every month from Mumbai and Delhi. Industry experts say that every new long-haul route takes about 12 to 18 months before it turns profitable.
According to them, high margin international operations will contribute close to 50 per cent of revenues in the next two years from the current 20%.
Oil PSUs to cut jet fuel prices?
The stocks have also been in news as the aviation ministry asked the oil PSUs to cut jet fuel prices. If this comes through it will be positive for the aviation stocks as presently their domestic aircraft fuel expenses is 33% of total revenues. And also rupee appreciating to 41 levels will be beneficial for the airlines as they purchase ATF in dollars.
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Industry outlook
The consolidation phase that is being witnessed by the industry is likely to lead to rational pricing and will improve the operating performance of domestic carriers in India over the next few quarters. Also the domestic demand is expected to remain robust at 25 per cent annually.
Experts say that the focus of the players would be more on high margin international routes. Competition is expected to get intense once the Kingfisher-Deccan group companies get international rights and Jet manages to put Air Sahara on track under the JetLite brand.
The industry capacity grew at 40 per cent-50 per cent between FY05-07. Nikhil Vora of SSKI in his research report says that this capacity is expected to come down to 20 per cent going ahead which will act as appositive trigger for the players as there will better utilization of the existing capacities. The capacity growth for the industry was 48.0 per cent, 40.8 per cent, and 44.4 per cent for Q1, Q2 and Q3 of FY 2007 respectively.
With the developments in the aviation sector, brokers have also upgraded their ratings on the sector.
Indian aviation sector is valued at USD 4.5bn has one of the lowest market cap to passenger ratios of 0.08 amongst comparable peers (China – 0.32, Hong Kong – 0.54) which offers substantial value creation potential and has given an out performer rating on Jet Airways.
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