27-Jul-2010 5:41 PM

Jet Airways returns first quarter bottom line to profit

Analysis

Jet Airways has budgeted for a positive second quarter, with trends for domestic operations "strong" though reflecting seasonality and international seat factors "very strong". This outlook comes as the airline improved profitability at the EBITDAR level in the three months ended 30-Jun-2010, the first fiscal quarter for 2010/11. Jet also returned its after tax result to a profit, compared to a sizeable loss in the same period last year.

Jet Airways EBITDAR margin: 2QFY2007/08 to 1QFY2010/11

Jet Airways financial highlights for three months ended 30-Jun-2010

Currency: USD *		% Change
Group revenue (mill)	750.2	+23.0
Jet Airways revenue (mill)	648.2	+24.5
Group EBITDAR	150.8	+41.7
Jet Airways EBITDAR	129.6	+44.6
Group profit after tax (loss) (mill)	1.8	~
Jet Airways profit after tax (loss)	750,429	#
Passenger numbers (mill)	3.6	+37.0
Traffic - RPKs (mill)	6,514	+32.7
Capacity - ASKs (mill)	8,169	+22.1
Group seat factor (%)	79.7	+6.3 ppts
Jet Konnect seat factor (%)	81.0	n/a
Domestic market share (%)	26.2

Premium demand revival

Jet Airways stated Indian traffic has shown a reviving trend over the past few months, with airlines achieving high seat factors and yield growth. The carrier added Indian GDP growth of 8.5% forecast for the year indicates a reviving economy, with effects to continue to be seen in domestic aviation market. Jet stated it is seeing a premium demand revival and this is expected to continue over the next few quarters.

Producing cost efficiencies

Revenues increased 24.5% year-on-year to USD648.2 million in the three months ended 30-Jun-2010, while total costs were cut by 14.3% to USD656.9 million. Aircraft fuel expenses were significantly lower, while selling/distribution and interest costs also fell.

Jet Airways costs growth in 1QFY2010/11 and 4QFY009/10

Jet Airways reported an EBITDAR profit of USD129.6 million in 1QFY2010/11, up 45%.

The drop in fuel prices helped control an increase in cost per ASKM at 6.7% to 6.11 USD cents. However, cost per ASKM (ex fuel) jumped 22.4% year-on-year to 3.49 USD cents. Jet's block hours were up 17.1% in the quarter.

Jet Airways revenue per RPKM and cost per ASKM growth: 1QFY2007/08 to 1QFY2010/11

Jet Airways Group reported a profit after tax of USD1.8 million for 1QFY2010/11, compared to a loss of USD47.8 million in the previous corresponding period. Jet Airways' system-wide profit after tax (excluding JetLite) was USD750,429, also a turnaround from a loss of USD48.3 million in 1QFY2009/10.

Systemwide passenger traffic (RPKMs) increased 32.7% year-on-year in the quarter, while capacity (ASKMs) increased at a slower rate by 22.1%, translating into a higher seat factor of 79.7% (+6.3 ppts year-on-year).

Jet Airways pax numbers and pax number growth: 1QFY2008/09 to 4QFY2010/11

On a unit basis, Jet's revenue per RPKM was 7.57 USD cents (INR3.53) in 1QFY2010/11, a 1.9% year-on-year reduction.

Jet Airways revenue per RPKM and cost per ASKM: 1QFY2007/08 to 1QFY2010/11

Domestic and international seat factors up

Domestic operations accounted for 44% of total revenues (or USD285.1 million) and grew by 23.8% year-on-year in the quarter. Passenger numbers jumped 39.1% in the quarter, while seat factor rose from 67.3% in 1Q2009/10 to 79.1% in 1Q2010/11 on a 22.8% higher capacity. Domestic EBITDAR margin reached 18.9% in the quarter versus 11.2% in the previous corresponding period.

However, domestic yields (revenue per RPKM) were down 10.6% year-on-year to 10.83 USD cents. Seat factor was also 1 ppt below breakeven seat factor of 80.1%.

Jet Airways revenue (USD million) breakdown: Total, Domestic and International

International operations accounted for 56% of total revenues (USD363.1 million) in 1QFY2010/11 and achieved a seat factor of 80.1%, which is 3.6 ppts higher than the same period than last year. EBITDAR margin was lower at 21.5% versus 22.3% in 1QFY2009/10. Jet stated this result includes a negative impact of aircraft on ground of USD8.4 million and volcanic ash incidents in Europe, which resulted in a revenue loss of USD7.2 million.

Jet Airways also launched Mumbai-Johannesburg service in Apr-2010.

International yields (revenue per RPKM) rose 2.9% in the period to 5.92 USD cents. Jet missed its breakeven seat factor of 81.0% by 0.9 ppts on international operations.

Overall seat factor was 1 ppt lower than breakeven seat factor.

Jet Airways breakeven seat factor & Passenger load factor: 1QFFY2008/09 to 1QFY2010/11

Highlights on Jet Airways Konnect

Jet Airways stated that its initiative of introducing Jet Airways Konnect branded service in May-2009 has also contributed to its strong performance, registering average load factors of approximately 81% for 1QFYFY2010/11, boosting network wide seat factors and revenues.

Jet Airways has transferred 65% of domestic capacity to the low cost Jet Konnect operation. The introduction of premium class on some services in May-2010, called Jet Konnect Select, is reflective of the improved demand environment. Jet is also taking advantage of conditions to enhance yield on domestic and international routes.

JetLite seat factor crosses breakeven

JetLite reported a profit after tax in 1QFY2010/11 of USD1.1 million, following a slight profit of USD471,700 in the previous corresponding period.

Revenue was up 13% year-on-year in the quarter to USD102.0 million with an improved EBITBAR profit of USD21.21 million, for an improved EBITDAR margin of 20.9% (+1 ppt year-on-year).

JetLite financial highlights for three months ended 30-Jun-2010

Currency: USD *		% Change
Revenue (mill)	102.0	+13.0%
EBITDAR	21.2	+23.6
Profit after tax (loss) (mill)	1.1	+124.2
Seat factor (%)	82.5	+8.9 ppts

JetLite transported 1.2 million passengers during the quarter, a 29.1% year-on-year increase, as traffic (RPKMs) grew 14.9% on a 2.4% capacity (ASKMs) increase. This resulted in a seat factor rise of 8.9 ppts to 82.5% - 2 ppts above the breakeven seat factor.

JetLite unit revenue/cost and passenger load factor: 1Q2008/09 to 1Q2010/11

Outlook: Enhanced cost efficiencies and improved EBITDAR to result in full year profit

With consistent growth in operating margins expected to continue in the future, Jet Airways is expected to report full year profitability in FY2010/11. The premium demand revival is also expected to continue. Supported by strategic marketing initiatives and its on-time performance programme, Jet expects to enhance cost efficiencies and improve its EBITDAR margin.

Jet Airways has achieved a rapid recovery since 3QFY2009/10. High load factors in domestic and international operations (international has exceeded 80% in recent months), combined with strengthening yields and the impact of cost-reduction programmes, have resulted in profits since the third quarter.

Key achievements on the cost front included a 12.7% reduction in interest costs in 1QFY2010/11 and a 19.1% decline in distribution and selling costs.

However, the operation of three brands (Jet Airways, JetLite and Jet Konnect) does cause confusion in the market. CAPA earlier noted that it anticipates JetLite and Jet Konnect will be combined under Jet Konnect, once the legal dispute with Air Sahara is resolved. It is also expected that Jet Konnect will commence services on regional international routes in the short term.

JetLite is planning to restructure its regional operations by inducting six ATR-72s on lease, to replace CRJ-700s, which are being returned to lessors. This should help the carrier reduce costs on shorter, thinner regional routes and simplify the number of aircraft types operated on domestic routes from three to two families (B737s and ATR-72s).

Overall, Jet Airways is focusing on improving reliability of its fleet and is evaluating new routes to increase aircraft utilisation. The dark days of 2008/09 are gone.