The Hindu Business Line : Airlines flying in losses on discounted fares

Beset by a string of troubles, the three major listed airline players — Jet Airways, Kingfisher Airlines and SpiceJet — ended yet another quarter with sizable losses. A reduction in fares weighed on realisations and revenues and resulted in continuing losses, even as airlines managed savings in fuel and operating costs.

Both Kingfisher Airlines and SpiceJet have reduced their losses for the quarter, compared with last year, while Jet Airways saw its net loss going up by about 5 per cent to Rs 406.69 crore in the September 2009 quarter. Impacted by the five days of strike in September, Jet Airways was faced with an estimated loss of Rs 100.8 crore ($21 million). This includes the variable cost of cancellation.

A shift in favour of low-cost carriers was evident from SpiceJet registering a near 27 per cent year-on-year increase in income from operations, even as both Kingfisher Airlines and Jet Airways witnessed about 14 per cent and 25 per cent dip in their topline.

Capacity rationalised

Revenues for Jet Airways and Kingfisher Airlines were impacted mainly by falling fares, which they attributed partially to the lean season. However, both airlines, faced with excess capacities, have taken measures to trim their fleet size over the past six months. While Jet Airways reduced its seats availability by as much as 30 per cent (including domestic and international), Kingfisher Airlines made its domestic operations leaner by about 18 per cent compared with last year. The cut back has not only helped companies save on the cost front, but also improved the load factor.

Jet Airways saw its passenger load factor (domestic and international) increase from 66.3 per cent for the quarter ended September 2008 to 77 per cent in the recently concluded period. The company’s domestic and international loads grew by 2.9 per cent and 14.6 per cent respectively in this period. Kingfisher Airlines registered a 1.8 percentage points growth in its load factor during this period.

Though the load factors have gone up, realisations per passenger were depressed by lower average ticket prices. While Kingfisher Airlines saw its average revenues per passenger fall by 28.7 per cent from September 2008 to September 2009 quarter, Jet Airways registered a 33.7 per cent decline.

Meanwhile, improving trends in domestic traffic continued to be visible in September 2009, with passenger traffic totalling 35.56 lakh, a growth of about 30 per cent from the same month last year. However, data released by the Directorate General of Civil Aviation (DGCA), continued to show a marginal 1 per cent growth in passengers carried by domestic airlines from January to September 2009.

To deal with the falling domestic tariffs, both Kingfisher Airlines and Jet Airways are expanding their international operations as they have offered better margins. They are also focussing more on the low-cost domestic operations in order to rationalise costs.

Costs under check

The September quarter saw operating costs for airlines dip substantially year on year, with fuel costs falling on lower oil prices compared to last year, rentals flat and cutbacks in employee expenses. Fuel costs generated the largest savings with Jet Airways seeing its fuel costs almost halve compared to last year while Kingfisher Airlines saw a 42 per cent reduction in fuel costs.

Apart from saving on fuel costs, the companies also put in place other internal cost-saving measures. For example, Jet Airways and Kingfisher Airlines have curbed their outgo on employees by 15 and 17 per cent respectively in the September quarter compared to last year, even as SpiceJet registered a 9 per cent increase in employee costs. Going forward, companies may once again face a challenge from fuel cost, which account for nearly 30 per cent of total expenditure. Fuel costs, while falling year on year have seen an 18 - 20 per cent increase from the June quarter.

With the holiday season setting in, a fair amount of excess capacities being contained and increasing focus on international operations (in case of Kingfisher Airlines and Jet Airways), companies are optimistic about a growth in revenues in the forthcoming quarters. However, the discounts offered by them to attract customers may continue to weigh on their margins.

Related Stories:
Indian aviation industry may post $1.5-b losses this year
Domestic airlines see spurt in September traffic
AI joins discount race, cuts domestic fares 20-46%
Jet slashes fares by 50% to woo customers back

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