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Business – Jet Airways: Low-cost model may pay off in Q3

Rajesh Naidu

After a poor September quarter, Jet Airways India appears to be clawing its way back. In November, the company’s passenger traffic surged by 33% on
a year-on-year basis. Traffic from its international operations, which was one of the positive factors in its revenues for few quarters, grew by 19%. Two factors contributed to this growth, mainly the consistent focus of the company on Low Cost Carriers (LCC), which led to the formation of Jet Konnect albeit having an LCC-focused JetLite. Secondly, the addition of new routes and route rationalisation.

This would be a good beginning for the company considering the fact that the December quarter is peak holiday season and is generally the best time for the aviation industry. The company should definitely see better sales in the December quarter. Jet’s net losses had widened by 5.76% from Rs 384.53 crore in the September quarter on a YoY basis.

In the December quarter, however, despite being considered a peak season, Jet would be fighting an intense price-war strategy. Its revenue per km passenger had plummeted 31% YoY in September. It had earned a revenue of Rs 3.21 per km passenger in the September 2009 quarter against Rs 4.71 in the September 2008 quarter. This drop reflects the negative impact of the price war strategy Jet Airways is exposed to. It is this factor that the company has to watch out for in the December quarter.

Falling yields taken in conjunction with the huge debt (Rs 16,000 crore, as of FY09 consolidated) indicate that Jet needs to carry more passengers to make cash profit. The company’s strategy to promote its subsidiary based on the low-cost carrier model, JetLite, and Jet Konnect, appears to be good and should pay off in the December quarter as well. JetLite’s seat load factor had increased from 61% in the September quarter last year to 71.8% in September this year, and in November, it was 76.7%, indicating the wisdom of sticking to the LCC model.

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December 9, 2009 - Posted by | Uncategorized |

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