India's biggest private airline Jet Airways expects to report better yields in Q1 of the current financial year. This can be considered as an indication that the airline is taking all measures to improve its business performance.
However, intense competition from low-cost carriers, seasonality of business and rising fuel cost and a weak rupee continue to be major challenges for the airline in the upcoming quarters. But, in an interview to CNBC-TV18, the airline’s senior vice-president (finance) M Shivkumar sounds optimistic on passenger and capacity growth in the sector. "We have seen 31% growth in our traffic and it is too soon to say whether traffic growth will decline in the times to come," he says.
Along with domestic operations, Shivkumar expects the firm's international business to continue to be robust and with healthy seat factors. The airline is focusing on network rationalization, selectively adding flights to profit making markets such as Gulf & Middle East and Asean routes and discontinuation of loss making routes.
The airline posted a net loss of Rs 298 crore in the Jan-March quarter - its fifth straight quarterly loss. However, its rival Kingfisher Air's drastic reduction of flights from last year pushed up occupancies and fares at all airlines, including Jet. In Q4, Jet's revenue grew by 24% to Rs 4,639 crore and passenger occupancy rose by 23.5% over the same period last year.
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee. Also watch the accompanying video.
Q: Can you just break-up your performance between domestic operations and international operations? The perception seems to be that domestic operations are still struggling, and your earnings have been bailed out by international operations.
A: The turnover is about Rs 4,000 crore in Q4 versus Rs 3,200 in the same period last year. The growth in capacity has been quite significant. The departure has gone up by 19% for Q4 and as well as for the year.
The domestic passengers’ growth has been significant over Q4 of last year, it is about 31%. The departures have also grown by 23%. International has grown by about 26% for the same period in the quarter.
When you compare the year-end number for the whole year, in Jet Airways, excluding JetLite, we have seen 18% growth in domestic passengers. International also has grown by about 18%. So, there has been a capacity growth.
There has been some pressure on the yield till December. We have made lot of changes in the schedules. The RPKM (revenue passenger km) actually has gone up. So, yield has actually grown by about 3-3.5% in the domestic market. At the RPKM level, it has gone up by 7%. So, we would see some better yields going forward. The growth that we envisage going forward would be about 10%.
Q: There is a lot of talk though that passenger traffic growth is actually slowing down to single digits. Would you concede that there is pressure on the domestic passenger traffic growth this year?
A: It is little early so say because the way the rupee and crude is behaving. When crude comes down, the rupee has actually fallen. So, whatever benefit that we are expected to get gets nullified directly.
For us, in Jet Airways, for every change in one rupee, it affects my bottom-line by Rs 30 crore and every dollar change in crude, for better or worse, it goes up to Rs 50 crore. So, somewhere we get benefitted, somewhere we don’t get benefitted. So, it all depends on how we are able to pass on. Are we in a position to do any increase in yield because of the growing cost? That is something which we have to examine. That’s a challenge.
Q: Despite yields going up, since December, your EBITDA margins were still down in the current quarter. Why aren’t you able to move your margins?
A: If you look at quarter for Jet Airways, our operations have gone up. But in terms of the rate, it’s gone up significantly in case of fuel. Out of Rs 542 crore of increase in the fuel, Rs 377 crore have gone only on account of the rate. So, to that extent, we have not been able to increase our yields beyond that. So, EBITDA margins are more or less the same.
If you consider the depreciation, lease rentals and all that, in the last financial year, there has been some amount of write back on account of depreciation. So, when you look at the depreciation figure, it is little on the higher side of current year.
Apart from that, maybe it is all fuel and nothing else and increase in rupee, depreciating rupee has actually increased the lease rental cost to some extent.