Jet, Spicejet to be profitable by next fisc: BofA-ML

The American investment bank also upgraded the stocks of both these companies to "buy" from "underperform", saying improving industry trends such as signs of ticket price hikes and reduced capacity will improve profitability. "These carriers will substantially lower their losses in FY13 and return to profit in FY14," Bank of America-Merrill Lynch said in a report.

"We upgrade both Jet and Spicejet to buy (from underperform). Our upgrade is led by the improved pricing power led by slower than anticipated increase in supply, a sharp jump in Ebitdar due to industry yields rising by around 15% this year, and rationalisation of routes.

This should see these carriers substantially lower their losses in FY13 and return to profit in FY14," BofA report said. The domestic aviation industry is struggling with nearly Rs one lakh crore in debts, led by the state-run Air India that is sitting on a debt pile of over Rs 67,000 crore, followed by the market leader Jet Airways Group, which has a debt of Rs 14,500 crore, while the crippled Kingfisher Airlines had nearly 15,000 crore in debt and accumulated losses.

The investment bank has also increased its price target on full service carrier Jet Airways to Rs 480 from Rs 210, and to Rs 42 for low cost airline Spicejet from Rs 21 -nearly a 30% upside potential for both the counters. At 1500 hrs today, Jet was trading up 1.55% at Rs 397.80, while Spicejet was up 2.20% at Rs 32.45, on a day when the benchmark Sensex rallied 1.4% or 244 points.

Last week, the country's largest carrier Jet Group had reported a profit of Rs 35.4 crore after being in the red for the past five quarters in the June quarter, against a loss of Rs 123.2 crore a year ago, on the back of higher yield and cost management.