Jet Airways outlines more cost-cutting as Q2 sees Rs 1,297 cr loss

Jet Airways managed to sequentially bring down its pretax loss by a smidgen due to its recently started cost cutting measures during the second quarter, and announced further measures to reduce losses.

Even as revenue rose sequentially by Rs 170 cr in Jul-Sep quarter, total non-tax expenses rose by only Rs 144 cr, which had an impact of reducing pretax losses by Rs 26 cr.

In other words, sales rose to Rs 6,237 cr and expenses rose to Rs 7,254, while pretax losses fell on quarter to Rs 1,297 cr from Rs 1,323 cr in the quarter previous.

However, the minuscule improvement in the pretax loss may disappoint investors as the company, hit by rising crude prices and overcapacity in the sector, had announced that it was putting in place a major cost-cutting exercise during the quarter.

Even though it its expenses rose during the quarter by Rs 144 cr on quarter, it said it has realized “realized cost saving of over INR 500 crores to date (in the first half of FY19).”

It also said its target of realizing Rs 2,000 cr of cost savings in the next two years is achievable.

“The company remains committed and is on track to realise most of the outcomes that were outlined as part of its turnaround strategy last quarter,” it said, “including cost savings in excess of Rs 2,000 crores over the next two years via strategic initiatives in the areas of sub-fleet simplification, reduction of maintenance as well as selling and distribution expenses, renegotiation of contracts, together with a more productive resource deployment geared to enhance profit and revenue.”

EXPENSES

The company, like its peers in the aviation sector, slipped into the red earlier this year due to a sharp increase in crude oil prices, which directly raises the price of aviation turbine fuel.

A year earlier, for example, the company had a pretax profit of 50 cr.

Compared to the same time last year, it said, crude oil prices are up 50%.

Fuel prices accounted for about Rs 2,420 cr, or one third of the total expenses of the company, during the latest quarter.

A year ago, it was Rs 1,526 cr, or about 27% of its total expenses.

Aircraft rental amounts also jumped to Rs 684 cr from Rs 575 cr last year and Rs 2,332 cr in the immediately preceding quarter.

Besides fuel prices, the company blamed “a depreciating rupee and a challenging pricing situation in an over-capacity domestic market” for “undermining” its performance.

Despite this, it said,  it was able to show a 7.3% growth in Available Seat Kilometers –a measure of its total capacity — compared to last year, and a 10.5% growth in Revenue Passenger Kilometres — a measure of sales volumes.

It saw 7.45 million passengers, up 2.2% from last year.

On-time performance improved to 84%,  up 11 points versus last year.

Average load factors increased by 2.5% to 84% over last year, while ancillary revenues grew by 9% and cargo revenues increased by over 13.7%.

“Simultaneously, Jet Airways is exploring further opportunities to enhance revenues by undertaking several calibrated steps to improve yields in the domestic market, fine tune revenue management practices and use the advantages of connectivity over its hubs to improve volumes.

“At the same time, the airline is actively engaged in realising improvements in revenue in the international markets by leveraging the strengths and synergies of its network and alliance partners,” it added.

RESTRUCTURING

It said it is undertaking a series of initiatives with a view to enhance “economic viability, efficiencies and productivity to ensure the long-term health of the business.”

The airline said it has embarked on a “comprehensive review and consolidation” of its network involving routes and markets, as well as products and services offered.

“The strategy includes concentration of capacity, enhancing frequency, density and hub connectivity. The measures will include rationalization of operations on select, uneconomic routes and the redeployment of these assets to more productive and economically efficient international as well as domestic sectors, closely aligning capacity with the demand characteristics of specific markets,” it said.

It said the process of introducing B737 MAX aircraft is progressing as per schedule and 11 of these are expected to be inducted in the current financial year ending March.

“Jet Airways will leverage the fuel efficiency and longer range of its existing and forthcoming MAXs to replace those with higher operating costs on both domestic and international sectors,” it said.

Despite this, the overall scale of operations (ASKM) will be unchanged, it said.

It plans to launch three additional services to Singapore from Mumbai, Delhi and Pune.

Earlier this month, it started its flight to Manchester from Mumbai.

It said it will launch additional frequencies between Delhi – Bangkok, Mumbai – Doha, Delhi – Doha, Mumbai – Dubai and Delhi – Kathmandu during the winter schedule.

The loss-making company said it continued to engage with its lenders and other financial stakeholders “for supporting its funding requirements” till it starts generating operational surplus.

It is also actively working on the monetization of its assets and capital infusion, it added.

It will focus more on profitability rather than market share in the short term, it added.

“With our clearly defined focus on profitability, we are in the midst of turning the ship around,” said Vinay Dube, CEO.

“While we navigate the challenges posed by the current industry environment, our focus and attention remains on safety and operational reliability. We are confident that we will overcome our current challenges, honour our commitments to our stakeholders, and deliver a more strategic, efficient and financially viable airline.”

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