Jet Airways, SpiceJet may post record losses in Q2, says Capa

JetAirways and SpiceJet may even report losses in the year to 31 March, Capa said,
 adding that even other local airlines may not meet its earlier estimates.
 Photo: Ramesh Pathania/Mint

Jet Airways (India) Ltd and SpiceJet Ltd, India’s two listed airlines, may post record losses in the quarter ended September and, together, India’s five functioning airlines may have lost as much as $500 million in the period, consulting firm Capa said in a report issued Tuesday, blaming it on “irrational pricing”.

Airlines had dropped airfares for tickets booked even for immediate travel in what is considered a lean travel quarter. Typically, airfares are cheaper if booked in advance and become more expensive closer to the date of travel.

Jet Airways and SpiceJet may even report losses in the year to 31 March, Capa said, adding that even other local airlines may not meet its earlier estimates. Jet Airways and SpiceJet spokespersons declined to comment on the report.

“Indian airlines have unfortunately repeatedly demonstrated their ability to undo months of hard work with just a few weeks of irrational pricing as a result of which profitability remains elusive,” Capa said in its report. “Every airline in India is estimated to have been in the red during the quarter. Among private carriers Jet Airways is estimated to have posted the highest loss at close to $150 million, followed by SpiceJet at $70-80 million. In both cases, the estimates exclude one-time adjustments. Other carriers such as IndiGo and GoAir also incurred heavy losses.”

Spokespersons for IndiGo and GoAir also declined to comment on the report. Last year, Jet posted a loss of Rs.99.67 crore and SpiceJet Rs.163.52 crore in the quarter ended September. Capa said one or two such quarters could put a question mark on the viability of some airlines.

“With huge debt and interest burdens, capital remains scarce and investor interest in incumbent carriers is weak. Expansion plans are increasingly reliant on raising debt. The fact that several carriers are turning to travel agents to provide short-term financing at what is effectively a very high interest rate is a worrying sign and indicative of the extent of their difficulties,” the consulting firm said.

Capa also highlighted the increase in competition with the imminent entry of AirAsia India and Tata-Singapore Airlines combine that will mean not just fighting for passengers but also protecting key employees from being poached.

AirAsia India is expected to start services from its base in Chennai by January while the government may fast-track the Tata-Singapore Airlines application and allow it to fly by February, Capa said.
In September, SpiceJet’s average fare was Rs.3,500-3,600; GoAir’s, Rs.3,600-3,700; IndiGo’s, Rs.4,100-4,200; Jet’s, Rs.4,400; and Air India’s, Rs.4,000.

For the year ending March, Capa estimates that Jet Airways and SpiceJet will report full year losses and that Air India’s losses could exceed Capa’s earlier annual loss estimate of $750-800 million. “IndiGo and GoAir are expected to be profitable in FY14 although IndiGo’s result could be below our earlier expectations,” Capa said, without immediately providing details of its earlier estimates.

In the first half of this fiscal alone, Jet Airways has consumed 60% of the funds raised from the 24% equity investment by Etihad Airways PJSC, Capa said, and it may need to look at means to recapitalize the company in 2014-15 which could include Etihad increasing its stake to 49%, the report warned.

Source: Livemint