ArrowArtboardCreated with Sketch.Title ChevronCrossEye IconIcon FacebookIcon LinkedinShapeCreated with Sketch.Icon Mail ContactPath LayerIcon MailMenu BurgerIcon Opinion QuotePositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter

Indian airlines bleed red ink as a price war intensifies

Jet Airways' turnaround plan will be closely watched by investors

Jet Airways has posted a profit in just three of the last 10 years.   © Reuters

MUMBAI -- Market watchers were closely monitoring India's second largest private airline Jet Airways on Monday as it was set to announce its plan to stay afloat amid brutal competition on prices, high fuel prices and a weak rupee.

The full service carrier, which had earlier postponed announcing its April-June quarterly earnings, will also detail them later in the day, amid reports that the Securities and Exchange Board of India and the Corporate Affairs Ministry are probing the reasons for the delay.

"We wish to inform you that the Audit Committee and the board of directors at their meeting on Monday, while considering the unaudited financial results for the quarter ended June 30, 2018, among other things, will take up the matters in relation to cost-reduction initiatives and turnaround plan, for which the management had earlier sought time," the airline said in its stock exchange filing. CEO Vinay Dube had told shareholders on Aug. 9 that the airline would take cost-reduction measures related to fuel, fleet, sales and distribution.

Shares of Jet Airways opened 2% down on the Bombay Stock Exchange on Monday. It reversed losses in the afternoon session to trade at 281.75 rupees, up 2.14%.

Local media earlier reported that the carrier had asked employees to take 5% to 25% pay cuts. But it later reversed its decision. 

Jet Airways has posted a profit in just three of the last 10 years. It showed consistent profit growth during the financial years ended March 2016 and 2017, but fell back to a loss of 7.67 billion rupees ($108million) during the latest fiscal year. The company's debt stood at 84.14 billion rupees in total as of March 2018. 

Indian civil aviation companies have been struggling ever since the sector opened up to private capital in the 1990s. The early 2000s saw a host of low-cost airlines such as Air Deccan, SpiceJet, GoAir, and IndiGo airlines entering the field, but high operating and fuel costs thinned their ranks. 

Consolidation and buyouts have been a major part of the sector. In 2007, Jet Airways acquired Air Sahara, and the now defunct Kingfisher Airlines bought Air Deccan. Kingfisher shocked the market when it went bust in 2012.

The government is desperately trying to sell state-owned carrier Air India, which is saddled with 500 billion rupees in debt.

Despite the failures, many foreign airlines have bet on the Indian growth story. India's passenger traffic grew at 16.52% year on year to reach 308.75 million by March 2018, according to the Indian Brand Equity Foundation. It is expected to be the third largest in 2025.

Etihad Airways, for example, bought a 24% stake in Jet Airways in 2013. Malaysian budget airline operator AirAsia India too entered the space along with Tata Sons and Singapore Airlines tied up with the conglomerate to establish Vistara.

IndiGo, the biggest private-sector carrier, has been the only one with a consistent record of profits. However, during the quarter ended June, it shocked the market with a 97% fall in net profit to 278 million rupees on revenue of 68.1 billion rupees.

"Our profits for the quarter were adversely impacted primarily by the depreciation of the Indian rupee, an increase in fuel prices, continued pressure on yields and an increase in our maintenance costs," said Rahul Bhatia, interim CEO of InterGlobe Aviation.

The global rise in crude oil prices has pushed up costs by 54%, and the weakening Indian rupee -- which is now hovering around 70 to the dollar -- has made importing fuel and aircraft more expensive.

According to the Associated Chambers of Commerce and Industry of India, aviation companies, which were commanding a fair valuation in the stock market until about a year ago, are attracting little interest from investors, resulting in a massive erosion of 15% to 40% of their market capitalization. "This has resulted in the inability of the operators to raise any fresh resources through the equity or even the debt routes. While equity is not commanding much valuation, debt is becoming even more expensive," said chamber Secretary-General D. S. Rawat.

He said if the sector does not improve as a whole, it will be a long time before Air India can be nursed back to health and put up for privatization. "Even schemes like UDAN [the government's regional connectivity scheme], which are good innovative services for making air travel affordable, would be impacted by the deteriorating health of the sector," Rawat said. He added that the chamber is seeking a thorough policy review of the taxation and other levies concerned.

You have {{numberReadArticles}} FREE ARTICLE{{numberReadArticles-plural}} left this month

Subscribe to get unlimited access to all articles.

Get unlimited access
NAR site on phone, device, tablet

{{sentenceStarter}} {{numberReadArticles}} free article{{numberReadArticles-plural}} this month

Stay ahead with our exclusives on Asia; the most dynamic market in the world.

Benefit from in-depth journalism from trusted experts within Asia itself.

Try 3 months for $9

Offer ends September 30th

Your trial period has expired

You need a subscription to...

See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

See all offers
NAR on print phone, device, and tablet media