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Jet Airways' cash crunch problem is no different from the rest of aviation industry

Jet's expenses has registered a steep rise, primarily led by aviation turbine fuel cost, foreign exchange losses, loans advances to subsidiary JetLite, and aircraft maintenance charges.

twitter-logo Manu Kaushik   New Delhi     Last Updated: August 3, 2018  | 20:06 IST
Jet Airways' cash crunch problem is no different from the rest of aviation industry

The writing is on the wall -- for a fairly long time. The reports of full-service carrier Jet Airways' grounding in the next 60 days owing to severe resource crunch have stirred the aviation sector. The airline has refuted the reports but the speculations are flying thick and fast. Earlier this week, some reports suggested that Jet has asked employees to take salary cut of between 5 and 25 per cent to slash operating expenses.

The problem with Jet is no different from the rest of the industry -- revenues are sliding and costs are rising. For instance, in the fourth quarter of 2017/18, Jet posted net loss of Rs 1,036 crore, as compared to net profits of Rs 602.42 crore in the corresponding quarter of 2016/17. The revenue drop was visible in both international and domestic operations. International operations contributed 52.65 per cent to the consolidated revenues in 2017/18.

In a recent analyst call, the company Amit Agarwal, deputy CEO and CFO at Jet had said that "yields continue to be under pressure, and the Gulf market continues to remain weak...over the last two years, from fourth quarter fiscal 2016 to fourth quarter fiscal 2018, airfares remained flat whereas the fuel prices have doubled."

Yields are industry metric to determine how much money an airline makes per kilometre from a paid passenger. Jet's yield in the quarter ending March 2018 was Rs 4.14 in comparison to Rs 4.27 in the quarter ending March 2017.

Jet's expenses has registered a steep rise, primarily led by aviation turbine fuel (ATF) cost, foreign exchange losses, loans advances to subsidiary JetLite, and aircraft maintenance charges. In fact, the costs related to employees remuneration and benefits registered marginal hike in 2017/18 as compared to 2016/17. Jet's consolidated salary bill stood at Rs 3,174.22 crore in the last financial year.

In an official statement, the airline CEO Vinay Dube has said that "the company...has been implementing several measures to reduce costs as well as realize higher revenues...some of these areas amongst others includes sales and distribution, payroll, maintenance and fleet simplification...the company has been in dialogue with all its key stakeholders -- internal and external. The dialogue with employees has been to apprise them of the challenges being faced by the aviation sector in India and by the Company in particular..."

Jet, which has the second-highest market share of 15.5 per cent amongst domestic carriers, has been swinging between contrasting phases. Back in February 2015, the airline swung into (marginal) profitability after reporting losses for seven consecutive quarters. Then, in the quarter ending March 2018, Jet's bottomline turned negative after it reported a quarterly loss after eleven quarters.

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