Jet Airways, India's second largest airline, has denied media reports raising questions over its sustainability, and said there has been no stake sale talks.
“Jet Airways would like to clarify that recent media reports about the sustainability of the airline are not only factually incorrect, but also malicious. The airline would also like to deny any conjecture of a stake sale,” said Vinay Dube, CEO.
A media report had earlier said the airline, which is facing a cash crunch, had told employees it won't be able to fly beyond 60 days unless expenses, including salaries, were cut. Another report said it had revived talks to sell stake to tide over the crisis.
The reports sent Jet Airways shares into a tailspin, even as the broader equity markets were flying high on Friday. The stock closed down seven per cent at Rs 308, while the benchmark BSE Sensex climbed over one per cent or 391 points to 37,556.16.
The airline has been flying through a turbulence of soaring fuel costs and depreciating rupee, and despite costs rising for all the players, competitive intensity in the airline industry remains high.
In the fourth quarter, ended March 31, Jet Airways reported a consolidated loss of Rs 1,040 crore, versus a profit of Rs 583 crore, in the year ago quarter. The net debt as on March 31 stood at Rs 8,150 crore. Its aircraft fuel expenses in the January-March quarter increased to Rs 2,187 crore from Rs 1,700 crore.
High fuel costs, which account for a large chunk of expenses for all airlines and the mark-to-market losses from a depreciating rupee are hurting other airlines too. The net profit of Interglobe Aviation, the parent of low cost carrier Indigo, the country's largest airline, nosedived 97 per cent in the first quarter. Jet will report its April-June quarter earnings on August 10.
The problem for full service carriers like Jet is that despite the rising cost pressures, cut-throat competition means that there is little room to raise ticket prices, as customers will inevitably look to book the cheapest available ticket on a route.
“While growth prospects remain favourable, sharp rise in crude oil price and rupee depreciation are likely to exert pressure on operating profitability of airlines in the near-term, resulting in higher net loss of Rs 3,600 crore (for the industry) in FY2019. While the strong passenger traffic growth will allow airlines to improve yields to offset cost pressures to some extent, the increase may not be adequate. Accordingly, the credit metrics of the industry (on an aggregate basis) will witness deterioration in the near-term,” said ratings agency ICRA in July.
Given the external headwinds, Jet has to look internally to cut costs as it looks to build a sustainable future.
“In line with the company’s stated focus of creating a healthier and more resilient business, it has been implementing several measures to reduce costs as well as realise higher revenues for desired business efficiencies. Some of these areas amongst others include, sales and distribution, payroll, maintenance and fleet simplification,” said Dube.
He further said that it had been in talks with internal as well as external stakeholders.
“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, with an intent to enlist their full support and cooperation for realising necessary savings across all business functions,” he added.
The Naresh Goyal-promoted airline is also banking heavily on new fuel efficient planes that will help it fly to new destinations, even as these planes will consume lower fuel.
Jet Airways recently inked a deal with American plane maker Boeing to buy 75 additional 737 Max 8 airplanes. Including this order, it would be buying 225 Boeing 737 Max planes over the next several years. Eleven of these new planes will be inducted by the airline within the current financial year, ending March 2019.
Dube said the fleet expansion and envisioned growth will only require “additional human capital.”
Currently, it has a fleet of 120 planes, flying to over 60 destinations in 15 countries.