Why Jet Airways Is Facing A Crippling Cash Crunch
High debt, rising fuel prices and slower growth have crippled Jet Airways Ltd.
Shares of the full-service carrier fell as much as 7.8 percent, the most in nearly three weeks, after the Economic Times reported quoting unnamed people that the company told employees it can't operate for more than 60 days without cutting expenses, including salaries. The airline has been the least preferred aviation bet among investors, with its shares falling more than 60 percent this year
The company, 51 percent owned by Naresh Goyal, may raise funds and the promoter may sell stake, another report by Mint said.
A company spokesperson, in a statement, said Jet Airways has taken measures to reduce costs. “Some of these include sales and distribution, payroll, and maintenance, among many others,” the email said, adding the management is in talks with “key stakeholders to enlist their full support and cooperation”.
It's been a difficult year for airlines in the world's third-largest aviation market as prices of jet fuel rose 20 percent, while competition drove ticket prices lower. No let-up is expected anytime soon.
Higher Costs
Everyone in the sector is vulnerable to this, more so Jet Airways because of its high-cost structure, Amrit Pandurangi, an aviation expert, told BloombergQuint. The tough phase may continue for another two quarters, he said.
Being a full-service airliner, Jet Airways' costs are higher compared to budget peers like InterGlobe Aviation Ltd. and SpiceJet Ltd. The company tried to lower non-fuel costs through greater utilisation and better maintenance. That hasn't been enough.
The carrier needs to take many more steps to enhance its cost competitiveness, given aggressive pricing in the industry, said Santosh Hiredesai, an aviation analyst at SBICAP Securities.
Forex Woes
As most of the expenses are dollar-denominated for an airline, a depreciating rupee means they need to pay more. And the Indian currency has weakened close to 8 percent this year, the most among Asian peers.
Slower Growth
Nearly 60 percent of Jet Airways' flights are on overseas routes, the rest being domestic. The carrier's traffic grew 14 percent in the domestic market in the last one year compared with the industry average of 19 percent.
Jet Airways also lost market share to rivals during the period.
Jet Airways' market share on international routes has stayed around 14 percent. Half of its overseas capacity is deployed on routes to the Middle East, which is going through a slowdown. The carrier also faces tough competition in the region.
Debt Issues
Jet Airways has a weaker balance sheet compared with other listed peers. The carrier's liabilities are higher than assets, giving it a negative net worth.
While the airline was profitable in the last two years, it reported a loss of more than Rs 1,000 crore in the quarter ended March. Analysts tracked by Bloomberg estimated a loss of Rs 500 crore in the three months to June—the carrier is expected to report numbers on Aug. 10.
Recurring losses could push up debt, put more pressure on profitability and liquidity, SBICAP Securities said.
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