With a worrisome loss that Jet Airways reported for the June quarter, the question many seem to be asking is, is this airline also going the Kingfisher Airlines (KFA) ?

Kingfisher was grounded in 2012 after massive debt, failing revenues and consequently failing safety procedures forced its engineers to down tools.

Jet is in financial trouble, for sure, but nowhere near what Kingfisher faced six years ago. Not yet, anyway.

The airline reported some improved operational performance in the June quarter despite the losses: 9.4 percent increase in available seat kilometres (ASKMS) or capacity over Q1FY18, a 7.6 percent increase in revenue passenger kilometres (RPKMs), 4 percent increase in the number of passengers to 7.38 million over the previous quarter.

So the aircraft are not flying empty, the airline is still increasing capacity and also generated better revenue.

When KFA was on its last leg, it had trouble buying fuel to operate flights each day due to inability to pay oil companies, it had mounting airport dues and unpaid salaries for months.

Disgruntled employees had to be placated by owner Vijay Mallya repeatedly (as it turns out, with false promises). There are no reports of such problems as yet being faced by either the Jet staff or its vendors.

Pilots have so far warded off any salary cut whatsoever, vendor dues also do not appear to be at alarming levels and the company is promising a turnaround through cost cutting measures and recapitalisation.

Even Jet's bankers are not in cold panic, with State Bank of India (SBI) chairman Rajnish Kumar saying last week that its loans to the airline were "standard". But having said all that, the situation at Jet is obviously far from comfortable.

Jet reported net loss of Rs 1,326 crore in the June quarter this year against a profit of Rs 58 crore in the year ago period.

This means, Jet lost over Rs 14 crore on an average every day of the quarter. Or about Rs 60 lakh every hour of the quarter. There were enough indications earlier that the airline will fare badly so the results are not surprising.

Besides, peers IndiGo and SpiceJet, also reported losses in the same quarter earlier, so the quarter has been bad all round. IndiGo reported a 97 percent drop in profitability.

What is worrisome at Jet Airways:

1) Debt: As per Jet’s Q4 concall with analysts, the net debt as on March 31 stood at Rs 8,150 crore, an increase of about Rs 224 crore over December 2017, which means within just three months.

In reply to a question on whether negative cash flow in Q4 will lead to increasing debt, chief financial officer Amit Agarwal said, “Primarily our focus will be maybe a quarter or two you will see slightly the debt going up; however, our journey as we have demonstrated over the last two and a half years of deleveraging the company, we have shown that Rs 3,000 crore of debt reduction has happened. Our journey would continue. May be as you said in this quarter or in a quarter or two, there could be a short-term blip in terms of increase in the debt, but overall our strategy continues to be reducing the debt on an ongoing basis."

The biggest struggle before Jet has to be reduction in the mounting debt pile.

2) Costs: Jet’s troubles have compounded in the current quarter because of a hostile cost environment with fuel prices having risen by 35 percent and the rupee depreciating sharply. Myriad costs such as expat pilot salaries, maintenance and lease payments are made in dollars.

The airline has set itself a target of reducing ex-fuel costs by 12-15 percent over the next several months and seems well on its way to achieve that, despite having one of the highest cost structures in the industry. But fuel costs and currency fluctuation remain a cause for concern.

Jet said in non-fuel CASK (cost per available seat kilometre) was reduced by 1.5 percent over Q1 FY18 in the June quarter, after a similar reduction in the March quarter. This reflects further enhancement of efficiencies across all aspects of its business.

During the period, the airline’s overall fleet utilisation also went up by 3.7 percent to 12.98 hours on a Year over year (YoY) basis, the airline said.

It's targeting over Rs 2,000 crore worth of cost reduction over the next two years, spanning maintenance costs, selling and distribution costs, fuel rate and optimisation, debt and interest cost reduction and enhancement of crew and manpower productivity.

3) Revenue: Jet has been unable to raise fares as intense competition in the domestic market has actually taken fares south.

Analysts say seats are currently being sold below cost by all airlines. So we have a situation where Indian aviation market has seen 50 months of uninterrupted double digit passenger growth, but airlines’ profitability has nosedived nevertheless.

Jet’s yields (revenue per passenger) were the lowest in Q4 for eight consecutive quarters and continued to be below par in the June quarter too.

The airline says it's eyeing 3-4 percent growth in RASK through tactical and strategic initiatives around network, pricing, inventory management and sales.

As long as Jet is able to raise urgent funds, whether by monetising the frequent flyer programme or other means while also simultaneously controlling costs with an iron hand, its troubles could ebb. Else, it may slowly slide the Kingfisher way.

Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy

First Published:Aug 28, 2018 3:06 PM IST