India’s three listed airlines look to have finished in the red for the quarter to June 2011 on the back of high jet fuel prices, excess capacity and fierce competition for passengers. You will recall that we have devoted a huge word count to the fact that ticket prices are falling hard in India at the same time that passenger numbers remain static and capacity increases at a very fast pace, a toxic mix at best. To date the India carriers have done very well indeed given the circumstances but now information that we are receiving suggests that the last quarter and the remaining quarters of fiscal 2011 are going to provide losses.
The big three listed Indian carriers; Jet Airways (India) Ltd, Kingfisher Airlines Ltd and SpiceJet Ltd together command a 60% market share. Jet Airways is estimated to have made a loss of Rs335.8 crore (US$75.75m) from an Rs8.4 core profit during the same period last year. Kingfisher Airlines will show a loss in the region of Rs377.3 crore (US$85.12m) widening from a loss of Rs187.35 crore and SpiceJet may show a loss of Rs75.5 crore (US$17m) against an Rs55.22 crore profit during the same period last year although messages are mixed on SpiceJet and it may be that they scrape into profit for the period (NOTE: crore = Rs10m and US$1 is Rs44.325).
So what does this all mean?
The quarter in question is considered to be the second best period of the year for Indian airlines, so these results should show to be an above average performance for the year as a whole. Jet Airways can handle the losses. SpiceJet as reported yesterday, is looking to raise capital at this time and as such these results will damage those plans and with share price falling will increase the cost of any debt raised. Kingfisher is another situation entirely, the airline is in a fix and has been trying to drum-up investment for close on a year now with roadshows and the like all failing to meet original investment expectations. Will the larger than life Vijay Mallya continue to destabalise the empire he inherited over an airline dream? Judging by the news yesterday that he has firmed-up share commitments over the past month the answer is yes. Kingfisher has also brought back into the air a large number of A320s which have been grounded due to “maintenance issues” so the drive remains for that airline. The Indian market needs to contract but ticket prices continue to fall and now we hear that Air India, if it gets its money as planned, which is a big if, will embark on a very aggressive charge for resurgence through a sales drive, a thin veil for ticket price cuts. Air India, with about 15% market share, reduced its fares at the beginning of the year to win back lost market share and knows it has to do more.