"Jet Airways (India) Limited Q2 FY2019 Earnings Conference Call" November 13, 2018
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“Jet Airways (India) Limited
Q2 FY2019 Earnings Conference Call”
November 13, 2018
ANALYST: MR. SANTOSH HIREDESAI – SBICAP SECURITIES
LIMITED
MANAGEMENT: MR. VINAY DUBE – CHIEF EXECUTIVE OFFICER
MR. AMIT AGARWAL – CHIEF FINANCIAL OFFICER &
DEPUTY CHIEF EXECUTIVE OFFICER
MR. RAJ SIVAKUMAR - SENIOR VICE PRESIDENT –
WORLDWIDE SALES AND DISTRIBUTION
MR. N. RAVICHANDRAN – SENIOR VICE PRESIDENT
MR. ABHIJIT DASGUPTA – VICE PRESIDENT NETWORK
PLANNING
Page 1 of 10Jet Airways (India) Limited
Nov 13, 2018
N Ravichandran: This is N Ravichandran. Complements of the season and very good afternoon to
all of you.
Please note that certain statements made during this call related to our future
business, financial performance and future events or developments may be
construed as forward-looking statements, which involve a number of risks, and
uncertainties that could cause actual results to differ materially from those in
such forward-looking statements.
Wish to inform you all, the numbers reported are in compliance with the
provisions of Ind-AS.
Let me now hand over the call to our CEO Mr. Vinay Dube.
Vinay Dube: Good afternoon everyone. I am pleased to extend a very warm welcome to all of
you for this earnings call organized by SBI Cap.
I am grateful to all of you for your time and the interest that you have shown in
our company. It is a pleasure to be here with my team. I am accompanied by Amit
Agarwal, CFO and Deputy CEO, Raj Sivakumar, SVP worldwide sales and
distribution, N Ravichandran, SVP Finance and Abhijit Dasgupta, VP Network.
I’ve spent the last 15 months of my aviation career in india and while aviation in
general is not a very easy business globally, in India both the opportunities and
challenges faced by the sector are at a totally different level. The opportunity is
staggering because of a highly underpenetrated aviation market with a fast
growing economy and a rising population. But the challenges are equally
staggering as airlines battle for market share and not profitability by dumping
capacity into the market at unprecendented levels enabled by fare regimes that
are unsustainable. You are seeing this clearly play out as each of the airlines
report their results for the second fiscal quarter.
Page 2 of 10Jet Airways (India) Limited
Nov 13, 2018
Compared to the same quarter last year, the Indian rupee has depreciated by
about 10% and Brent is higher by almost 25 dollars per barrel or 50%. However,
instead of witnessing an increase in fares to recover these cost increases, the
industry fares or yields are in fact down. Such a low fare environment is not
sustainable for the industry nor good for the consumer in the medium term and
and it is imperative that fares rise in the short term.
However, as we have said before, hope is not a strategy and we remain focused
on our business turnaround, which we are happy to report is on track. I would
like to spend a few moments on some of our key turnaround efforts before I dive
into our Q2 FY19 results. Let me start with operations.
Our operational reliability and on-time performance is the best we have seen over
the last 3 years. The airline’s arrival On-time performance in this quarter was 84%,
which is a substantial 15 percentage points higher than Q2 of last year. The
Technical Dispatch Reliability (TDR) during the quarter was 99.36%
We continue to see our cost savings initiatives bearing fruits. It is noteworthy that
our CASK-excluding fuel was almost flat at INR 3.09 against INR 3.07 in Q2 FY18.
This is despite the significant depreciation of the Indian Rupee versus the US
Dollar across the comparable period. Excluding the adverse impact of exchange
rates, our non-fuel CASK was in fact at INR 2.94, which is 4.2% lower compared
to same period last year. Compared to Q1FY19, the non-fuel CASK in this quarter
is lower by 2.4%. This is testimony to the fact that our cost reduction initiatives
are bearing fruits and we are on track to meet the cost reduction targets which
we have set for ourselves. Excluding foreign exchange, the current quarter’s non-
fuel CASK is 9% lower than the non-fuel CASK of FY17. To remind everyone on
the call, this is in line with the target we communicated late last year to reduce
our non-fuel CASK by 12-15% compared to FY 17 in the succeeding 10 to 12
quarters.
Page 3 of 10Jet Airways (India) Limited
Nov 13, 2018
On the network front, the airline continues to evaluate environment factors and
economic performance, and is undergoing a comprehensive update of its
network along with products and services offered. The strategy includes
concentration of capacity, enhancing frequency density and hub connectivity, to
better serve our corporate customers, which contribute more than 45% of our
revenue. The measures will include rationalization of operations on uneconomic
routes and the redeployment of these assets to more productive and
economically efficient international as well as domestic sectors, closely aligning
capacity with the demand characteristics of specific markets. Effective 29th
August we have introduced 28 new flights on our Domestic network which
include industry first flights connecting Indore with Jodhpur & Vadodra and
additional frequencies on Mumbai-Guwahati.
To complement the changes in our network we are also implementing new
revenue management strategies that help us cope with a difficult fare
environment. The implementation of these strategies is going well and we expect
to see this bear fruit in our reported RASK performance over the coming quarters.
We are in a dynamic business, which is ever evolving to ensure that needs of all
segments of our guests are met. To cater to the needs of certain section of our
guests, we have come up with more flexible fare options on our Domestic
services. We have now unbundled fares in ‘Light’ and ‘Deal’ categories of Fare
Choices in Economy for flights within India . The revised offering under Fare
Choices will now allow guests to enjoy more value for money, by letting them
choose a travel plan based on their preference, travel requirements and budget.
So to recap, we are successfully implementing transformation initiatives in the
areas of operational reliability, cost, revenue and the customer experience.
Now let’s move to the results for the second quarter of FY19:
This quarter, we reported a loss of INR 1,261 crores at a consolidated level.
Excluding the impact of foreign exchange losses due to depreciation of the rupee,
Page 4 of 10Jet Airways (India) Limited
Nov 13, 2018
the loss was INR 823 crores. Amit and Ravi will be taking you through the results
in detail, later during the call.
During Q2 FY19, the capacity deployed in terms of Available Seat Kilometers (ASK)
increased by 7.3% over same period last year, to 15.3 billion ASKs.
We recorded 2.2% traffic growth in this quarter, with the number of passengers
carried increasing to 7.45 million over same period last year.
We reported a RASK of INR 4.16 for Q2FY19 which is practically flat at Q2FY18
levels despite stage length increase of 9.6%. We improved the load factors by 2.5
pts which was offset by the low fare regime dominating the Indian aviation
markets.
Fuel prices have seen sharp increase, with the Brent prices being higher by 51%
at USD 75 per barrel in Q2 FY19 compared to USD 50 per barrel in the same period
last year. As a result, the fuel CASK in Q2 FY19 was 44% higher as compared to Q2
FY18.
This led to our overall CASK increasing to INR 4.75 in Q2 FY19 as compared to INR
4.22 in Q2 FY18.
We are glad to share that our first ever direct Non-stop service between Mumbai-
Manchester has started from 5th November and we are seeing an encouraging
response from our guests.
We have expanded our code share partnership with Bangkok Airways , Malaysian
Airways for the seamless connectivity of the passengers to and from online points
in India and Overseas, we have also expanded scope of codeshare agreement
with Korean Air on our Bengaluru-Singapore service.
We are already seeing fuel efficiencies on our 737 Max aircraft along with positive
feedback from guests about the overall flight experience of 737 Max. We have so
Page 5 of 10Jet Airways (India) Limited
Nov 13, 2018
far inducted 5 out of 11 max aircraft scheduled to be delivered to us in this
financial year.
Let me now request Amit to take you through the financial and operating
Amit Agarwal: Jet Group’s consolidated performance – Q1FY19 versus Q1FY18
In Q2 FY19, our total capacity (Domestic plus International) in terms of seats
decreased by 2.1% whereas the total passengers carried by the Airline grew by
2.2% versus Q2 FY18. This reduction is primarily attributable to reduced ATR
flying.
ASKMs however, were up by 7.3% as compared to same period last year.
We achieved seat factor of 84.0% in Q2FY19, higher by 2.5 points as compared to
Q2FY18.
Consolidated gross revenue increased by 6.9% to INR 6,363 crores in the current
quarter from INR 5,952 crores in same quarter last year.
Our cargo business continues to show significant improvement, with cargo
revenues improving by almost 14% over last year same period.
The total costs per ASKM increased by 53 paise or 12.5% to INR 4.75 in the current
quarter versus INR 4.22 in Q2FY18. This was mainly due to the fuel CASK
increasing by 44% from INR 1.15 to INR 1.65 in the same period. Measures
undertaken by us to control costs have resulted in our non fuel CASK being largely
contained at last year’s levels. This is despite annual inflations and significant
depreciation of the Indian rupee vis-à-vis the US dollar. As eluded to by Vinay
earlier, our non fuel CASK excluding foreign exchange was in fact at INR 2.94,
which is 4.2% lower than Q2 of last year.
EBITDAR for the quarter was INR 239 crores as compared to INR 1,084 crores in
Q2 FY18.
Page 6 of 10Jet Airways (India) Limited
Nov 13, 2018
This quarter’s results were adversely impacted by increase in fuel prices without
corresponding yield improvements. The rise in brent prices had a negative impact
of over INR 811 crores in this quarter.
Further, the quarter was also impacted by mark to market, non cash charge to
the income statements on account of unrealized foreiegn currency loss of INR 438
crores. Given that the unrealized foreign currency loss was INR 73 crores in Q2
FY18, the incremental charge to the income statements due to unrealized FX was
INR 365 crores in the current quarter.
Considering that over 50% components of non fuel CASK are dollar denominated
and the 10% depreciation of INR in the current quarter as compared to the
previous year has also adversely impacted our costs.
However, our cost saving initiatives have offset the inflationary increases in costs.
The selling and distribution cost increased this quarter compared to Q1 due to
increase in international passengers by 10% and impact of foreign exchange.
The increase in finance cost in Q2FY19 versus last year was primarily attributable
to additional INR loans taken after September of last year, which carry higher
interest cost as compared to aircraft and other dollar denominated debt.
Continuing on the operational highlights for Domestic Operations:
The share of Domestic revenues to total revenues was 41.1% for the quarter.
ASKMs were up by 1.3% as compared to Q2 of last year.
Passengers carried increased from 5.21 million in Q2FY18 to 5.27 million in
Q2FY19 – an increase of 1.1%.
Gross revenue decreased by 5.7% to INR 2,615 crores in the current quarter from
INR 2,773 crores in the same quarter last year, primarily due to lower fares.
Page 7 of 10Jet Airways (India) Limited
Nov 13, 2018
Overall seat factor for Domestic operations was 83.4%
Moving to international:
The share of International revenues to total revenues was 58.9% for the quarter.
ASKMs increased by 11.3% compared to Q2 of last year.
Passengers carried were 2.19 million in Q2FY19, an increase of 4.9% from 2.08
million in Q2FY18.
The gross revenue from international operations increased by 17.2% to INR 3,748
crores in the current quarter.
The overall seat factor in the international market was 84.3%
Let me now take you through the details of the debt and liquidity position for
the Jet Group:
As on 30th September 2018, the gross debt on our balance sheet stood at INR
8,411 crores or roughly around USD 1.16 billion, a reduction of about INR 200
crores in the quarter. Of this, aircraft debt stands at INR 1,851 crores. About 60%
of the total debt is denominated in USD.
The net debt as at 30th September, however, stood at INR 8,052 crores, a
reduction of about INR 30 crores over March 2018 and increase of about INR 690
crores over June 2018. It is important to note that given large component of our
debt is dollar denominated, depreciation of the Indian rupee has impacted our
closing debt balance by INR 530 crores due to non-cash mark-to-market loss.
Excluding the impact of unrealized mark-to-market loss, the reduction in our net
debt since March 2018 has been about INR 560 crores.
Given the financial performance of the company, our liquidity is strained. While
we are current on our payment obligations to banks, statutory dues, fuel
Page 8 of 10Jet Airways (India) Limited
Nov 13, 2018
companies and airport operators, we have delays in payment to other vendors
and a section of employees. We must emphasize that we are receiving
unwavering support from our vendors and we are grateful to all stakeholders for
having confidence in us.
We are working towards various liquidity initiatives to bridge the gap. Further,
Company has engaged the services of experts to help in its turnaround plan
encompassing operational improvements building efficiencies and enhance
liquidity status. These measures include sale of aircraft, monetization of the
company’s stake in JPPL and fresh equity infusion into the Company. We are
actively pursuing both the transactions and are currently at various stages of
discussions with multiple interested parties for both part sale of our stake in Jet
Privilege and for fresh infusion of equity into the company. There is plenty of
interest in our strong brand and confidence in our business turnaround efforts.
Turning to the current quarter and outlook:
While the aviation market in India continues to be challenging, fares are showing
little signs of improvement as we enter into the busiest quarter of the year.
In the upcoming quarter, we would be adding 3 more B737 Max aircraft, taking
the total tally of the fuel efficient aircraft to 8.
As mentioned in earlier call we are strengthening our network wih additional
departures out of tier II & tier III cities to connect to metro cities in this effort we
have connected Indore to 14 cities on our Network.
On international front we are introducing daily non stop flight between Pune-
Singapore which will enable our guests to connect to more destinations beyond
Singapore like Brisbane, Jakarta, Nadi to name a few!
With overwhelming response to our to our existing services between Delhi-
Singapore, we plan to start 3rd frequency on this sector to cater to the demands
Page 9 of 10Jet Airways (India) Limited
Nov 13, 2018
of our guests. We have also started our fourth daily frequency between Delhi-
Dubai to strengthen our network in the Gulf market.
Let me now open the call to questions.
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