Friday, January 9, 2009

Jet Airways to breakeven in FY10

Wolfgang Prock-Schauer, CEO, Jet Airways, expects load factor to be around 60-70% in domestic and mid-70% in international routes. "We are targeting mid-70% load factors in FY10."

Prock-Schauer said 2008 was a very bad year and that the company was recouping last year losses with the cooling off ATF prices.

According to him, Jet Airways will breakeven in the next financial year. "If ATF prices remain at current levels; Jet could post small profits in FY10. However, the FY10 profitability would largely depend on load factors and pick up in travel."

Business class travel is falling significantly around the world but Prock-Schauer sees a recovery in the aviation sector due to the lower ATF prices.

Here is a verbatim transcript of Wolfgang Prock-Schauer�s comments on CNBC-TV18. Also watch the accompanying video.

Q: Given the way ATF (Aviaiton Turbine Fuel) prices have come down and any uptick in load factors that you have seen. By which quarter do you think you will turn profitable and which financial year do you expect to post a full net profit?

A: As you mentioned, 2008 was a year where all negative factors come together. We had a big overcapacity situation in the industry and a record high of fuel prices, beginning of the recession, the financial meltdown and on top of that terror attacks in Mumbai. So, 2008 was a bad year for aviation. But now, the lowered ATF prices are reducing the losses.

To give you a precise projection by when we will be profitable, is premature. We are approaching a breakeven situation quite rapidly and now in the current scenario and I would think that by next financial year we should be in the breakeven region and then from there onwards be profitable again so that�s the way how I see it going.

The recession is here in most of the markets so the economy has also slowed down in India. But nevertheless fuel prices will go down and our capacity reduction has been implemented. We can achieve breakeven situation in the next financial year.

Q: If ATF prices hover somewhere close to the current levels, is there a reasonable chance of Jet posting a profit in FY10 or do you think you can�t say that with certainty yet?

A: Given situation there can be a small profit but I don�t want to promise too much in the current scenario because it will be difficult to assess how the global recession will affect aviation. Business class travel is dropping significantly all over the world. So, it will be very difficult to assess the situation. I would say that I am more optimistic today than I was 8-9 months ago, when crude prices were at USD 150 per barrel. The trend is going in the right direction. But there are a lot of unpredictable factors and for this reason I would like to speak to this given scenario.

Q: For the rest of the calendar year that is year 2009, what kind of fare cut do you expect to see over the next few months and what kind of average load factor do you think you would have?

A: We have implemented a reduction in the fuel surcharge already and we recently introduced a series of new fare initiatives, specifically apex fares where you can get very competitive fares. This could be in the magnitude of 5-10% drop in yield.

But on the other hand we have seen very positive direction towards this new fare category and in the recent Christmas break there was not too much traffic volume, but now we will see traffic picking up. So, we could operate between 60-70% in the domestic arena and internationally we have been already operating in the last couple of weeks or months in 70% or mid 70%, so it is doing reasonably well.

Q: There have been some concerns about how you are funding or meeting your working capital requirements. Can you confirm whether indeed a loan of Rs 1,000 crore has been taken by Jet and whether that�s involved any pledging of shares?

A: I cannot go into detail but what I can say is that we have sufficient funding for operation and we have secured sufficient working capital facilities to come over this difficult phase. It is quite obvious that banks have faith in our strategy and our positioning and our liquidity is secured and we have enough working capital facilities.

Q: Is it your expectation that throughout 2009 you will be more or less be able to hold on to more than 60% load factors and if you can do that will it more than offset the pressure on yields because of a reduction in rates?

A: Load factors in 2009 could improve further because of what we have done on the domestic side� we have taken out about 16% of our capacity in this year and we want to keep this capacity stable. Despite the fact the domestic market has declined in the recent month by about 15-20%, in the coming year we could see stabilisation and small growth. So if we keep our capacity stable and the market continues to grow at a modest rate at about 5% or maybe even 10%, we will see higher load factors. We should have a 70% load factors on the domestic front. That�s our goal.

Internationally, we have completely stopped our international expansion programme. With the stable capacity and continuous growth in the international traffic which we think will stay in the Indian aviation. We will be able to achieve load factors in mid-70\'s; at least I would say and that�s our goal and this is also an international benchmark figure. You have to operate at about 75% load factor minimum to be profitable in an international operation.

So overall, a combination of stabilisation of capacity and modest growth should enable us to achieve improvement in load factors.

No comments:

Post a Comment