Indian aviation industry will return to profits in FY14: BofA-ML
First-quarter profits notched up by Jet Airways and SpiceJet shows that the Indian aviation industry is on a revival path and will return to profitability in the next fiscal year, Bank of America-Merrill Lynch (BofA-ML) has said in a research note.
The Wall Street bank has also upgraded the two stocks to "buy" from "underperform", saying that improving industry trends such as increasing airfares and reduced capacity will improve profitability.
"These carriers will substantially lower their losses in FY13 and return to profit in FY14," BofA-ML says in a report.
"We upgrade both Jet and Spicejet to buy (from underperform). Our upgrade is led by the improved pricing power led by slower than anticipated increase in supply, a sharp jump in EBITDAR due to industry yields rising by ~15% this year, and rationalisation of routes."
"This should see these carriers substantially lower their losses in FY13 and return to profit in FY14," BofA says in its report.
The Indian aviation industry is struggling with ~Rs 100,000 crore in debt, led by the state-run Air India that is sitting on a debt pile of over Rs. 670bn. Jet Airways has a debt of Rs. 145bn. The financially crippled Kingfisher Airlines has nearly Rs. 150bn in debt and accumulated losses.
BofA-ML has also increased its price target on Jet Airways to Rs. 480 from Rs. 210, and to Rs. 42 for budget airline Spicejet, from Rs. 21.
Kingfisher resumes Delhi operations
Kingfisher Airlines has reportedly said that it has been able to operate its flights from Delhi this morning. Reports stated that at least five flights were operated from Delhi this morning.
Earlier Kingfisher has cancelled over 30 flights from Delhi and Mumbai due to a strike by a section of its employees protesting non-payment of salary, according to reports
There were reports that section of its employees, including pilots and engineers are not reporting for work to protest non-payment of salary
About 22 flights of the airline were cancelled from Delhi, while nine were cancelled from Mumbai, says report.
Jet Airways to cut costs to regain profitability: reports
Jet Airways is planning to cut costs to maintain its regained profitability, according to reports.Reports stated that the company will aim for a reduction of around 5 -8% in cost per available seat kilometre (ASKM), excluding fuel cost, over the year.
The company is looking at route rationalisation, contract negotiations, reducing the number of expat pilots and reconfiguration of seats in its flights, report says.
There are reports that the airline plans to cut debt by $400 million this fiscal from a gross debt of around $ 2.5 bn.
In Focus Stories
IIFL recommends 'Buy' on Jet Airways
IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Buy ” Jet Airways.
According to IIFL report, Jet Airways (Jet) reported its first profit in six quarters (Rs342m profit vs. our estimate of Rs1,077m loss), reflecting the benefits of a favourable demand-supply scenario, better pricing discipline in the industry and effective-cost controls by the company.
Jet’s domestic yields were up 10% YoY and international yields improved 21%. JetLite, helped by better pricing power following the re-branding to JetKonnect, saw a 50% YoY improvement in yields.
Revenue came in 4% higher than our estimate. Gross margin improved 280bps QoQ. Ebitdar and Ebitda margins improved 7ppt QoQ each to 16% and 9% respectively, 2ppt higher than our estimate, report stated.
We estimate Jet to have generated Rs2.5bn-3.0bn cash from operations during the quarter. In addition, the company generated cash from sale/sale-leaseback of two aircraft and two engines during the quarter. Jet intends to offload 8-9 more aircraft in 2QFY13. It will revisit our estimates following the earnings conference call today. Retain BUY, brokerage added.
The report was published by IIFL’s Institutional Equities Research desk.
LKP Merchant Finance sells Kingfisher shares: reports
LKP Merchant Financing has sold another 53.41 lakh shares of Kingfisher Airlines for nearly Rs. 50mn, according to reports.
Reports stated that LKP Merchant Financing offloaded 53,41,472 shares of Kingfisher Airlines for Rs. 9.04 apiece, valuing the deal at Rs. 48.2mn.
In last month alone, LKP Merchant Financing sold around 3 crore shares of Kingfisher Airlines.
Jet Airways to return BKC plot: reports
Jet Airways has decided to return the plot in Bandra-Kurla Complex which it had bought in an auction sale by the Mumbai Metropolitan Regional Development Authority (MMRDA) in 2008, according to reports.
Reports stated that the airline, which had paid Rs. 100mn deposit for this 5,291 sq metres plot costing Rs. 8.26bn, will write off the amount as it does not find it feasible to develop it.
Govt mulls action against erring DGCA officials
The Ministry of Civil Aviation has recommended initiating “major penalty” proceedings against Joint Director General of Directorate General of Civil Aviation A.K. Sharan, according to reports.
Reports stated that the decision to initiate major penalty proceedings against Sharan follows an investigation indicating misuse of power by extending undue favour to Touchwood Entertainment in obtaining permission for a flying training academy in Raipur.
It is alleged that A.K. Sharan overlooked observations and similar deficiencies made in at least two reports and granted approval for imparting flying training to Touchwood Entertainment, says report.
Jet, HDFC Bank launch ‘JetPrivilege–HDFC Bank Credit Card’
Jet Airways’ – JetPrivilege, India’s largest and Freddie’s award winning frequent flyer programme, has partnered with HDFC Bank, India’s second largest private sector bank to launch ‘JetPrivilege–HDFC Bank Credit Card’, an exclusive range of Credit Cards offering unique benefits and rewards in the form of JPMiles.
JetPrivilege-HDFC Bank Co-branded Credit Cards will offer enhanced mileage earning opportunities to customers across many cities in India. The co-brand credit cards will promote increase in card usage, making air travel more affordable and rewarding for cardholders. The partnership is a win-win for customers, as it brings together the combined experience of HDFC Bank's understanding of the end-users, attained by being the leading player in the credit card segment; and Jet Airways, who manage one of the most successful frequent flyer programme.
AAI refuses to allow lessors to take back Kingfisher aircraft: reports
Airport Authority of India has refused to allow the lessors to take back about half a dozen aircraft rented out to Kingfisher Airline, according to reports.
Reports stated that the lessors want the aircraft back as Kingfisher Airlines (KFA) has defaulted on rentals.
AAI is exploring several options to recover its long-pending dues, report says.
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AI may resume key international routes by month-end
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Virgin Atlantic announces new daily service from New Delhi to New York
Virgin Atlantic one of the world’s leading long-haul airlines today announced a new service connecting flights from Delhi to New York’s John F Kennedy airport via London Heathrow.
The new service to JFK will commence from 28th October and will complement the airline’s existing same day connection from Delhi to Newark via London Heathrow. The new service is being launched to build upon the airline’s strong performance to Newark from Delhi and to capitalize on the growing passenger numbers to New York and the USA.
The new route will offer seamless connectivity to New York for traffic out of Delhi. Passengers arriving from Delhi land at Heathrow shortly before 6PM and will depart for JFK at 7:25 PM before landing in New York around 11:30PM local time. On their return, passengers will depart JFK at 8:40 AM and land into Heathrow at 7:40 PM local time. They will then be able to smoothly connect to the popular 10 PM departure out of London towards Delhi to arrive home fresh next morning.
Singapore Airlines to make network adjustments in northern winter schedule
Singapore Airlines will be making network adjustments during the Northern Winter operating season (28 October, 2012 - 30 March, 2013), comprising capacity increases on several routes, reductions on others and seasonal aircraft changes.
The adjustments are in line with efforts to redeploy capacity to markets where demand is stronger.
In India, Mumbai services will increase to 21 per week from 19 from the start of the Northern Winter season.
In Australia, a fourth daily service will be operated to Perth, up from three flights per day. Capacity will also increase to Melbourne with the Airbus A380 superjumbo used for two of the three daily flights, up from one. This will take effect from 16 August and continue through the Northern Winter season.
SilkAir to order up to 68 new Boeing aircrafts
SilkAir, the regional wing of Singapore Airlines, has signed a letter of intent to purchase up to 68 new aircraft from Boeing. The order is the largest in SilkAir’s history and remains subject to the negotiation of a final purchase agreement.It will comprise firm orders for 54 aircraft and purchase rights for another 14. Firm orders will comprise 23 Boeing 737-800s and 31 Boeing 737 MAX 8s. SilkAir will have the flexibility to switch to other variants within the B737 product range.
The firm-ordered aircraft are valued at US$4.9bn based on current Boeing list prices. Deliveries are due to begin in 2014 and continue to 2021, by which time the Airline’s fleet will have more than doubled in size. SilkAir currently operates 21 A319s and A320s, with three more A320s due for delivery by the end of 2013.
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