US airfares down 3.6% in second quarter 2013

By BA Staff

The average domestic air fare decreased to $378 in the second quarter of 2013, down 3.6 percent from the average fare of $392 in the second quarter of 2012, measured in constant 2013 dollars, the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported.

Huntsville, Ala., had the highest average fare, $547, while Atlantic City, N.J., had the lowest, $159.

BTS, a part of the Research and Innovative Technology Administration (RITA), reports average fares based on domestic itinerary fares. Itinerary fares consist of round-trip fares unless the customer does not purchase a return trip. In that case, the one-way fare is included. Fares are based on the total ticket value which consists of the price charged by the airlines plus any additional taxes and fees levied by an outside entity at the time of purchase. Fares include only the price paid at the time of the ticket purchase and do not include other fees, such as baggage fees, paid at the airport or on-board the aircraft. Averages do not include frequent-flyer or “zero fares” or abnormally high reported fares.

The second-quarter 2013 fare was down 18.4 percent in constant 2013 dollars from the average fare of $463 in 1999, which was the highest average fare of any second quarter, adjusted for inflation. The 18.4 percent decline took place while there was an increase in overall consumer prices of 40.5 percent. In the 18 years since BTS began collecting air fare records in 1995, inflation-adjusted fares declined 16.9 percent compared to a 53.1 percent increase in overall consumer prices.

U.S. passenger airlines collected 70.6 percent of their total revenue from passenger fares during the second quarter of 2013, down from 1990, the earliest year for which airlines’ revenues and expenses are available, when 87.6 percent of airline revenue was received from fares.

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SpiceJet posts record Rs. 559 crore loss in Q2 FY2014. Needs urgent capital infusion.

by Devesh Agarwal

Gurgaon based low fare carrier SpiceJet Ltd., continued the record of disastrous performance in the Indian airline industry when it announced a record Rs. 559 crore loss for the second quarter, ended September 30, of the fiscal year 2013~2014.

This compared to the Rs. 163.5 crore loss from the same quarter last fiscal, and a Rs. 50.5 crore profit from the first quarter of this fiscal.

On October 23, India's largest private carrier Jet Airways reported a monstrous loss of almost Rs. 1,000 crore.

The airline blamed the poor performance on the precipitous drop in the exchange of the Indian Rupee vs the US Dollar which occurred in the quarter and contributed Rs. 42 crore to losses. In a statement released late this evening, it said

“The civil aviation sector in India continues to struggle under the burden of several adversities mainly the Indian rupee that saw unprecedented weakness during the quarter,”

Poor demand due to a slowing economy saw a drop in income to Rs. 1,257.22 crore from Rs. 1,701.543 crore in the first quarter, though marginally better from Rs. 1,185.244 crore from the same quarter last fiscal. A 9% growth in number of passengers out-stripped the 17% increase in capacity measured in available seat kilometres (ASK), resulting in a 7% in average passenger yields from Rs. 4,001 to Rs. 3,711. Desperate sales at cut-throat fares have also taken their toll.

A lack of capacity discipline by virtually every Indian carrier, especially domestic leader IndiGo, and Jet Airways, continues to exasperate the soft demand situation, and we see the same indiscriminate financial indiscipline as we did in 2008.

Expenses shot up to Rs. 1,791.623 crore against Rs. 1,641.933 in the first quarter, and Rs. 1,357.305 crore from the same quarter last fiscal. Aircraft maintenance costs shot up almost 64% from Rs. 199 crore to Rs. 325 crore largely driven by Rs. 78 crores in engine maintenance expenses due to a bunching up of shop visits.

Fuel costs fell from 45% of total expenses to 39.7% but thanks to the plunge in income, increased from 43.8% to 57% of income.

Continuing losses have put the airline in a precarious financial position. It is estimated the airline requires a minimum Rs. 1,500 crore capital infusion. While the airline has announced the appointment of Sanjiv Kapoor, the former chief executive of GMG Airlines of Bangladesh, as its Chief Operating Officer, it still lacks a Chief Executive, since the departure of Neil Mills, nearly three months ago.

The silver lining for SpiceJet is that parts of the third quarter and the fourth quarter sees high air travel due to the festival season and returning Indian travel.


The supply-demand imbalance is heading for a precipice with expected the commencement of new airlines AirAsia India, and Tata-SIA.

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Alaska Air group reports record third quarter fiscal 2013 results

By BA Staff

Alaska Air Group, Inc., reported third quarter 2013 GAAP net income of $289 million, or $4.08 per diluted share, compared to $163 million, or $2.27 per diluted share in the third quarter of 2012. Excluding the impact of mark-to-market fuel hedge adjustments of $20 million ($12 million after tax, or $0.17 per diluted share), and a one-time special revenue item of $192 million ($120 million after tax, or $1.70 per diluted share) that primarily resulted from the application of new accounting rules associated with the modified affinity card agreement, the company reported record adjusted net income of $157 million, or $2.21 per diluted share, compared to adjusted net income of $150 million, or $2.09 per diluted share, in 2012.

Alaska Air Group CEO Brad Tilden said:

"These results represent our best quarter ever and mark Alaska's 18th consecutive quarterly profit. This is noteworthy given significant additional competition in some of our core markets. The balance and strength of our network combined with the ability of our people to respond quickly to changing business conditions are enabling us to succeed in this highly competitive industry."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the third quarters of 2013 and 2012 to adjusted amounts:

	Three Months Ended September 30,
(in millions, except per share amounts)	Dollars	Diluted EPS	Dollars	Diluted EPS
Reported GAAP net income	$289	$4.08	$163	$2.27
Mark-to-market fuel-hedge adjustments, net of tax	-12	-0.17	-13	-0.18
Special revenue item, net of tax	-120	-1.7	----	----
Non-GAAP adjusted income and per-share amounts	$157	$2.21	$150	$2.09

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Boeing reports robust third quarter fiscal 2013 results. Raises full year earnings guidance

by Devesh Agarwal

Chicago based, US aerospace and defence giant The Boeing Company reported earnings of $1,160 million, a massive 12% jump in its third-quarter profit compared to $1,030 million from the same period a year ago. The company has also raised its 2013 financial performance outlook, based on an increase in commercial aircraft deliveries.

Key highlights of the quarter

• Core Earnings Per Share (non-GAAP)* rose 16% to $1.80 on strong operating performance; GAAP EPS of $1.51
• Revenue increased 11% to $22.1 billion reflecting higher commercial deliveries
• Backlog grew to a record $415 billion, including $27 billion of net orders during the quarter
• Operating cash flow before pension contributions increased to $4.3 billion
• 2013 Core EPS guidance increased to between $6.50 and $6.65 (previously forecast of $6.20 to $6.40); GAAP EPS to between $5.40 and $5.5

Boeing Chairman, President and CEO Jim McNerney said

"Consistently strong operating performance is driving higher earnings, revenue and cash flow as we deliver on our record backlog and return increased value to shareholders,"  "During the quarter, Commercial Airplanes completed the first flight of the 787-9 and delivered 170 airplanes, while Defense, Space & Security maintained solid performance and captured $7 billion in new orders. Despite the uncertainty of the U.S. defense market, overall our customer-focused business strategies and disciplined execution on our programs are producing the results we expect, and our strong year-to-date performance and positive outlook allow us to increase our 2013 guidance for earnings and operating cash flow."

Boeing Commercial Airplanes was the star performer with third-quarter profits of $1,620 million, up 40%, on revenue of $14 billion, and operating margin improving to 11.6%. During the quarter, the 787-9 completed first flight. The company intends to increase the 787 production rate from 10 to 12 per month in 2016, and to 14 per month before the end of the decade. The division booked 200 net orders during the quarter with a backlog of nearly 4,800 airplanes valued at $345 billion.

Boeing Defense, Space & Security's third-quarter revenue was $8 billion ($8,000 million), while operating margin was 8.4%. Profits fell by 19%, mainly due to a profit fall of 48% in Boeing Military Aircraft (BMA) whose third-quarter revenue was $3.5 billion, primarily reflecting lower delivery volume. Operating margin at BMA decreased to 6.2%, impacted by mix and one-time charges on the F-15 and C-17 programs. During the quarter, BMA was awarded a low-rate initial production award for 13 P-8A Poseidon aircraft.

Network & Space Systems (N&SS) third-quarter revenue was $2.2 billion, reflecting higher sales of Delta inventory and revenue in the Space Launch System program, and operating margin was 8.7%. During the quarter, N&SS was awarded a contract by Mexico's Satmex for an additional 702 small satellite.

Global Services & Support (GS&S) third-quarter revenue was $2.3 billion, due to higher volume in maintenance, modifications and upgrades. Operating margin was 11.4%. During the quarter, GS&S achieved first flight on the QF-16 unmanned aircraft and was also awarded a contract by the U.S. Air Force for 56 additional replacement wings for the A-10 aircraft.

Backlog at Defense, Space & Security was $70 billion, of which 38% represents orders with international customers.

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Jet Airways Q2 FY 2012~2013 quarterly results financial analysis

Photo © Devesh Agarwal. Used with permission.

India’s largest private carrier, Jet Airways, reported a net, post-tax loss of Rs. 99.7 Crore for the second quarter of fiscal year 2012-2013, representing a sharp improvement from the Rs. 713.6 Crore net loss recorded in the same period last year.

This 84.8% improvement in results, pushed Jet Airways’ net margin up to a very manageable (-)2.4%, that too in what is typically the worst quarter for India’s airlines.

The sharp rise in revenues is the primary driver of these improved results.

Financial and operating parameters

Jet Airways grew revenues by more than 25.8% in the last quarter buoyed by the general improvement in the revenue environment following the implosion of Kingfisher Airlines. Unit fares (revenue per available seat kilometre – R/ASK) were up more than 25.5% year over year, though this was matched by a 2.8 point drop in passenger load factor (PLF) to 75%. The fall in domestic PLF (where fares rose the most) was particularly precipitous, falling 6.5% to a low 65.6% from 72.1%.

The fact that Jet Airways still posted a loss despite close to 26% growth in unit revenues is simply proof of how far the industry had fallen and how much ground there is to still make up. Fuel expenses have finally begun to level off, though they still increased more than 14.5% on a per available seat-kilometer (ASK) basis.

In this quarter the culprits were instead the amorphous “Other Operating Expenses” line on the Profit and Loss (P and L) statement, which jumped 25.9%, but especially aircraft lease rentals, which jumped a whopping 49.3%!!!

During an analysts conference call, Bangalore Aviation raised the issue of the sharp rise in aircraft lease rental costs with Jet Airways management, and they responded:

“The lease rentals have gone up for two major reasons. We added six aircraft which were on ownership basis on the previous quarters which are now on a lease basis so effectively we did a sale and leaseback on them. We also added as compared to the last year 8 leased aircraft into the system, 6 of which were 737-800s and two of which were 737-900s and more importantly the rate of exchange impact. For the last year same quarter the rupee to dollar was largely at 45-46 to a dollar and this year it was more like a 55-56 so that is a 20 odd percent impact in terms of lease cost, which is 100% dollar denominated. So 20 plue percent is because of the rate of exchange impact, the balance is because of change in the mix of owned versus leased as well as incremental leased aircraft that we got into the fleet.”

Unfortunately, the declining performance of the Rupee, with the macro-economic and political factors behind that, represent a significant headwind that is, and will continue to, hamper the Indian airline industry for several quarters to come, though year over year comparisons will become easier assuming the Rupee stabilizes at current levels. When so much of the world economy is run on US dollars, this type of valuation for the local currency hurts airlines the most.

International Operations

Once again, the dichotomy of Jet Airways was apparent – the international operations, which had temporarily swung into a net loss during the fuel spike over the past year, swung sharply, improving 119% to a robust net, pre-tax profit of Rs. 45.2 Crore versus a net loss of Rs. 238.3 Crore a year ago. Meanwhile, the domestic operations continued to falter, posting a Rs. 153.5 Crore net loss (though this was a 67.7% improvement year over year).

Jet Airways has been aggressive in suspending non-profitable destinations, and from a pure financial perspective we applaud most of the moves that Jet Airways has made in recent months in terms of consolidating capacity on its international network and simultaneously shedding unprofitable routes while adding capacity on profitable sectors. In particular, Jet’s recent move to terminate Delhi-Milan, which has long been rumoured to have been unprofitable, and in our opinion, is superfluous to Jet ‘s core international strengths.

On the subject of Jet’s tumultuous European operations, Bangalore Aviation also queried Jet Airways management on our report of a planned Bangalore Munich flight. During the analysts call, Jet confirmed that the flight is indeed planned to operate towards the end of the winter schedule, but details are still being worked out.

Outlook

Looking forward, there are both challenges and opportunities for Jet Airways. If the general improvement in conditions for the Indian airline market hold, the traditionally strong, third fiscal quarter (October through December) should be highly profitable for Jet Airways.

We are optimistic the airline is focussing on the bottom line in many aspects, including value added income from in-flight sales of food, route rationalisation, and building flexibility in its fleet. In particular, the adding of business class in to JetKonnect which offers Jet the flexibility to shift aircraft between the low cost JetKonnect into the full-service Jet Airways will allow them to take full advantage of the temporary boom in business class demand during the next few months.

Jet will continue to face issues of brand confusion due to the common configuration of JetKonnect and Jet Airways aircraft, and the airline also risks becoming uncompetitive to the business traveller as it cuts back on routes. Jet also has to integrate the soon to be delivered A330-300s into their fleet and international operations. This will increase operational complexity, and will render the carrier's Boeing 777-300ER fleet in to further irrelevance, both of which will increase costs and drive down profitability.

On the positive side, fuel prices are stabilising, and for the first time in the last four years, fares are rising in India. Jet Airways is poised at the cusp, it is up to the team at Jet Airways to deliver a few quarters of great results.

With inputs from Devesh Agarwal

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Air traffic plunges 11.5%, as air fares rise. Jet Airways group crashes almost 21%, IndiGo down 11%.

Talk about irony. In March this year, Dr. Dinesh Keskar and Bangalore Aviation were discussing the double digit, yet profitless growth occurring in the Indian airline industry.

Less than six months later, air traffic continues its fifth consecutive month of decline. Within, just the third calendar quarter, (second quarter of the fiscal year 2012~13), air traffic plunged over 11.5%, from 4.537 million passengers in July, to 4.018 million in September. August at 4.369 million passengers was down 3.7% from July, and September was down 8.03% from August.

No airline could avoid the contagion. Jet Airways group is down a whopping 20.63% for the quarter, dropping from 1.207 passengers in July to 0.958 passengers in September. Even market leader IndiGo which is steadily growing its fleet, is down a significant 10.77%. SpiceJet is down 8.04%, Air India down 5.95%, and Kingfisher down 9.62%. GoAir performed the best, losing 2.85% of its passengers.

Year on year for the nine month period January to September this year 43.839 million passengers travelled by air domestically, compared to 44.218 million last year. Down 0.9%.

For the month of September, IndiGo continued its market leadership, but it appears the fare war unleashed by Air India has gained it passengers at the expense of all other airlines. Air India even beat Jet Airways, carrying 0.775 million passengers compared to 0.729 million by Jet Airways.

Put the blame for this contraction on the significant increase in airfares over the last six months, driven by the collapse of Kingfisher Airlines. Airlines are reducing the excess capacity, which has already increased fares over 20%. For the winter schedule which commences October 28, Indian carriers will fly 20% less flights than last year. 10,935 vs. 13,541 flights per week. Experts, expect air fares to rise another 10%~15% during the winter season which is also highest in terms of demand.

No airline crossed a passenger load factor of 70%, even the traditional leader IndiGo which used to regularly be in the top of the eighties or low nineties.

How will this capacity decrease impact passenger numbers? What is your view? Share a comment.

Also, do you think such major fare increases bodes well for the Indian consumer? Share your thoughts.

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