Etihad-backed Jet Airways seeks to reassure investors with cost-cutting plan
Now Reading
Etihad-backed Jet Airways seeks to reassure investors with cost-cutting plan

Etihad-backed Jet Airways seeks to reassure investors with cost-cutting plan

The Indian airline expects to cut costs in excess of 20bn rupees ($285m) in two years

Avatar

India’s Jet Airways Ltd on Tuesday set out to reassure investors it was taking measures to cut costs and boost revenue, a day after the beleaguered airline reported its second consecutive quarterly loss.

Jet, part-owned by Etihad Airways, has been facing financial difficulties but has said it is confident it can slash costs and keep flying, dismissing reports it had told staff it was running out of cash.

India is the world’s fastest-growing aviation market, but rising fuel prices, a weaker rupee and price competition has pulled down airline profitability. InterGlobe Aviation Ltd , operator of the country’s leading carrier IndiGo, reported a 97 per cent plunge in profit last month.

“The Indian aviation sector, although witnessing steady and robust traffic growth, has been passing through a tough phase,” Jet’s CEO Vinay Dube told analysts on a call.

“Airlines have been unable to pass through this increased cost to consumers by increasing fares,” Dube said, adding the industry could not sustain such low fares in the long run especially with fuel prices rising.

Shares in Jet tanked earlier this month after it deferred its earnings as the audit committee had not signed off on them “pending closure of certain matters”.

Dube said the company and its auditors were not in disagreement over the financial results, and that Jet’s account with its lenders was “standard” – indicating there had been no delay in meeting loan obligations.

Jet, on Tuesday, also said it would invest in its business, cut costs in excess of 20bn rupees ($285m) in two years, and planned to raise funds by selling a stake in its frequent flyer programme.

Some of the savings will come by reducing its maintenance and interest costs, sales and distribution expenses and rationalising its fleet.

The company expects to save about 3.7bn rupees this year on maintenance costs and expects a reduction of 6.5bn rupees starting Jan. 1, 2019, Jet’s chief financial officer Amit Agarwal told analysts.

The airline owns about 16 wide-body aircraft worth between $750-$800m, on which it has debt of about $280m, and it intends to do a sale and leaseback on a portion of this fleet, Agarwal said.

Jet raised $300m during the quarter from banks and through lease incentives to meet its operational and interest expenses and pay down some debt, he said. The airline’s net debt as of June 30 was 73.64bn rupees.

It also plans to add 11 Boeing 737 MAX aircraft to its fleet this fiscal year, which it says are 15-18 per cent more fuel efficient. Jet has placed a firm order for a total of 225 such aircraft.

The airline posted a loss of 13.23bn rupees for the quarter ended June, compared with a profit of 535m rupees a year earlier, despite a 6.4 per cent jump in its revenue.

The rise in Brent prices had a negative impact of more than 6bn rupees in the quarter and foreign exchange losses amounted to 3.44bn rupees, Agarwal said.


© 2021 MOTIVATE MEDIA GROUP. ALL RIGHTS RESERVED.

Scroll To Top