Jet is one of the few Indian airlines to fly both domestic and international routes © Reuters

India’s oldest privately owned airline is looking to raise money as it struggles to cope with a jump in fuel prices that has left India’s fast-growing aviation sector facing big losses.

Jet Airways has told the Financial Times it is “exploring sources of funding [as a] priority”, days after it deferred releasing its quarterly results saying it needed more time to complete its accounts. It did not say how it intended to do so.

Analysts expected the company to announce a second consecutive quarter of losses as it adjusts to higher oil prices and a weaker rupee, but it announced last Thursday it would postpone the results indefinitely. The company’s shares fell 8.5 per cent on Friday to Rs276, their lowest level in three years and almost 70 per cent below their level at the start of the year.

Jet’s problems have added to the sense of uncertainty surrounding the industry in India, which had until recently enjoyed several years of soaring profits as millions of Indians began to travel by air for the first time.

The country remains the world’s fastest-growing domestic aviation market, and orders from Indian airlines are forecast to account for 5 per cent of global demand for new aircraft until 2036.

But the financial troubles at some of the country’s biggest carriers threaten to derail the boom and could have knock-on effects for the world’s largest aircraft makers, such as Boeing and Airbus.

Last month, Indigo, India’s biggest private airline, announced pre-tax profits had slumped 97 per cent to Rs313m, while Air India, the national carrier, is still waiting for a bailout from the government following the unsuccessful attempt to privatise it.

“If Indian carriers are to stop bleeding, they will have to reduce capacity and consolidate,” said Neelam Mathews, an independent aviation analyst.

The problems started earlier this year when oil prices began to rise and the rupee declined against the dollar. Fuel costs in March, when the country’s listed airlines all reported their last results, were about 30 per cent higher than the previous year.

Meanwhile, the prices paid by customers have remained largely stagnant, with airlines apparently fearful that higher fares will leave them flying aircraft with costly empty seats.

From 2016-17, the revenue that Indigo makes per passenger kilometre has fallen from Rs4.3 to Rs4.1, while Jet’s has dropped from Rs6.4 to Rs5.6. Those at SpiceJet, the smallest of India’s three listed airlines, has remained stagnant at Rs4.2.

“We note that yields of the leading airline companies have continued to languish for the past few quarters and have not even kept pace with inflation, let alone the sharp increase in input costs,” analysts at Kotak Institutional Equities wrote in a recent note. 

They added: “Airlines are scared to raise prices even modestly to mitigate the impact of higher input costs.”

The situation at Jet looks particularly troubling, say analysts. 

In the three months to March, the company, which is one of the few Indian airlines to fly both domestic and international routes, lost Rs10.4bn before tax compared with a profit of Rs6bn a year earlier. 

By the end of March the company had Rs808bn in net debt — more than the value of its equity and about nine times what it made over the financial year in earnings before interest, depreciation, amortisation and rent, according to an analysis by Kotak.

The company’s costs are higher than those of its rivals, which it says are a result of better products and customer services, but which analysts say are also a result of its older fleet or aircraft.

“Jet benefits by being able to buy fuel more cheaply outside India, unlike its domestic rivals,” said Madhukar Ladha, an analyst at HDFC Securities. “But that is dwarfed by the fact it has older and less fuel-efficient aircraft.”

The company has sought to slash its costs in recent weeks, cutting the pay of top management by 25 per cent. It is still in talks over cutting salaries for pilots, engineers and technicians. 

Jet told the FT: “The airline has consistently demonstrated its ability to reduce costs in the last few quarters. It has already embarked on a significant plan to also achieve a further 12-15 per cent reduction in its non-fuel costs over the next few quarters.”

Vinay Dube, Jet’s chief executive, denied reports earlier this month that the company had told employees it might be able to operate for only another 60 days if costs did not come down.

Meanwhile, the company’s ability to raise finance from its partner, Etihad, which owns a 24 per cent stake in the company, has been hampered by the United Arab Emirates carrier’s own financial problems.

While Jet’s troubles continue, investors are betting that its rivals will benefit by being able to take some or all of its customers. 

Shares in InterGlobe Aviation, Indigo’s parent, have risen 16 per cent since the beginning of August to Rs1,070, while SpiceJet shares rose 5.6 per cent over the second half of last week to Rs90.75.

“Jet has around 15 per cent share of the domestic market,” said Mr Ladha. “If that capacity opens up, then that will be huge for its competitors.”

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