BANGALORE: Jet Airways has drawn a new route map to fly into a high-profit zone -- by consolidating locally and expanding presence overseas.
So much so, the carrier is forecasting its domestic operations to grow at a lower rate than the sector average.
Jet has projected 16-17% compounded annual growth rate (CAGR) in domestic operations growth as against the industry average of 22-25% in the next 3 years.
Its toned-down estimate is also based on continuing supply pressure as budget airlines build capacity to scale up operations and widen their network in the domestic market.
Analysts consider the 16-17% CAGR of domestic income, on a high base, to be a good forecast. “It’s a healthy revenue projection. The competition (from new entrants) has already taken its toll on Jet’s revenue. Since the airline has already built up capacity in the domestic market, now onwards its volume will now, more or less, remain the same. It will now concentrate on building its franchisee network and brand image and command a premium for better service in the market,” said an analyst with an Indian broking house.
In the short term, Jet expects domestic yields to be steady at 13% despite the onset of the lean season. “We think this (steady yields) will be to some extent buffered by surcharges,” states the carrier in its presentation.
However, Jet’s long-term forecasts of 20% EBITDAR margins s seen as pessimistic. “My estimate is the margins would definitely be hovering at 25% in the long term, that is if the jet fuel prices stay where they are today or slip further,” said an analyst.
And more than anything else, the carrier is banking on its overseas operations to surge ahead of competition.
That’s a sound strategy, said the analyst.
Jet plans to start flights from three cities — New York, San Francisco and Toronto — in the next fiscal. These routes are expected to break even in 12-18 months.
Currently, all its overseas routes (including London) are profitable. However, it is expecting some of the South East (SE) Asian routes to turn unprofitable, again, once wide bodied aircraft are deployed in place of the current Boeing 737s on them.
