Airline Industry s4d4k

Name: Abhishek Chordia Student No. M00474597

Airline Industry Jet Airways Jet Airways is an Indian based airline and the second largest airline industry in Indian after IndiGo airlines both in market share and engers carried. Jet airways network involve of 76 destinations which is functioned by 3000 flights with its domestic centre in Mumbai and the international centre at the Brussels. The founder and the chairman Mr Naresh Goyal started the company 1992 with its first flight in 1993 and soon became the fastest growing airline in the world. The jet airways group include of jet lite as its subsidiary company. The company also leases the aircrafts. The chamber of jet airways consist of several director and officers and powers lies in them. Directors and officers Aman Mehta

Director

Anita Goyal

Executive Vice President

Arun Kanakal

Co. Secretary & Compl. Officer

Arun Kanakal

Secretary

G Ravishankar

Chief Financial Officer

Gaurang Shetty

Director & Manager

Hameed Ali

Chief Operating Officer

I M Kadri

Director

James Hogan

Additional Director

James Rigney

Additional Director

Javed Akhtar

Director

Naresh Goyal

CEO

Naresh Goyal

Chairman

Sudheer Raghavan

Chief Commercial Officer

The fleet of jet airways consist of 114 aircraft with an average life of 5.4 years. The information of which in the below table. Airbus A330-200 Airbus A330-300 ATR 72-500 ATR 72-600 Boeing 737-700 Boeing 737-800 Boeing 737-900 Boeing 737 MAX 8 Boeing 777-300ER Boeing 787-9 Total

10 4 15 2 11 56 6 10 114

With 114 aircraft in operation there 77 aircraft still to the fleet by 2015.

Risk Profile Analysis Jet airways an Indian based airline industry with its hub in Mumbai and one of the major airline industry in India hires over 13,163 people and is being merchandised on the national stock exchange of India (NSE). Being a major airline jet airways falls under the “large cap” category. The company has an enormous market capitalisation of 25.36 billion. Jet airways acquired Sahara airline in 2007 and recently Etihad airways acquired 24% of stake in jet airways.

As we compare the income of the jet airways of the last five years that is from 2009 to 2013 Income is the most important thing while evaluating a firm. Income are generated by rendering the services or by sales. By seeing the income of the jet airways it can be seen that the firm is generating more income year by year which is a positive sign for company. As we compare the income of 2013 to 2012 an 11.68% of gain can be noticed which says the company is healthy and earning income. Jet airways however reported a loss of 779.80 cr for the financial year 2013. This loss is result of the diminishing value of the rupee and rising price of crude oils and airport charges for which the company has to borrow more and more to overcome these charges.

The above chart shows the market share of the jet airways in the year 2013 in the aviation industry in India. The jet airways group has a total market share of 23.8% which is the highest market share in the airline industry. The company has not paid any dividend since 2008. According to the directors report the dividend has not been paid because of the financial health of the company. As the company is incurring heavy losses. Jet airways shows an increase in the enger revenue of 14% as compared to the fiscal year of 2012. The enger revenue for the year 2013 was Rs 1,436,867 lakhs.

Risk Return Analysis Risk Adjusted Performance

0.227

Market Risk Adjusted Performance

0.8609

Mean Deviation

3.07

Semi Deviation

1.99

Coefficient of Variation

349.42

Standard Deviation

4.35

Variance

18.89

Information Ratio

0.2657

Jensen Alpha

1.12

Total Risk Alpha

0.7855

Skewness

1.36

Kurtosis

3.32

R-square

0.537

Adjusted R-Square

0.529

Total Beta

1.20

Risk free rate

2.4

As we look at result of the regression analysis the portfolio return is very low as matched to the risk related with it. The beta is also very instable because of the stock price of the jet airways are not stable. If we look at the Jensen Alpha which is greater than 1 shows that the return of the jet airways is expected to be above than the average market return with the risk involved in the market. The Jensen Alpha is 1.12 which is a positive value which indicates that the jet airways share will earn an excess return. As we look at the result of the regression analysis the R- square comes out to 54% which suggest that the 54% of the risk is coming out from the market factor where as 46% of risk is associated with the firm itself. In the risk scenario there are two types of risk systematic risk and unsystematic risk. Systematic risk are generally the risk associated with the external factors of the firm and are generally uncontrollable. The firms can only take measure to avoid these risk. Some of the systematic risk associated with jet airways are  The price risk allied with the stock is high.  The hike in prices of fuel and the fixed cost imposed by the airport authority with the rise of the air traffic. Unsystematic risk are those risk which are associated with the organisation itself and its effects the organisation itself. The Unsystematic risk prevails in the organisation itself the organisation should recognize these type of risk and should take measure to avoid them. Some of the Unsystematic risk associated with the jet airways are  Liquidity risk

 Credit risk The relative valuation is not judicious because jet airways has not paid any dividend since 2008. Since the stock valuation is not possible because of the result would be zero because P/E ratio= dividend paid/EPS, so the result is not reasonable. Return on equity is the measure of the profitability of a firm. ROE measures that how much profit a firm is generated by the amount invested by the shareholder. The ROE for the jet airways is 164.43% which is a disappointing figure. Generally a company with a high leverage gets a higher ROE. The higher ROE suggest that company has high liability and lower profit. The sales turnover of the jet airways for the year 2013 was 16,852 which was 10.69% percent higher than the previous year which was 15,224.68. The company’s average growth rate is 13.48% and is estimating a 15% higher sales in FY14. On the basis of this the rating is 5 out of 10. The EPS of the jet airways is very unsatisfactory the company is getting poorer and is not able to generate the shareholder value. The EPS ratio for the current financial year came to -56.24. The rate on the risk scale would be 10 that is most potential danger. As we look at the current ratio of the jet airways which comes out to be 0.36 for the current financial year. A current ratio less than 1 suggest that the company is unable to pay its short term borrowing when they become due. The current ratio of the jet airways suggest that the company is unable pay its short term obligations which suggest high risk rating of 8. A company with a high leveraged finance is said to be affected 1st during the economic depression. A debt to equity ratio greater than the 1 is said to highly risky. In the case of the jet airways the debt to equity ratio is 2.89 times which the highest potential risk is for a company. It suggest that the company is continuously borrowing which hinders its growth and rises the burden of the interest upon the company. Levered Beta Unlevered Beta Debt Equity Ratio Expected Return

1.7023 0.1435 2.89 times 11.72%

Jet airways is having a high levered beta than the unlevered beta because the company has huge borrowing and the fixed cost of the company is increasing as result of the increase in the interest payments due to borrowing.

Financial Structure of the Jet Airways The airline industry is one of the most risky business in today’s modern times. The airline industry is becoming more competitive day by day because of the entrant of the new competitors day by day. The new competitors enter into the market and offer low price to the costumers to attract them. The price war in the market affects the profitability of the organisation. The bankruptcy rate of the airline industry are highest among any industry. Apart from high competition the airline industry have a more of fixed cost than the variable cost. Such a financial structure in ing is called high operating leverage. The cost of flying a half-filled enger plane and fully filled enger plane is same for an airline industry. In a highly business risk market the company sees to have a low financial leverage. This means a low amount of debt.

Jet airways capital structure is consist of debt and equity. The equity capital stands less than the debt. The company relies more on the debt and long term borrowings. This is the reason the company is moving towards the high financial leverage. The increase in the fuel prices and increase in the lease rental of the aircraft have forced the jet airways to increase the short term borrowing and decrease in the profit. Till current date jet airways have a huge liability of 12,000 coroes which is the highest among the private carriers in India. In order to overcome these loss jet increased there prices by 30%. An optimal financial structure for an airline industry is a low debt financial structure. The best financial structure in the airline industry is of southwest airlines which has the lowest debt. If the company has financial structure which have both equity and debt than the optimal point should where both are equal or equity is more than the debt.

Conclusion As we look at the aviation industry of India it looks promising as the enger are growing in the domestic as well as the international route. The Indian aviation industry is having an intense competition in the market because of the new entrants in the aviation industry. Jet airways is the one of the largest airline in India with the highest percentage of the market share but the revenues and the profitability of the company does not boost because the company has not paid any dividend for last 5 years even the stock of the jet airways has been undervalued which has a high level of risk. The Indian aviation industry has not been unfavourable to the company’s because of the diminishing value of the rupee and increase in the taxes and guidelines set by the government in India. Jet airways seems to be more promising with it new deal with the Etihad airways and promises for a new growth in the future. With new regulations laid by the Indian govt. allowing more and more FDI in the domestic airlines the airlines are hoped to make profits in the coming future in India.

Appendix

The data on which the regression analysis has been done. The analysis has been done on basis of the index of the NSE and stock price of the jet airways. The data is on the basis of past five years. Jet Airways Adj Closin g NSE Index

Date

Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09

16839. 63 18197. 2 18845. 87 18503. 28 19135. 96 19445. 22

Adj Closi ng Price (Rs.) 375.8 5

7.46%

446.3

3.44%

Retur ns of Jet Airwa ys 15.79 % 6.95%

1.85%

7.17%

3.31% 1.59%

6.40%

9.10%

7.63%

479.6 5 447.5 5 478.1 5 447.1 5

Retur ns of NSE Sens ex

2.55% 0.18% 11.67 %

25.29 % 27.10 % 5.09% 0.82% 0.55% 13.39 %

718.7

0.58%

5.87%

678.8 5

0.95%

27.99 %

530.4

4.46%

3.93%

510.3 5 537.8 5 480.0 5 403.1

3.50%

5.11% 12.04 % 19.09 % 21.79

Jun-09

17823. 4

415.4 5

2.75%

Jul-09

18327. 76

556.1

10.64 %

762.8 5

5.06%

Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10

20509. 09 19521. 25 20032. 34 20069. 12 17971. 12 17868. 29 17700. 9 16944. 63 17558. 71 17527. 77 16429. 55

6.93%

803.8 810.4 5 814.9

0.18% 6.68% 0.44%

Jul-10 Aug-10 Sep-10

16357. 96 17464. 81 16926. 22 15896. 28 17126. 84 15666. 64 15670. 31

515.4 553.1 5 452.3 5

6.34% 3.18% 6.48%

379.3

7.18%

329.2 5

9.32%

263.1

0.02%

257.2 5

8.12%

14493. 84

225.5

0.90%

14625. 25 11403. 25

302.6 5 193.9 5

28.26 % 17.46 %

May-11

9708.5

169.9

9.19%

Jun-11

8891.6 1

141.5 5

5.65%

Jul-11

9424.2 4

178.8

2.31%

Aug-11

9647.3 1

202.5 5

6.10%

Sep-11

9092.7 2

129.4 5

7.10%

Oct-11

9788.0 6

156.4

Nov-11

12860. 43

400.4 5

Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11

Dec-11 Jan-12 Feb-12 Mar-12 Apr-12

14564. 53 14355. 75 13461. 6 16415. 57 17287. 31

% 6.82% 22.28 % 19.26 % 15.20 % 25.14 % 2.27%

23.89 % 11.70 %

14.08 % 25.49 % 56.05 % 14.16 % 20.03 % 20.83 % 11.73 % 56.47 % 17.23 % 60.94 % 15.23 %

472.4

1.45%

1.37%

466

6.64%

8.26%

17.99 % 5.04% 10.50 %

19.95 % 2.76% 0.61%

430.4 5 537.7 552.9 5

May-12

15644. 44

556.3 5

Jun-12

17578. 72

737.3 5

Jul-12

17648. 71

755.2 5

Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

20286. 99 19363. 19 19837. 99 17291. 1 15318. 6

11.00 % 0.40% 13.00 %

997.2

4.77%

830.7 5 876.2 5 907.3 5

2.39% 14.73 % 12.88 % 1.49%

803.3

15550. 99

721.9 4

14650. 51 14544. 46 13872. 37 13072. 1

809.8 6 764.3 1 713.6 4 628.1 1

12938. 09

592.2 9

14090. 92 13786. 91 13696. 31 12961. 9 12454. 42

756.7 1 611.3 7 669.4 8

6.15%

24.55 % 2.37% 24.26 % 20.04 % 5.19% 3.43% 12.95 % 11.27 % 10.86 %

0.73%

5.96%

4.84%

7.10%

6.12%

13.62 %

1.04%

6.05%

8.18% 2.21% 0.66% 5.67%

591.1

4.07%

643.4

6.46%

21.73 % 23.77 % 8.68% 13.26 % 8.13% 20.73 %

REFRENCES JETAIRWAYS.BO Key Statistics | JET AIRWAYS Stock - Yahoo! UK & Ireland Finance. 2014. JETAIRWAYS.BO Key Statistics | JET AIRWAYS Stock - Yahoo! UK & Ireland Finance. [ONLINE] Available at:https://uk.finance.yahoo.com/q/ks?s=JETAIRWAYS.BO Jet Airways (India) Ltd, JETAIRWAYS:NSI summary - FT.com. 2014. Jet Airways (India) Ltd, JETAIRWAYS:NSI summary - FT.com. [ONLINE] Available at: http://markets.ft.com/research/Markets/Tearsheets/Summary? s=JETAIRWAYS:NSI. Jet Airways (India) Ltd. Stock Price, Charts, Details and Latest Announcements : Rediff.com. 2014. Jet Airways (India) Ltd. Stock Price, Charts, Details and Latest Announcements : Rediff.com. [ONLINE] Available at: http://money.rediff.com/companies/JetAirways-India-Ltd/16600015. Anuual Report 2013 Available at: http://www.jetairways.com/doc/InvestorRelations/AnnualReport201213.pdf