GOAIR EXPECTS TO MAKE PROFIT THIS YEAR

Live Mint, 20 April 2012

India: Budget airline GoAir expects to reverse last year’s losses and swing to a profit this year, buoyed by 80% flight occupancy through combining lower fares with better efficiency.

The profit margin this fiscal is likely to touch that in 2010-11, the first time the seven-year-old company made a profit, chief executive Giorgio De Roni said before a press conference announcing the launch of GoAir’s Chennai services.

The unlisted firm doesn’t make its earnings public.

Chennai will be the 22nd destination for GoAir—run by Go Airlines (India) Ltd— and will contribute to 10% of the company’s business, De Roni said.

“This is a turbulent time for our sector but our focus is on profitability and plying 5 million passengers this year through 35,000 flights,” said De Roni, who headed Air One, an Italian private airline with more than 60 planes and a turnover of $1 billion, before joining GoAir last year. “We are not here for the short run. We are here to stay.”

De Roni’s projections are higher than the Mumbai-based carrier’s 2011-12 numbers of 4 million passengers and 30,000 flights that failed to sustain profits because of higher fuel costs and a weak rupee.

“A marginal downtrend in crude oil prices and a possibility of importing jet fuel could help revive the airline sector this year,” said Rashesh Shah, an analyst with Mumbai-based brokerage ICICI Direct.

The government recently allowed airlines to import fuel directly for their own use so they can save on state taxes that range from 4% to 28%.

Direct fuel imports could boost the margins of flight operators as jet fuel accounts for close to half of an airline’s operating costs.

The woes of Kingfisher Airlines Ltd could also help boost the market shares of domestic rivals, the equity researcher said.

Kingfisher Airlines, which started in the same year as GoAir but hasn’t had a single profitable year, has been cancelling flights since 17 February following a cash crunch, and is now operating 120 flights a day with 20 planes, or one-third its year-ago levels.

Kingfisher logged the smallest market share in the industry at 6.4% in March, down from nearly 20% a year ago. GoAir’s market share rose to 7.5% from 6.8% in the same period, according to data provided by the Directorate General of Civil Aviation.

De Roni said GoAir will return to profit this year but refused to give a number.

Last June, promoter Jehangir Wadia, the younger son of Wadia Group chairman Nusli Wadia, said GoAir’s 2010-11 profit after tax rose 7%, operating margin 15.7% and operating profit 13.7%. He didn’t give details.

GoAir’s upbeat outlook comes amid a slowdown in passenger demand, which rose just 1.1% year-on-year to 4.87 million passengers in March, the third month of single-digit growth following 16 months of double-digit jumps between September 2010 and November 2011, according to consulting firm Centre for Asia Pacific Aviation.

Last year, GoAir announced an order for 72 Airbus SAS A320neos. The $7.2 billion booking marked the airline’s intent to join larger rivals such as IndiGo—India’s largest low-cost carrier and the only profitable airline.

GoAir is controlled by the diversified Wadia Group, which also controls Bombay Dyeing and Manufacturing Co. and Britannia Industries Ltd. The group’s other business interests include textiles, chemicals, plantations, engineering and real estate.