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Tag Archives: Break

AirAsia India reports a net loss of INR 65.2 crore in Q2’16, stellar cost improvement but disappointing revenue performance. Total losses accumulate to around INR 200 crore

27 Friday Nov 2015

Posted by theflyingengineer in AirAsia India, Airline

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16, Air, AirAsia, Analysis, Asia, Break, data, Even, forecast, FY, India, loss, profit, Q2

VT-ATF_Edit_Cropped

Summary:

  1. Net loss INR 65.2 crore.
  2. Excellent work in reducing unit costs in Q2’16, exceeded expectations.
  3. Disappointing revenue performance.
  4. Excellent ancillary revenues.
  5. Accumulated losses around 200 crore, losses since start of operations around INR 150 crore.
  6. Financial & certain performance data reported by AirAsia India is inconsistent, inaccurate, and unreliable.

Data Discrepancy

Before we begin the analysis of AirAsia India’s performance, it must be noted that the quarter reports of AirAsia are unreliable, on at least four counts, as observed:

  1. The quarter report for Q1’16 (“SECOND QUARTER REPORT ENDED 30 JUNE 2015”) states that in Q1’15, AirAsia India reported a net loss of RM 0.4 Million. However, the quarter report for Q1’15 (“SECOND QUARTER REPORT ENDED 30 JUNE 2014”) states that AirAsia India reported a net loss of RM 13.8 Million. This translates to a difference of RM 13.4 Million / INR 25.9 crore.
  2. The quarter report for Q4’15 (“FIRST QUARTER REPORT ENDED 31 MARCH 2015”) states that in Q4’14, AirAsia India reported a net loss of RM 12.4 Million, which, based on the RM-INR conversion rate prevalent then, converts to INR 22.7 crore. However, the P&L statement in the same Q4’15 report states that AirAsia India had a net loss of only INR 8 crore.
  3. The quarter report for both Q2’16 (“THIRD QUARTER REPORT ENDED 30 JUNE 2015”) and Q2’15 (“THIRD QUARTER REPORT ENDED 30 JUNE 2014”) states that in Q2’15, AirAsia India recorded a net loss of RM 15.7 Million, which converts to INR 29 crore based on the RM-INR conversion rate prevalent then. However, in the Q2’16 report, AirAsia India is stated as having incurred a net loss of INR 52.9 crore.
  4. The flown capacity (ASK) reported by AirAsia India in its quarterly reports is 12%, 5% and 3% higher than what the airline has reported to the DGCA in Q2’16, Q1’16, and Q415. However, in teh two sources of data, the number of flights by the airline match perfectly, and the number of passengers flown are reasonably close.

As a result of (3), we will refrain from comparing Q2’16 data with Q2’15 data, but will only compare Q2’16 data with Q1’16 and Q4’15 data.

As a result of (4), we will refrain from using the AirAsia India flown capacity as reported in the quarterly reports, as this leads to very misleading performance numbers. We stick to the DGCA data.

We had already mentioned the first three points, but the discovery of issue (4) made us withdraw our earlier analysis and revise the numbers. This is the revised analysis.

Accumulated Losses

Due to the ambiguity resulting from points (1), (2) and (3) above, the total losses accumulated by AirAsia India including Q2’16 is around INR 200 crore. Total losses since start of commercial operations (ignoring June 2014) stands at INR 150 crore as reported by AirAsia India.

Q2’16 Analysis

Q2’16 (July 01st – September 30th, 2015) was AirAsia India’s first full quarter of 5 aircraft operations. In this period, the airline flew 416,182 passengers (excluding no shows: 401,905. No shows : 3%), which is a 38% rise compared to Q1’16, though the number of flights increased by 50%. This explains Q2’16’s load factors of 76%, as against Q1’16’s load factors of 83%. The load factors in Q2’16 were lower than the 79% witnessed in the other lean season – Q4’15. Load factors include no show passengers.

The airline operated 34 daily flights as of 30th September 2015, and flew its millionth passenger in the first half of August 2015.

AirAsia Q2'16 results vs Q1'16 Q4'15 redone DGCA numbers

Revenue

Q2 is historically a lean season. Capacity in Q2’16 grew by 56% over Q1’16, despite flights increasing by only 50%. This is in line with the average stage length of each flight increasing to 1,208 km/flt from 1,146 km/flt. Low load factors, increase in average stage length, and the low pricing power in the lean season have together resulted in the average fare dropping to INR 2,684 in Q2’16 from INR 3,350 in Q1’16. In Q2’16, AirAsia India did not inaugurate any new routes, but added a frequency on the Bengaluru – Vizag sector, and hence, there was no significant effect of low yields due to new routes.

Ancillary revenues at the airline have picked up very well. From being just 8% of total revenue in Q4’15, to 10% in Q1’16, it touched 15% in Q2’16. This has been aided by the increase in cargo per flight, to an average of 1,205 kg per flight in Q2’16 compared to 1,074 kg/flt in Q1’16 and 971 kg/flt in Q4’15.

However, on a unit basis, the airline’s revenue per available seat kilometre (RASK) suffered a 27% drop from Q1’16 figures, to settle at INR 2.22/seat-km, due to the factors mentioned in the preceding paragraphs. The unit revenues are 22% lower than the Q4’15 lean season.

Costs

AirAsia India’s cost performance is very good, and has touched record low values in Q2’16.

Unit aircraft fuel expenses fell by 13% in Q2’16 compared to Q1’16, despite fuel prices falling by only 9%. Higher average stage length of 5% can only contribute little to improved fuel consumption. However, tankering and uplifting fuel from stations with low sales tax on fuel may explain a part of the lower fuel expenses. Sales tax at Vishakhapatnam is just 1%, Goa 12.5%, Guwahati 22%, Imphal 20%, and Delhi 20%. Delhi, Guwahati, Imphal and Vishakhapatnam operations, and increased operations to Goa in Q2’16 may have significantly contributed to the drop in fuel costs.

Inexplicably, the staff costs have dropped in Q2’16 compared to Q1’16, from INR 31 crore to INR 29 crore. While there is no obvious explanation for such a drop, it has resulted in the unit staff costs to drop by 41% in Q2’16.

Unit maintenance costs have increased by 2% in Q2’16.

Due to longer flights, capacity has increased by 56% but flights by only 50%, in Q2’16 compared to Q1’16 resulting in the 7% drop in unit user charges and related expenses, which are largely a per-flight expense.

Unit lease expenses have dropped significantly by 29% in Q2’16, attributable to increased aircraft utilisation, higher capacity and no aircraft having to remain on ground in Q2’16. Average lease rental per aircraft per month is INR 2 crore.

Other operating expenses, most of which are fixed, have been diluted by the higher capacity, dropping by 25% in Q2’16.

Other Income, which is treated as part of operations by AirAsia India, increased by 10%, positively impacting the bottom line.

The cumulative effect of increasing frequency, network changes, and increased aircraft utilisation, amongst others, has reduced unit total operational costs at AirAsia India by 21% (including other income which can also be a negative quantity as in Q4’15). This is a brilliant performance, though the drop in staff costs is yet to be clearly identified. One explanation is perhaps the reduction in training expenses due to stagnation of fleet growth, and perhaps the voluntary exit of certain crew.

Break Even Figures

In Q2’16, AirAsia India realised a per-passenger cost of INR 4,621, which is 10% lower than the INR 5,166 cost per passenger in Q1’16, but 15% higher than the INR 4,009 cost per passenger in Q4’15.

In Q1’16, AirAsia India incurred a loss of INR 1,469 per passenger. At the same unit passenger revenue of INR 3,154, AirAsia India would have needed a break-even load factor of 112%.

AirAsia India lost INR 1.04 per seat flown every kilometer, which is 5% lower than INR 1.09/seat-km in Q1’16, but 30% higher than the unit loss incurred in Q4’15.

Cost Structure

AirAsia India Cost Structure Q2'16AirAsia India’s cost structure is depicted in the pie chart. Fuel constitutes 36% of the airline’s expenses.

Cancellations and OTP

Only 6 flights were cancelled by AirAsia India, in Q2’16. The airline operated 3,032 flights, with an average on time performance (OTP) of 87%.

Q3’16 forecast

In Q3’16, AirAsia India inducted its 6th aircraft into operations, in the second half of November 2015. Daily flights have gone upto 40, with increase in frequencies and the inauguration of a new route, Delhi – Vishakhapatnam.

Our forecast for AirAsia India’s performance in Q3’16:

  1. Quarter’s Load factors to increase to around 85%.
  2. Capacity to increase by 12% and passengers carried (including no shows) to touch around 520,000.
  3. Average unit passenger revenue may rise by around 20%+ compared to Q2’16.
  4. Certain unit costs to slightly increase due to addition of 6th aircraft and sending one aircraft for half a month for scheduled heavy maintenance.
  5. Certain unit costs to very slightly increase due to weather related delays and diversions.
  6. Ancillary Revenue percentage to drop in light of higher average fare.
  7. For break even, unit passenger revenue must rise by around 45% (compared to Q2’16)
  8. Very slim chance of an operational break-even. More likely in Q1’17 (April – June 2016).

Tony flies AirAsia India, developments get interesting.

07 Monday Jul 2014

Posted by theflyingengineer in General Aviation Interest, Operations

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Tags

03, Air, Airline, Asia, benjamin, Break, disagreement, Even, Investor, July, Launch, Mittu, official, ratan, relations, tata, Tony

04_TonyAirAsia India , which opened for sales on May 30th, sold out the entire seats on the first flight in nine minutes, according to the Indian venture’s chief executive officer Mrithyunjaya Chandilya better known as Mittu, which according to him, “must be a record somewhere”.

Loads on the airline have been very encouraging. Reportedly, the Bangalore-Goa flights fly almost full, while the Bangalore-Chennai flights fly with about 80% load factor (occupancy), bringing the average to around 90% plus. The CEO is smiling, albeit with a hint of nervousness, and the big boss: AirAsia group CEO Tony Fernandes is very optimistic about India.

Underneath the show, excitement, and optimism, are the currents of cautiousness, and disagreement within the airline. The head of investor relations at AirAsia did not seem to mince words when talking about the airline’s break even: What Mittu had told the whole world: a break even in four months, seems to be far fetched for the head of investor relations who now says it’s not before eight months.

AirAsia India is probably the most dynamic airline in the country, today. Which is very good (and much needed), and at the same time paints a picture of an airline that wasn’t fully prepared for India. In parallel, the airline is putting people first, promising to make a cabin crew a line pilot. This, and a lot more, including Tony’s recipe for success, and how it seems to really be his show, which you can read when you click here.

The shaping of Embraer’s Second Generation E-Jets: “E2”

21 Monday Oct 2013

Posted by theflyingengineer in General Aviation Interest, Manufacturer

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Tags

195X, A320, BELF, Bombardier, Break, C, Composite, E, E2, Embraer, Engine, Even, Factor, Gear, Jet, jetBlue, Load, Metal, Series, Turbofan, Wings

E-Jet_E2In this piece, we look into the significance of the E-Jets, particularly the 100 seat E-190, and the need for the Brazilian manufacturer’s launch of the upgraded, “Second generation” E-Jets.

The Embraer E-Jets: Making Regional Sense.

Bombardier stepped into the 70 seat jet space with the introduction of its CRJ700 into commercial operations in 2001, with Brit Air. 3 years later, Embraer introduced its 70 seat jet to commercial operations, with LOT Polish airlines. Till date, 192 Embraer E-170s have been sold, while the 70 seat CRJ700 has sold 347 airplanes.

One Embraer regional jet, that has been very well received, is the 100 seat Embraer 190, which, till date, has raked up 560 orders. No other Bombardier 70+ seat aircraft, including the C-Series has managed to touch those numbers, yet.

The Embraer 190 makes absolute sense. The typical single class cabin of the airplane accommodates 100 passengers comfortably. JetBlue, the largest operator of the E-190 with 59 aircraft, complements its Airbus A320 fleet of 129 aircraft. Jet Blue’s A320s are fitted with 150 seats.

Way back in 2003, when JetBlue had an all-Airbus A320 fleet and the cabins had 156 seats, the break-even load factor (BELF), as published by the airline, was around 72%, corresponding to 112 seats. To open up more routes which would have a demand less than this BELF, the 100 seat Embraer 190 was introduced in 2005. In the light of its reduced A320 seating, and spiralling fuel prices, the airline’s A320’s BELF has only gone up, further stressing the need for the Embraer 190.

Embraer acknowledges that a big advantage for E-Jet operators today is their ability to use the aircraft to “right-size” in lower-density markets.

But also acknowledged in 2010 was the realisation that if Airbus or Boeing re-engine their narrowbodies, and achieve better costs per trip, the advantage enjoyed by the E-Jets would disappear.

The upgrade saga

This left only two options for Embraer: Introduce a clean-sheet airplane that competes with Airbus and Boeing’s popular narrowbody families-A320 and 737-an idea that has played with Embraer since 2009; or do something to the existing offering to retain the regional jet family’s attractiveness to operators.

Late 2011, Embraer formally confirmed its decision to abandon the development of a competing airplane (which otherwise would have put 4 players in the coveted segment, including Bombardier with its C-Series), and instead focus on enhancing the value of the Embraer 170 and 190 families through a possible stretch and a definite re-engine, at an estimated program cost of US$1.7 billion. This was the outcome of Boeing announcing the delivery of the 737Max in 2017: a period too short for Embraer to both hold its grip on the market with its existing offering while developing a competing airliner. This also reflects the industry’s lower appetite for risk.

Embraer started working with E-Jet customers to define the performance goals and technical characteristics of the new aircraft family. One of the considerations was a composite airframe. Early 2012, Air Lease Corp advised Embraer to stretch the Embraer E-190 by 1 row (4 seats) and the E-195 by 2-3 rows (8-12 seats). The aim was to add capacity to compete with the CS100, while allowing for pricing flexibility in the light of much lower development costs associated with an airplane upgrade rather than a clean sheet design. Adding to this advantage is the huge customer base of Embarer’s E-Jets. A customer would prefer an upgrade “within the aircraft family” for near-seamless operational integration, rather than an all-new aircraft.

Embraer claims to be not just re-engining, but investing heavily to achieve the efficiency of a clean-sheet design. In January 2013, Embraer selected the Pratt and Whitney Geared Turbofan PW1000G series to power the second generation E170 and E190/E195 aircraft, which it calls the “E-Jet E2 family”. The wings will feature a higher aspect ratio, longer wingspan, and raked wing tips instead of winglets. The landing gear will be lengthened to accommodate the larger engines, and the flight deck will feature the Honeywell’s Primus Epic™ 2 advanced integrated avionics system with large landscape displays, advanced graphics capabilities, and Honeywell’s Next Generation Flight Management System (NGFMS). The new airplanes will be 100% fly-by-wire, unlike the in-production E-Jets.

Unlike the C-Series, the wings for the E-Jet E2 are all metal, as, according to Embraer, composites aren’t cost-effective for such-sized airplanes. Embarer’s late announcement of the selection of the geared turbofan actually stands in its favour: the airframer benefits from Pratt and Whitney’s work on the smaller PW1200G for the Mitsubishi Regional Jet (MRJ), and the larger, mature PW1500G for the C-Series, both of which engine families are almost identical to those being offered for the E-Jets.: The PW1700G for the E175-E2 and the larger PW1900G for the E190/195-E2.

The reason to select the Geared Turbofan is not just the gear in the fan, which optimises fan speeds for greater efficiencies. The significant thermal margins available can allow for future engine thrust upgrades, allowing for further aircraft upgrades with the same engine family.

Plane Facts & 4-cast

The E-175 E2 can seat 88 passengers in a single class, in a comfortable 31” seat pitch. The in-production E-175 can seat only 78 passengers, comfortably, and 88 with an undesirable 29” seat pitch.

The E-190-E2, which is poised to continue the legacy of the well-performing in production E-190, comfortably seats an additional 6 passengers in a uniform 31” seat pitch. The existing E-190 can seat 114 passengers, but with a compromised seating comfort. The fuel efficiencies of the E-190-E2 lend it more range than the E-190.

The E-195-E2 seats 132 passengers in a uniform 31” seat pitch. The In-production E-195 can seat no more than 124 passengers in high capacity, and 116 in single class (with 31% of the seats featuring a 32” pitch, and 69% featuring a 31” pitch). Sometime in 2009, Embraer had studied an aircraft of such capacity, dubbed the E-195X, which would have used the same engines as the E-195. The concept was eventually dropped in 2010 the light of degraded aircraft performance in the absence of a re-engine.

Owing to its poor sales and the drop in demand for 70 seat jets, the E-170 won’t be re-engined.

Embraer’s best bet is on the 106 seat E-190-E2, and hence is focusing all its energy in targeting an entry-into-service (EIS) of mid-2018. The E-195-E2 will follow in 2019, and the E175-E2 in 2020.

Embraer foresees a demand for 6,400 commercial jets with capacity of up to 130 seats, over the next 20 years. With more than 1,200 E-Jets orders, Embraer has achieved a 42% market share in its segment. While Embraer will aggressively compete with Bombardier’s CS100, its present and future E-Jet offering has, and will eclipse Bombardier’s present line up of the CRJ family: CRJ700, CRJ900 and the CRJ1000, all three now marketed with the NextGen suffixes. Embraer is poised to grab a large share of that forecasted market.

*This section builds on research for a comprehensive article on the C-Series by The Flying Engineer.

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