Analysis: Strong first quarter for Etihad bodes well for Jetihad deal

by Vinay Bhaskara

Abu Dhabi based full service carrier Etihad Airways reported record results for the first quarter of 2013.
Revenues grew a whopping 18.7% year over year to $900 million, up from $758 million in Q1 of 2012. In its 10th year of operations, Etihad also saw cargo revenues grow 17% to $193 million. Passenger figures also reached a new high of 2.8 million, growing 13% year over year from 2.3 million. Average seat factors grew 4 percentage points over 2012 to 80.5% despite a 12.5% increase in capacity. See the table at the bottom of the story for a full overview of key metrics for Etihad’s first quarter.

Said Eithad President and Chief Executive Officer James Hogan, “Our Q1 2013 results have again outstripped global trends, with our strongest ever first quarter results for passenger revenue… This performance demonstrates that Etihad Airways’ strategy of organic growth, wide-ranging partnerships, and strategic equity investments is delivering for us and our partners.”

More importantly for a future “Jetihad” partnership and equity investment, Etihad’s existing equity stakes are beginning to pay handsome dividends, with revenues growing 34% from $136 million to $182 million, and accounting for 20% of Etihad’s overall revenues.

The success of Etihad’s existing equity investments in airberlin, Air Seychelles, Virgin Australia, and Aer Lingus, who all reported profits in the first quarter of 2013 bodes well for a potential equity investment in Jet Airways because it shows that such an investment is viable.

However, the current macroeconomic pressures in India do give some pause. Demand growth continues to slow, with domestic demand falling 9% year over year in February. This, to some degree reduces the value of Jet Airways, and Naresh Goyal and other Jet Airways decision-makers will need to realize this and adjust their expectations accordingly.  Some of the valuation figures of Jet Airways at over a billion US dollars are unrealistic and out of line with the current strength of the industry and the Indian investment environment as a whole. That being said, the Indian Diaspora and international demand remain relatively robust, and thus Jet does offer significant value to Etihad as an Indian partner.

Jet Airways could sorely use the additional capital in order to solidify its restructuring efforts at a time of flux in the industry. Air India continues to flounder (and indeed a recapitalized Jet could win away some of Air India’s passengers), and Kingfisher is dead. SpiceJet appears to have found a pair of winner in its regional network of international destinations and fleet of Q400 turboprops serving Tier II/III destinations – while GoAir continues to fly under the radar as a presumably profitable airline. IndiGo meanwhile, is still humming along, though it has begun to rethink its growth strategy and must continue to do so. AirAsia’s new venture threatens to usurp the delicate balance of power that has emerged in the domestic industry, though much is yet to be determined.

We will learn a lot from the first quarter results of SpiceJet and Jet Airways. The domestic results in particular will indicate if the shrinking of demand has been made up for with increased fares on aggregate (a sign of a healthier industry). Regardless, a Jetihad deal is slowly getting closer and closer to fruition.

Etihad Key Metrics: First Quarter 2013

Key indicators
Q1 2013
Q1 2012
Passenger revenue
US$ 900 million
US$ 758.1 million
+19 per cent
Cargo revenue
US$ 193.1 million
US$ 165.4 million
+ 17 per cent
Total revenue
US$ 1,136.5 million
US$ 989 million
+ 15 per cent
+ 18 per cent
Revenue passenger kilometres (RPKs)
12.9 billion
10.9 billion
+ 17 per cent
Available seat kilometres (ASKs)
15.9 billion
14.3 billion
+ 12 per cent
Seat factor
80.5 per cent
76.5 per cent
+ 4 points
+ 7

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