IndiaÆs premier private sector airline, Jet Airways has posted a loss of Rs450 million ($9.8 million) for the first quarter of fiscal 2006.

The shortfall, which compares with a profit of Rs953.4 million in the same period last year, comes as Jet faces the potentially costly aftermath of its planned takeover of competitor Air Sahara that was called off at the end of June.

Compared to the same quarter of 2005, Jet says it carried 25% more paying passengers, translating into a 25% increase in revenues. However, earnings before interest, tax and depreciation were down 43%, resulting in the bottom-line loss.

In an earnings statement issued over the weekend, Jet attributes the loss to yield pressure in its domestic and international operations combined with an increase in input costs, primarily fuel. On a standalone basis, JetÆs domestic operations were profitable during the quarter, however losses incurred on international operations resulted in an overall loss.

Jet also suggested that increased competition domestically was taking a toll, commenting: ôwe are concerned with the longer term implications for the industry as a whole, in view of irrational pricing by airlines simply seeking to gain market share.ö

Jet cites statistics showing domestic industry capacity (measured by daily seats offered) was 48% higher in the first quarter compared to the first quarter of the previous year. In the past few months a host of players, including SpiceJet, Air Deccan, Go Air and Kingfisher Air, have pulled out all the stops to woo passengers, which has affected Jet's ability to price.

A merger with Air Sahara would have helped strengthen Jet's competitive position, but at the end of June the $500 million deal was aborted when Jet failed to secure regulatory clearances on time.

For Jet almost the entire acquisition cost is at stake as the Rs15 billion ($323 million) which was deposited in an escrow account with ICICI Bank to be paid on completion of the deal has been frozen. Both airlines are laying claim to this money as well as a Rs5 billion advance already paid to Sahara. The matter is currently sub-judice and in mid-July IndiaÆs Supreme Court stayed proceedings on petitions filed by both parties on various matters including jurisdiction of the hearing. The next hearing is scheduled shortly.

Jet Airways' CEO Wolfgang Prock-Schauer, who was in India last week to launch the airline's services between Amritsar (in the state of Punjab) and London, not surprisingly, told reporters: ôwe have no plans to acquire any other airlines. We will stand at our level and go alone".

On the same occasion Prock-Schauer noted that the airline will expand its fleet to 90 aircraft by next year from 43 at present.

It seems the going could be rough for Jet Airways on various fronts in the near future. The company completed an initial public offering in early 2005 at a price of Rs1,100 per share and an enthusiastic response saw the share price trade up to Rs1,400 within a few weeks of listing.

Since the merger announcement, investors who did not welcome the move have hammered the stock, pushing the price all the way down to Friday's (July 28) close of Rs500. The drop has adversely affected Jet's plans to raise funds through a foreign currency convertible bond (FCCB).

Brokers are predicting the stock could fall further in response to the weak results when the markets open today (July 31).

For more on the aborted Jet - Sahara merger see the July issue of FinanceAsia magazine.