 "Ajay Singh steers SpiceJet towards record Q1 profit of Rs 72 cr")
The airline has achieved operational efficiency by pruning the number of aircraft it operates and the cities it serves. Consequently, revenue for the quarter fell 34 per cent to Rs 1,106 crore from Rs 1,678 crore in the corresponding period last year.
While the airline cut its fleet strength to 34 from 53 last year, it has reduced the number of cities it serves from 57 to 41.
The airline was able to keep its unit revenue intact, despite airfares being 15 per cent lower on a year-on-year basis because of an improvement in the load factor. During the quarter, the airline recorded a load factor of 89.8 per cent, the highest in the sector. “We managed to fill our planes and our strategy of simulating the market has paid off,” said Chief Operating Officer Sanjiv Kapoor.
The profit was aided by a drop in aviation turbine fuel prices.
The airline’s fuel bill halved to Rs 358 crore during the June quarter, reflecting a decline in prices and the smaller scale of operations compared to a year earlier.
For the quarter, earnings before interest, tax, depreciation and amortisation (Ebitda) stood at Rs 126 crore, against Rs 43 crore in the corresponding quarter last year. The Ebitda margin stood at 13.8 per cent. The airline improved its fleet utilisation from 11.5 hours to 14 hours, owing to lower fuel costs. “We have tweaked schedules and reduced aircraft ground time, improving fleet utilisation,” Kapoor said.
Ancillary revenue increased, with the airline introducing new products such as hand-baggage-only fares. Kapoor said the airline had fully paid lease rentals for all aircraft in its fleet, adding lessors were beginning to return the planes they had repossessed during a crisis last year. The airline said its profit for the quarter was slightly suppressed due to wet-lease of planes, which is more expensive than a conventional lease, and a weaker rupee compared to the previous year. In a wet-lease deal, a lessor also provides pilots and crew to the lessee.
SpiceJet’s transition from a loss-making airline and its comeback from the brink of collapse last year are being credited to Singh and his management team. It has paid off statutory tax dues, cleared salary arrears, improved aircraft utilisation of its turbo prop Q400 planes and cut loss making routes. Also, it has consistently carried out marketing and sales promotions and discount offers, which rivals saw as an indication of cash-flow woes. SpiceJet has denied it faces a cash crunch. But the notes accompanying the profit-and-loss statement reveal the airline management has much work ahead of it.
As of June 30, SpiceJet’s accumulated losses stood at Rs 3,138 crore, while total liabilities exceeded total assets by Rs 1,142 crore. The company also owes dues to lessors and vendors. The airline said it “continues to negotiate with vendors for settlement and improved commercial terms and is in process of arranging additional working capital”. “Fiscal improvements have been visible since the fourth quarter of FY15 and a return to profitability is increasing market confidence. Funding of $200 million in FY16 is critical for a turnaround...Operational performance, especially that related to on-time performance, needs to be strengthened, as it is impacting customer confidence,” said Kapil Kaul of the Centre for Asia Pacific Aviation.
Non-allotment of preference shares attracts penal action
SpiceJet has said it failed to issue non-cumulative redeemable preference shares and share warrants to outgoing promoter Kalanithi Maran, despite receiving Rs 350 crore from him last year. Another Rs 50 crore was received in the first quarter of FY16. However, as the time limit for completion of the obligations under the Companies Act had expired (except for the Rs 50 crore), it attracted applicable provisions, including penal provisions under the law, it said.