The results of SpiceJet demonstrate that Kingfisher’s woes have clearly benefited other companies in the sector. Against a loss of Rs 72 crore in June 2011, SpiceJet posted a profit of Rs 56.15 crore. The company has been able to post a profit after five successive quarters of losses.
Not only has SpiceJet benefited by increasing its market share but revenue per passenger has also increased, helping the company post a strong performance. SpiceJet improved its market share from 17.1% to 18.6% which helped its domestic passenger traffic to increase by 26% on a YoY basis. As a result of the increase in traffic, its load factor increased to 80.3% from 78.9% in the previous year.
On account of a number of cancellations by other airlines, SpiceJet increased its flights which resulted in a 49.3% growth in number of departures adding 16.7% to available seat kilometres. Apart from these factors, the company also benefitted from higher rates which are reflected in a 24% higher passenger yield from Rs 3,283 per passenger to Rs 4,068.
It was mainly because of the higher rates that SpiceJet has been able to absorb higher fuel, airport and maintenance cost, all of which has increased at a faster rate than volume growth. Further, SpiceJet also benefited from warranties which it has shown as an exceptional item to the extent of Rs 12.9 crore. Contribution of “other Income” increased from Rs 3.34 crore to Rs 12.16 crore. Exceptional item and other income together account for nearly 40% of profit before tax, indicating the poor quality of profits. Further, there has been a noticeable jump in “other operating income” which essentially is in-flight sales. This component has jumped from Rs 14.9 crore in June 2011 to Rs 59.9 crore in June 2012.
Apart from this, the fact that SpiceJet has not taken into account un-accrued interest on inter-corporate deposits, which would have brought its profit down by Rs 5.98 crore. Also, the company has not provided for changes in interest rates on account of change in exchange rate on its foreign borrowings, which has been qualified by its auditor.
SpiceJet shares have shot up by over 22% to Rs 30.85 after its results. However, the quality of profit and a narrow operating margin of 5.2% in a volatile oil price scenario along with rising airport charges leave doubt over future profitability. Meanwhile, Jet Airways has also joined the party in anticipation of good numbers with Jet Airways rising nearly 8% to Rs 347.50.