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SpiceJet Airlines lost money for the fifth straight time, bleeding Rs 310 crore in the September quarter. More than the quantum of the loss, however, what is more eye-popping is that its auditor SR Batliboi & Associates has written that they doubt the company’s ability to continue as a going concern. SpiceJet’s trouble does not end there. Business Standard has reported that 40 pilots including commanders have quit the airline over the past six months, or two quarters.
The report goes on the say that the pilots have parted ways as they did not want to take a chance, particularly after the grounding of Kingfisher Airlines. The mass departure of pilots has already started affecting the performance of the company with its flights either getting delayed or cancelled. The airline has also reduced its fleet strength from 48 to 38 over the past few months.
So is the airline going down the Kingfisher Airlines way, or is there still some room to salvage the situation?
SpiceJet’s promoter Kalanithi Maran believes that there is still room to save the company he bought. He is putting in more money into the airline. Business Standard [reports that the promoters have converted 6,41,69,000 warrants into equal number of equity shares of Rs 10 each. In March, 2014, the company announced that it had allotted 6,41,69,000 warrants, having an option to apply for equivalent equity shares at a price of Rs 20.76 per equity share. The total amount of funds to be infused (including premium) would be Rs 133.22 crore. The conversion of warrants comes at a time when it has delayed payments to various parties and is late in paying dues to statutory authorities.
But this is not the first time promoters have pumped in money in the ailing company. Earlier, in the financial years 2011-12, 2012-13 and 2013-14, promoters had infused equity capital to the tune of Rs 130.92 crore, Rs 99.44 crore and Rs 184.27 crore, respectively.
Repeated infusion of funds has not been able to prevent reduction in losses. Though the loss of September 2014 was lower than what the company had incurred in the same quarter last year of Rs 560 crore. In order to tide over their working capital problem the company has announced advance discounted sales. This gives them temporary relief in terms of cash in hand, profitability takes a beating. For the month of September 2014 the company has been able to increase its domestic passenger traffic by 28 per cent.
To SpiceJet’s credit the company is taking steps to improve its performance. Reducing the number of flights has been a boon in disguise. The airline’s occupancy rate improved helping the company increase its revenue by 7%. But the highlight of the results was the 45% reduction in costs. Falling crude oil prices also helped the company cut losses, but none of these have been able to bring back the company back into the black.
In an interview with CNBC, Spicejet’s chief operating officer Sanjiv Kapoor said that he hopes the company will turn around in 2015.
Despite a lower fuel bill – which accounts for the single largest expense for an Indian airline -- Spicejet does not have enough leg room in terms of liquidity, which means it would have to continue to come out with offers in the market to improve its liquidity.
Further, the new Tata airlines – in collaboration with Air Asia – starting operations in the country will also have a dent on the weaker players in the market.
Infusion of around Rs 133 crore by the promoter in the company will be of little use for SpiceJet which incurred a quarterly loss of Rs 310 crore. SpiceJet will have to bring in a strategic partner if it has to survive. Tinkering with flight tickets will also not help the company in the long run; on the contrary, it is only spreading its losses to other players in the industry as they try to match SpiceJet’s rates.
