Falling crude prices have lifted low cost carrier SpiceJet’s share price which soared 14 per cent over the last week, before losing 4 per cent on Thursday. That’s despite the fact that the carrier ended the three months to June 2008 with a net loss of Rs 102 crore on the back of higher aviation turbine fuel prices which increased 132 per cent y-o-y.
The airline had delayed the announcement of its quarterly results because of a deal that it was negotiating with WL Ross for an infusion of funds into the company. SpiceJet managed better average fare realisations during the quarter — up 37 per cent —also a 39 per cent increase in number of flights that helped it post a 72 per cent y-o-y increase in revenues to Rs 457 crore. But the airline ended up with an operating loss before rentals of Rs 395 crore compared with a profit of Rs 255 crore in the June 2007 quarter.
While lower aviation turbine fuel prices will no doubt help bring down costs for airlines, carriers are grappling with falling air traffic— June saw airlines in the country carry fewer passengers than they did in June 2007. This is despite the fact that some airlines are now operating on fewer routes and capacity in the industry has been scaled back by about 15 per cent.
The trend could continue till the start of the festive season, say industry watchers, though higher fares might mean falling traffic even during the peak seasons this year. Airlines have been compelled to hike fares-- ticket prices have risen by 10-15 per cent on average in the last quarter. That has caused occupancy levels to decline---SpiceJet’s load factor dropped 700 basis point in the June quarter. Airlines are therefore in a fix; it’s unlikely people will fly more often unless they feel fares are affordable.
The $100 million fund infusion into July, mainly by WL Ross, will help the cash-strapped SpiceJet, which is understood to have deferred the delivery of three Boeings. The airline is also believed to have sub-leased 2 of the 5 aircraft it was supposed to add to its fleet by the end of the year.
The SpiceJet stock has underperformed the market, losing 65 per cent since the start of the year, while the Sensex has lost around 26 per cent. It could be a while before crude prices come off to levels at which airlines can afford to cut fares. Until that happens demand for plane seats is likely to remain depressed. As are the bottom lines of airlines.
