Higher competition in the low-cost airline space hit SpiceJet Ltd’s market share in March quarter. Competition in low-cost airlines increased because big full-service carriers such as Jet Airways (India) Ltd and Kingfisher Airlines Ltd converted at least three-fourths of their capacities to low-cost at the end of the December quarter. As a result, SpiceJet’s market share dropped to 12.1% in March, compared with 12.5% in December and 12.2% in the year-ago period.
This hit revenue, which declined by 12.7% against the December quarter to Rs560.6 crore. Revenue growth was slightly lower than analysts’ estimates.
Even as revenue declined sequentially, revenue growth was 34.5% year-on-year. Annual increase in revenue can be attributed to better load factor, which measures how much of an airline’s passenger carrying capacity is used. SpiceJet’s load factor in March stood at 78.8%, against 71.3% in March last year.
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The company’s operating performance was poor, as operating profit margin dropped sharply to 1.9% from 15.9% in December. This can be blamed on higher fuel costs, which came to 17% of its revenue.
Further, SpiceJet incurred other expenditure worth Rs41.22 crore against negative other expenditure of Rs22.79 crore last year. Higher advertisement costs bloated other expenditures in the March quarter.
SpiceJet did not feel the impact of poor operating performance in profits because of higher other income and decline in losses from non-recurring items. Net profit in the March quarter stood at Rs27.45 crore, against a net loss of Rs7.82 crore in the year-ago period.
But SpiceJet has managed to be profitable compared with peers in the year ended 31 March. It posted a net profit of Rs61.4 crore in the year.
In comparison, Jet Airways posted a consolidated loss of Rs420 crore and Kingfisher’s losses stood at Rs1,647 crore.
Air India, too, is expected to report massive losses worth at least Rs5,000 crore. SpiceJet’s numbers for the full year were helped by strong performance in the quarter ended December.
SpiceJet intends to expand its fleet size by four in the current fiscal, which is likely to boost revenue and help improve market share.
Analysts expect ticket prices to increase by 10-15% in 2010-11 on the back of fewer expected capacity additions and better demand environment. This augurs well for SpiceJet’s stock, currently trading at Rs56.80 a share.
Having said that, the stock has outperformed the benchmark Sensex index since August 2009. This may limit sharp appreciation from current levels.
Graphic by Yogesh Kumar/Mint
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