Q2 results: SpiceJet posts second straight loss on high fuel cost
SpiceJet’s standalone net loss, excluding results of SpiceJet Merchandise and SpiceJet Technic, stood at ₹389.37 crore at the end of Q2. It had a profit of ₹105.27 crore a year earlier
Mumbai: Low-fare airline SpiceJet Ltd on Wednesday posted a second straight quarterly loss as increase in fuel costs and a weak rupee offset higher revenue. The Gurugram-based carrier’s standalone net loss, excluding results of SpiceJet Merchandise and SpiceJet Technic, stood at ₹389.37 crore at the end of the September quarter (Q2). It had a profit of ₹105.27 crore a year earlier.
SpiceJet’s revenue grew 3.7% from the year earlier to ₹1,910.30 crore in the September quarter.
Expenses rose 32% to ₹2,299.67 crore as fuel costs surged 56% to ₹845.07 crore.
“It was a bit disappointing for us to report a loss. Also, the September quarter is traditionally a weak quarter when it comes to demand (for flying), so there was a pricing pressure on the airline,” SpiceJet’s chief financial officer Kiran Koteshwar said over phone. “We don’t expect steep increases in macro parameters (oil and rupee),” Koteshwar said as he forecast crude oil to stay at $65-70 a barrel in the coming quarters.
In the past year, Brent crude has gained 6.58% to $66.3 a barrel, while the rupee has weakened 11.68% against the dollar. Along with high costs, the hyper-competitive nature of the industry has prevented airlines from raising fares substantially. SpiceJet’s listed rivals—Jet Airways (India) Ltd and InterGlobe Aviation Ltd, which runs IndiGo—previously reported losses Q2.
Oil prices have declined steadily in the last few weeks.
The lower pricing environment is a thing of the past as airlines will raise fares during the upcoming quarters, which are generally considered busy, Koteshwar said. “We will also see a lot of costs coming down as we take deliveries of our fuel-efficient Boeing 737 Max planes,” he said.
SpiceJet, which ordered in January 2017 205 Boeing planes valued at $22 billion at list price, has received four Boeing 737 Max planes so far, and is slated to receive 18 more over the next six months. It also added two Bombardier Q400 turboprop planes in the last few months.
SpiceJet plans to use a large number of Boeing 737 Max planes to expand its international operations in the coming quarter, Koteshwar said.
“We are starting Hong Kong from Mumbai and Delhi apart from adding frequencies to Bangkok. We will definitely have more international operations by the end of the fiscal,” he said.
SpiceJet, which had a 12% share of the domestic aviation market in September, has no plan to convert a part of its Boeing 737 Max orders to wide-body planes, which will enable it to fly to Europe and other long-haul destinations.
“The current environment is not right for starting no-frill long-haul flights. We are yet to formulate the strategies (for no frill long haul operations) but the plan is still on the drawing board,” he said.
Aviation consultant CAPA India’s chief executive Kapil Kaul said that SpiceJet’s September quarter loss is in line with the agency’s estimates. “CAPA continues to expect break-even to a modest loss for FY19 for low cost carriers including SpiceJet but the range of losses (are) largely variable as of now,” Kaul said.
“SpiceJet is well-placed to manage profitability challenges especially as sale and lease back (SLB) incentives kick in from the second half of FY19. However, in the near term, market conditions and unrelated diversification indicate risks,” Kaul said.
A sale and leaseback is a transaction in which the owner sells the aircraft and then takes it back on lease from the buyer. This kind of deal typically removes the aircraft, and its associated debt, from the carrier’s balance sheet.
SpiceJet plans to finance the purchase of its 205 Boeing 737 Max through the sale and leaseback mechanism.
“With higher fares, the fall in global crude prices and currency appreciation, we expect the operating environment to improve significantly (in the coming quarters),” said SpiceJet chairman and managing director Ajay Singh.
On Tuesday, SpiceJet shares rose 2.83% to ₹83.70 apiece on the BSE while the benchmark Sensex closed flat at 35,141.99 points.