BackSpiceJet swings to profit after six quarters
Airline calls the quarter transformational, though experts say the earnings were buoyed by one-off items
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Mumbai: SpiceJet Ltd, India’s second-largest low-fare airline, swung to profit in the fourth quarter, beating analysts estimates, after six straight quarters of losses. While the management of the cash-strapped airline termed it a transformational quarter marking the beginning of a turnaround, experts said earnings were buoyed by several one-off items.
The airline reported a net profit of ₹ 22.5 crore for the quarter ended March compared to a loss of ₹ 321.5 crore in the year-ago period.
Lower fuel costs, benefits of renegotiated contracts and settlements and a net gain on an insurance claim helped the company post a profit.
SpiceJet, however, reported a 50% drop in revenue to ₹ 786.33 crore for the reporting quarter against ₹ 1,573.41 crore in the corresponding quarter of the previous year. According to a Bloomberg analysts’ survey, SpiceJet had been expected to post a loss of ₹ 122.20 crore on sales of ₹ 885.60 crore.
The airline’s fuel expenses declined by 67% to ₹ 286.22 crore and aircraft lease rental expenses fell 61% to ₹ 115.39 crore for the reporting quarter.
Following its financial troubles late last year, SpiceJet had cut its fleet by a third and now has 17 Boeing 737s and 15 Bombardiers.
“These results indicate that a recovery is in progress, and is the first tangible evidence of the ongoing revival", said Ajay Singh, chairman, SpiceJet. “We are confident that we will build a world-class airline and this is the first step. We still have a lot of work to do," he said.
“Our results show the resilience of the SpiceJet brand, and the unwavering faith, passion, and commitment of each and every one of our employees. I am delighted to see the airline that I helped create this month 10 years ago starting to get back on its feet in this manner," Singh added.
Singh, a co-founder of SpiceJet who had exited the airline in 2010, is back in control after buying out the entire 58.5% stake of Kalanithi Maran and Kal Airways Pvt. Ltd on 23 February. Singh promised to invest at least ₹ 1,400 crore in the airline early this year in a lifeline for the cash-strapped SpiceJet.
On 5 December, the civil aviation ministry asked SpiceJet, which was raising some of its working capital through advance-ticket sales, to stop the sale of tickets more than a month in advance of the travel date. That restriction came after the airline cancelled around 1,800 flights in December, following a reduction in its fleet size, largely owing to financial reasons. However, the restriction on advance sales precipitated a crisis by drying up SpiceJet’s source of funds.
In December 2014, the airline briefly grounded its fleet after oil firms refused fuel supplies until it paid its dues. The aviation ministry later lifted the restriction on advance bookings.
“I am thrilled that with the return and backing of the founder of the airline Ajay Singh, SpiceJet is clearly turning the corner. I firmly believe this is the start of what will be a noted as a historic airline turnaround not just in India, but in the world", said Sanjiv Kapoor, chief operating officer, SpiceJet. Kapoor said the March quarter is a transformational quarter for the airline and he expects the trend to continue, citing lower costs.
Not everyone is as optimistic.
“The positive results are largely because of several one-off items. Actually, the airline has registered an operating loss. However, the airline can do better if they run it like a tight ship going forward as the fleet is modest and there are no major expansion programmes," said a senior analyst with a leading domestic brokerage. He requested anonymity.
In a statement, the airline had said that on a Ebitda (earnings before interest, tax, depreciation and amortization) basis, SpiceJet reported a positive ₹ 80 crore against a negative ₹ 235 crore the previous year.
However, excluding all one-off items, operating loss for SpiceJet narrowed to ₹ 73 crore in the quarter ending March from ₹ 293 crore in the year-ago period.
The airline has recorded other income of ₹ 91.70 crore on account of a write-back of certain liabilities and waivers. It has also reported ₹ 61.35 crore as extraordinary income on account of an insurance claim for a damaged plane.
“Notwithstanding the fact that there is an extraordinary item adding to the profit, it is a decent performance by SpiceJet in one of the traditionally weakest quarters in the domestic market. However, talk of turnaround efforts yielding results should be taken with a pinch of salt. Bottom line: All airlines were aided by oil hovering around $50 per barrel, while their pricing was based on oil at $120," Bharat Mahadevan, an independent analyst said.
Mahadevan added that in terms of sustainability, low-fare airlines should be able to sustain the profit if oil prices continue to remain this way and the airlines are disciplined in their pricing.
SpiceJet’s Kapoor said the pricing strategy of the airline also has helped.
“I want to thank all of our employees, lessors and other business partners, the government and other stakeholders who stood by us to see us through to this transformational turning point", Kapoor said.
In an interaction, SpiceJet’s chief financial officer Kiran Koteshwar said the new promoter has infused around ₹ 650 crore into the airline and around ₹ 400 crore was used for clearing liabilities of vendors and the remaining to clear bank loans.
He admitted that the airline would have landed up in a marginal loss if there were no extra-ordinary items. Shares of SpiceJet fell 2.58% to ₹ 18.90 on Thursday on BSE, while the benchmark Sensex shed 0.21% to close at 27,506.71 points. The earnings were announced after the end of trading on Thursday.
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