(Photo: Aniruddha Chowdhury/Mint)
(Photo: Aniruddha Chowdhury/Mint)

Grounding of MAX aircraft clouds SpiceJet’s Q4 profit performance

  • The net profit of 56 cr missed Street estimates by a wide range. A Bloomberg poll had estimated net profit of 134 cr
  • According to the company, the March quarter profit does not include any form of reimbursements or compensation on the grounded aircraft

For the March quarter, SpiceJet Ltd had to cope with the ban on Boeing 737 MAX aircraft in mid-March. The low-cost airline grounded 13 of its MAX aircraft.

Kiran Koteshwar, chief financial officer at SpiceJet, said: “Even though our MAX aircraft were grounded, we continued to incur expenses on them. “This also limited our ability to take advantage of the increased pricing environment as passengers (of cancelled MAX fights) had to be accommodated on existing flights." What this means is that the company’s costs remained elevated at the expense of loss of capacity and revenues from MAX aircraft groundings, he explained.

In fact, even as the fuel cost per available seat km declined by about 6% year-on-year, non-fuel cost per available seat km increased by 7%, primarily driven by the increase in lease rentals. This, at a time when revenue per available seat km increased at a slower pace of 3.4%.

According to the company, the March quarter profit does not include any form of reimbursements or compensation on the grounded aircraft. The upshot is SpiceJet’s net profit of 56 crore missed Street expectations by a wide range. A Bloomberg poll of analysts had estimated net profit of 134 crore. Some analysts had considered compensation for the grounded fleet in their profit estimates.

(Graphic: Vipul Sharma/Mint)
(Graphic: Vipul Sharma/Mint)

As such, the company did not see a reasonable improvement in its yields compared to its bigger peer, InterGlobe Aviation Ltd, which runs the IndiGo airline.

SBICAP Securities Ltd estimates SpiceJet’s yield improvement at 6-7% year-on-year for the March quarter to 3.95/RPKM (revenue per km). In comparison, IndiGo saw 12% improvement in its yield to 3.7/RPKM. Yield is a per unit measurement of pricing for airlines.

Going ahead, with the uncertainty around Jet Airways’ revival, yields remain a measure to evaluate industry profitability. SpiceJet is expected to be one of the key beneficiaries of the beleaguered Jet Airways’ saga.

However, the airline hasn’t seen any market share gains in recent months.

Sure, MAX aircraft grounding has played spoilsport till now, but SpiceJet investors would watch market share gains closely in the coming months. The company expects a likely return of the B737 MAX aircraft in July.

While that augurs well, Brent crude at about $70 per barrel isn’t particularly low.

Still, the airline’s investors can hardly complain, as they have been on a good wicket with the stock. From its annual closing low of 62.45 in October 2018, SpiceJet shares have more than doubled to 148.80 apiece on Tuesday, a 52-week high.

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