Home / Markets / Mark To Market /  Flying cargo helped SpiceJet in Q1; future path still turbulent

While the June quarter was expected to be a washout for airlines due to the pandemic, higher cargo revenues have brought a small sigh of relief for SpiceJet Ltd. The low-fare airline said cargo revenues increased by 144% year-on-year (y-o-y) to 236 crore.

Of course, cargo revenues can only do so much for a passenger airline. Total operating revenues fell by 83% y-o-y to 514 crore. Loss at the Ebitdar (earnings before interest, taxes, depreciation, amortization and lease rentals) level stood at 166.5 crore. In the same period last year, SpiceJet had reported a positive Ebitdar of 684 crore.

True, fuel costs have been lower but how much can one favourable metric help when load factors have dropped sharply? Non-fuel costs are a pain, especially when the scale of operations has seen such a drastic decline. Indian airlines had to close operations for most part of the June quarter due to the nationwide coronavirus lockdown.

SpiceJet’s non-fuel unit costs increased by a massive 530% to 17.2 last quarter even as unit revenues grew by 118%. Unit costs and revenues are on the basis of per available seat kilometre.

Overall, SpiceJet reported a net loss of 593 crore for the three months ended June. For the past few quarters, the airline has been recognizing compensation from Boeing for its grounded 737 Max aircraft. The June quarter was no different, with its other income including 140 crore pertaining to the Boeing compensation. So far, outstanding claims stand at about 810 crore.

“We shall keep a close eye on the payment terms and actual flow of compensation," wrote Paarth Gala, analyst at Prabhudas Lilladher Pvt. Ltd in a report on 16 September.

Gala added, “The limited scale of operations remains insufficient to cover all costs, thereby putting further pressure on the finances. However, SpiceJet continues to look at new revenue streams such as increasing cargo operations and charter operations (including wide body long haul charters)."

Even so, rising coronavirus cases increase the uncertainty on passenger traffic growth revival to levels seen before the pandemic. Experts say demand would take a long while to recover fully, weighing on the fortunes of aviation companies.

These difficult business conditions reflect in the erosion in the value of SpiceJet’s shares by over 50% from their pre-covid highs in January.

To be sure, SpiceJet’s balance sheet is delicate and that’s a big risk for investors compared to listed market leader, InterGlobe Aviation Ltd. At FY20-end, SpiceJet’s negative net worth had increased to 1580 crore from 847 crore at the end of September 2019. Further, at FY20-end, consolidated cash and bank balance have more than halved in six months to a mere 42 crore, and its lease liabilities and payables had ballooned. Given this backdrop, the demand uncertainty is even more troubling.


Pallavi Pengonda

Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
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