Profit in Q3 got a big boost from other income, which includes compensation of ₹246 crore for 13 grounded planes
Going ahead, the uncertainty over the resumption of services by the MAX aircraft remains a big risk
At first glance, SpiceJet’s December quarter (Q3) net profit of ₹73 crore looks impressive. A Bloomberg poll of analysts was expecting the airline to report a profit of ₹57.6 crore.
But a closer look at the numbers reveals some concerns. For one, its yield—a measure of pricing for airlines—has declined by 7% year-on-year. In contrast, market leader InterGlobe Aviation Ltd, which runs IndiGo, saw 1% yield growth for Q3.
Analysts at SBICAP Securities Ltd said in a report on 14 February: “Deployment of capacity on highly competitive erstwhile Jet Airways routes, coupled with weakness in demand has resulted in a 7% decline in yields for SpiceJet."
They added: “In the past, SpiceJet had little capacity on Jet Airways routes compared to IndiGo and also enjoyed premium yields last year ( ₹4.13/RPKM last year for SpiceJet compared to ₹3.83/RPKM of IndiGo)."
RPKM is revenue passenger km and refers to the number of paying passengers multiplied by the number of km they flew.
Further, SpiceJet’s Q3 profit got a big boost from a phenomenal jump in its other income. Other income includes compensation worth ₹246 crore for its 13 grounded Boeing 737 MAX planes. If it weren’t for the compensation, the airline would have reported losses for the quarter.
Post-results, Prabhudas Lilladher Pvt. Ltd has cut FY20, FY21 and FY22 Ebitdar estimates by 13.7%, 8.6% and 14.5%, respectively. Ebitdar is earnings before interest, tax, depreciation, amortization and lease rentals—a key profitability measure for airlines.
The brokerage firm said the earnings cut is due to weak domestic yield environment and uncertainty regarding the timing of Boeing MAX airplanes’ return to service, and elevated CASK due to a likely lease extension of less-efficient ex-Jet Boeing 737 NG aircraft. CASK, or cost per available seat km, is a unit cost measure.
Going ahead, the uncertainty over the resumption of services by the MAX aircraft remains a big risk. SpiceJet was expecting the grounded MAX fleet to return to service by January 2020, but is now looking at a mid-2020 timeline.
Meanwhile, on Monday, SpiceJet said it has added two Airbus A320 aircraft to its fleet. Overall, the demand slowdown and muted outlook on yield improvement are likely to keep sharp upsides in the SpiceJet stock at bay.
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