SpiceJet Ltd’s shares faced turbulence on Thursday, falling 6% on BSE. In a seasonally weak quarter, the airline reported a loss of almost 463 crore, higher than the 328 crore loss that a Bloomberg poll of analysts was expecting.

However, year-on-year revenue growth at 51%, led by solid capacity expansion, was impressive.

What explains SpiceJet’s disappointing performance then? To begin with, cost pressures were back-breaking. Unabsorbed costs from the grounding of the Boeing 737 Max aircraft continue to haunt SpiceJet. Additionally, older aircraft that it had received from Jet Airways (India) Ltd, which shut operations earlier this year, added to cost pressures.

Graphic by Pasras Jain/Mint
Graphic by Pasras Jain/Mint

For perspective: CASK, or costs per available seat kilometre, excluding fuel, increased by 8% year-on-year. CASK is a measure of unit cost for airlines.

Second, despite sharp growth in absolute revenue, on a unit basis, revenue per available seat km, at 3.67, was similar to the corresponding quarter of last year.

Analysts at ICICI Securities Ltd said SpiceJet’s capacity growth of 51% was significantly higher than passenger growth of 29%, and this weighed on unit revenues. “This gap between passenger growth (revenue driver) and capacity growth (cost driver) is best captured with lower PLF (89% in Q2FY20 versus 93% in Q1FY20 and 92% in Q2FY19)," it said in a report on 14 November. PLF stands for passenger load factor.

Notwithstanding Thursday’s decline in the share price, the SpiceJet stock has risen by about 28% in the past year. In comparison, shares of bigger peer, InterGlobe Aviation Ltd, which runs IndiGo, have gained 45%.

Of course, the Street is keen to distribute more brownie points to IndiGo’s better financial metrics and stronger balance sheet. Plus, SpiceJet’s market share gains have been paltry this calendar year, despite Jet Airways shutting operations.

Data from the Directorate General of Civil Aviation shows SpiceJet’s domestic market share increased from 13.3% in January to 14.7% in September, while IndiGo’s market share rose from 42.5% to 48.2% during the period.

Moreover, uncertainty around the Max aircraft resuming service and the resultant pressure on profit has been a worry for the stock. SpiceJet has said the Max service will likely return in January 2020 and investors will keep a close watch.

“We believe the fleet shall only return to service latest by the end of FY20 due to the time required to undergo pilot training post re-certification of the Boeing 737 MAX. Once cleared, SpiceJet shall be able to induct 12-15 aircraft at a brisk pace, which shall offset the return of ex-Jet fleet by middle of CY2020," said Paarth Gala, analyst at Prabhudas Lilladher Pvt. Ltd, in a report on 14 November.