Spicejet reports highest ever Q1 profits in its history

Indian low cost carrier (LCC) Spicejet declared an operating profit of INR 70.69 Cr and a net profit of INR 71.84 Cr for Q1 FY2016. The airline filed its results with the Bombay Stock Exchange this afternoon. The airline had recorded a net loss of INR 124.1 Cr for the same quarter last year.

The profits are on the back of splendid loads across the three months, with May and June recording Load factors of 90%+. The airline recorded a load factor of 89.8% for the quarter as per its press release, which is an increase of 14.8% over the same period last year.

These great numbers have come on the back of lower fuel prices, with Fuel Expenditure reduced by over 50% over the same quarter last year.

The airline has accounted the lease rentals of 4 leased aircraft it took during the quarter. This involved three B737-800 and one A319. The A319 had joined the fleet after the three B737-800 left and the maximum leased capacity was not more than three aircraft at any point of time.  The airline also saw one B737-900 join back the fleet during this quarter. Lease rentals were down 41% over the same quarter last year.

The profit could have been higher had the aircraft been inducted on dry lease since the ACMI (Aircraft, Crew, Maintenance, Insurance) model is expensive as compared to dry lease. However, the induction of three damp leased or wet leased aircraft gave the necessary push on the revenue front which not only helped gained market share but also helped increase revenue.

Total income from operations was down 34% and so was the net sale from operations as the airline also saw a reduction in capacity of 33%. The airline press release mentioned that the CASK (Cost per available seat kilometer) was down 13% and RASK (revenue per available seat kilometer) was flat on a year on year basis. The airline had reported a RASK of INR 3.94 in Q1FY15.

The airline carried 23.44 lakh passengers in Q1, a reduction of 25% over the same period last year and closed the quarter with fourth highest market share of 11.6 percent behind IndiGo, Jet Airways and Air India.

The finance costs also saw a downward trend with 9% reduction over Q4FY15 and 48% reduction over Q1FY15. As more funds are infused by the new chairman Ajay Singh, expensive debt could be retired and the finance costs should steadily go down.

Operating profits signify a return towards normalcy for an airline which saw very turbulent weather in the past 12-15 months. The first quarter under the new management had seen profits but they were due to one off income from insurance.

SG Q1 profitability

The airline shares closed at INR 26.6 on Bombay Stock Exchange – an increase of 6% over previous close and traded at a 52 week high of INR 27.25

Challenges

The biggest challenge for the airline will be to balance capacity and ensure that existing two A319s which are on wet lease are returned at the earliest and additional dry leased aircraft are inducted which would help reduce cost.

The airline has been at the bottom of the charts for On Time Performance(OTP) for last few months and to get back business travelers, improving the OTP is of utmost importance.

Future

The airline revamped its schedule of Bombardier Q400s (Turning a new leaf – Spicejet revamps Q400 schedule) effective July first week and the results of this new network should be seen in Q2.

I expect the airline to revamp its B737 schedule at the start of Winter schedule in October which would see a positive impact on revenue in Q3.

With two A319s in operational in a traditionally weaker quarter of July – September, the losses can be better controlled and the airline can aim for a profitable FY2015-16.

 Analysis of previous quarter

Q4 profits aided by Q400 – Spicejet turboprops to profit

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