Home >> Uncategorized >> Analysis: SpiceJet Q2 fiscal 2011 results and 30 Bombardier Q400 regional turbo-prop order

Analysis: SpiceJet Q2 fiscal 2011 results and 30 Bombardier Q400 regional turbo-prop order

Gurgaon based low fare carrier SpiceJet, announced its fourth successive quarter of profits today.

Even though, the carrier declared a meagre Rs. 100 million net profit for the second quarter (ending September 30, 2010) of the financial year 2010~2011, this is in sharp contrast to the loss of almost Rs. 1 billion compared to the same quarter last fiscal.

SpiceJet Boeing 737-800 VT-SGH newest aircraftThe airline also reports improvement on key operational and financial measurements compared to the same quarter a year ago.

  • The airline carried 1.8 million passengers up 15.6% outperforming the overall industry growth of 12%
  • Capacity measured in available seat kilometres (ASKs) grew 14% to 2,474 million still lagging the airline’s growth of 15.6%.
  • Number of departures increased 14.7% to 12,638
  • The fleet grew from 14.2% from 19 to 21.7 aircraft. The 22nd aircraft entered only in August. The airline will be taking delivery of three more Boeing 737-800s VT-SGJ, VT-SGK, VT-SGL next month. VT-SGI will enter the fleet in the month following, taking the fleet to 26.
  • Performance measured by revenue passenger kilometres (RPKs) grew 12.4% to 1,821 million.
  • Non-fuel cost per ASK (CASK) was reduced 9.2% to Rs. 1.47/ASK
  • The strongest growth came in revenue from operations, up a whopping 39.5% to Rs. 6,282 million. This buoyed by the 21.6% increase in average revenue per flight to Rs. 497.049, and a 20.6% increase in the average revenue per passenger to Rs. 3,477.

Observations:

Last year both Jet Airways and Kingfisher were slashing fares on their low cost operations – Jet Konnect and Kingfisher Red, in a vicious fight to retain market share. That fare war led to an overall depression of fares in the airline industry. This quarter the traffic is up 12% compared to last year and with the return of the premium business passengers, all three full service carriers – Air India, Jet Airways, and Kingfisher, face less pressure on their low fare offerings. With their moving some capacity back to their full service operations, fares across the country are more reflective of reality.

Quarter two is a low period for the Indian airline industry. The start of the quarter coincides with the end of the summer holiday season and the quarter closes before the start of the peak winter travel season. With the Indian passenger always looking for a value for money deal, low fare carriers continued to grow in proportion and increased their share of the pie from 61% to 71% during this period.

Yields have moved up and have stabilised – an indication that industry capacity addition of 9% still lags behind demand growth.

The lowering of non-fuel costs per available seat kilometre (CASK) reflects the constant efforts at SpiceJet to streamline operations. The airline also increased its per day aircraft utilisation by 3% to 12.17 hours and this will stand it in good stead as it increases its fleet by 18% over the next two months.

With the Maran take-over, SpiceJet has achieved the financial freedom to increase the rate of fleet growth, a key requirement to keep pace with fellow low fare carrier IndiGo which is inducting one Airbus A320-232 every month.

Chief Commercial Officer Samyukth Sridharan confirmed that SpiceJet will utilise the new fleet additions to continue strengthening their international operations which commence this quarter. Delhi-Kathmandu, Nepal and Chennai-Colombo, Sri Lanka. The airline also has permission to fly to the Maldives and Dhaka, Bangladesh. The political clout of new owners the Marans will serve the airline well enabling permissions to extend its operations to ASEAN countries like Thailand and Malaysia.

With the entry of fellow low fare carrier IndiGo in to the international arena next year, passengers can expect to find great deals, while traditional full service carriers will find it hard competing with SpiceJet, IndiGo, Thai AirAsia, and AirAsia.

Regional Spice – The Bombardier Q400 regional turbo-prop

SpiceJet has made an intelligent decision to order 15 Bombardier Q400 regional turbo-prop aircraft with an option for 15 more. Engines will be from Pratt and Whitney. Deliveries will commence in quarter two of 2011.

Computer image of SpiceJet Bombardier Q400
The Q400 aircraft is the one of most technologically advanced turboprop airliners and features a revolutionary noise and vibration suppression system, which makes it one of the quietest, most vibration-free propeller driven aircraft in the sky. The Q400 climb-rates, cruise speeds, and cruise heights gives it parity with the block times of a jet aircraft on the shorter regional routes SpiceJet plans to use this aircraft on.

On most tier II and tier III cities full service carriers are making a killing, charging extremely high fares. A typical fare on a half hour Mangalore Bangalore sector is higher than on a two and half hour Bangalore Delhi sector.

Sridharan indicated that SpiceJet would configure their Q400’s with 78 seats to remain below the 80 seat limit under which the airline will enjoy virtually free aeronautical and landing fees the Indian civil aviation authorities have in place to promote regional air traffic. He also indicated that the airline would initially commence regional services connecting tier II cities with tier I and later expand to tier III – tier I and tier II – tier II / III. To ensure no predation by the incumbents, I feel that SpiceJet should commence each city with a minimum twice-daily flights.

With its fuel consumption being up to 40% lower than jets, the Q400 will also allow SpiceJet to bring back the low pricing model which will expand the customer base that was the keystone of Capt. Gopinath’s strategy at low cost pioneer Air Deccan.

However, by being the only airline to operate the Dash 8-400 in India, there is a potential downside for SpiceJet in terms of a ready pool of qualified cockpit and engineering crew.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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