SpiceJet posts record Rs. 559 crore loss in Q2 FY2014. Needs urgent capital infusion.

by Devesh Agarwal

Gurgaon based low fare carrier SpiceJet Ltd., continued the record of disastrous performance in the Indian airline industry when it announced a record Rs. 559 crore loss for the second quarter, ended September 30, of the fiscal year 2013~2014.

This compared to the Rs. 163.5 crore loss from the same quarter last fiscal, and a Rs. 50.5 crore profit from the first quarter of this fiscal.

On October 23, India’s largest private carrier Jet Airways reported a monstrous loss of almost Rs. 1,000 crore.

The airline blamed the poor performance on the precipitous drop in the exchange of the Indian Rupee vs the US Dollar which occurred in the quarter and contributed Rs. 42 crore to losses. In a statement released late this evening, it said

“The civil aviation sector in India continues to struggle under the burden of several adversities mainly the Indian rupee that saw unprecedented weakness during the quarter,”

Poor demand due to a slowing economy saw a drop in income to Rs. 1,257.22 crore from Rs. 1,701.543 crore in the first quarter, though marginally better from Rs. 1,185.244 crore from the same quarter last fiscal. A 9% growth in number of passengers out-stripped the 17% increase in capacity measured in available seat kilometres (ASK), resulting in a 7% in average passenger yields from Rs. 4,001 to Rs. 3,711. Desperate sales at cut-throat fares have also taken their toll.

A lack of capacity discipline by virtually every Indian carrier, especially domestic leader IndiGo, and Jet Airways, continues to exasperate the soft demand situation, and we see the same indiscriminate financial indiscipline as we did in 2008.

Expenses shot up to Rs. 1,791.623 crore against Rs. 1,641.933 in the first quarter, and Rs. 1,357.305 crore from the same quarter last fiscal. Aircraft maintenance costs shot up almost 64% from Rs. 199 crore to Rs. 325 crore largely driven by Rs. 78 crores in engine maintenance expenses due to a bunching up of shop visits.

Fuel costs fell from 45% of total expenses to 39.7% but thanks to the plunge in income, increased from 43.8% to 57% of income.

Continuing losses have put the airline in a precarious financial position. It is estimated the airline requires a minimum Rs. 1,500 crore capital infusion. While the airline has announced the appointment of Sanjiv Kapoor, the former chief executive of GMG Airlines of Bangladesh, as its Chief Operating Officer, it still lacks a Chief Executive, since the departure of Neil Mills, nearly three months ago.

The silver lining for SpiceJet is that parts of the third quarter and the fourth quarter sees high air travel due to the festival season and returning Indian travel.

The supply-demand imbalance is heading for a precipice with expected the commencement of new airlines AirAsia India, and Tata-SIA.

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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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