SpiceJet may post decent earnings with cheap fuel and funds
The listed airline, controlled by Ajay Singh since January, posted profits of Rs 71 crore in the June 2015 quarter thanks to a drop in oil price.
ET Intelligence Group: Is SpiceJet on the cusp of a turnaround? It’s a question that could be on the minds of many investors with fundamentals and circumstances going in favour of the low-cost carrier. The listed airline, controlled by Ajay Singh since January, posted profits of Rs 71 crore in the June 2015 quarter thanks to a drop in oil price. An old hand in the aviation business has pledged 33 per cent of his stake to banks to raise money to repay loans. This was after a consortium of investors he led infused Rs 800 crore in the company.
The cash helped SpiceJet lower its debt to Rs 1,100 crore from Rs 2,000 crore. Post fund infusion, the airline’s focus has been to contain costs and improve ancillary revenues (earnings from cargoes etc) which have grown to 13 per cent of the top line from 6 per cent six months ago. Also, the company has stopped acquiring aircraft aggressively. Coupled with this was a 21 per cent surge in passenger traffic between January and August and more than 92 per cent load factor (occupancy) since July compared with rival Indigo’s 76.8 per cent.
In all likelihood the company should record decent earnings for the September quarter which has traditionally been a slow season.
Buoyed by cheaper fuel, SpiceJet, like other low-cost carriers, has been attracting train travellers with new schemes. If commodity futures are any indication, SpiceJet will continue to have some tailwind. According to Bloomberg data, crude oil prices, which have been close to $52 a barrel, are not expected to cross $60 this fiscal. Typically, airlines tend to gain as long as crude is below $90. As of FY15, fuel expenses formed 46 per cent of total sales for SpiceJet.
In the June 2015 quarter, SpiceJet recorded 8.7 per cent operating profit margins. (Any efficiently-run low cost airline generates operating margins of 6-7 per cent.)
The SpiceJet stock has gained over 30 per cent since June end. In the past four years, SpiceJet had suffered losses in every September-end quarter. Chances are it could be different this time.
The cash helped SpiceJet lower its debt to Rs 1,100 crore from Rs 2,000 crore. Post fund infusion, the airline’s focus has been to contain costs and improve ancillary revenues (earnings from cargoes etc) which have grown to 13 per cent of the top line from 6 per cent six months ago. Also, the company has stopped acquiring aircraft aggressively. Coupled with this was a 21 per cent surge in passenger traffic between January and August and more than 92 per cent load factor (occupancy) since July compared with rival Indigo’s 76.8 per cent.
In all likelihood the company should record decent earnings for the September quarter which has traditionally been a slow season.
Buoyed by cheaper fuel, SpiceJet, like other low-cost carriers, has been attracting train travellers with new schemes. If commodity futures are any indication, SpiceJet will continue to have some tailwind. According to Bloomberg data, crude oil prices, which have been close to $52 a barrel, are not expected to cross $60 this fiscal. Typically, airlines tend to gain as long as crude is below $90. As of FY15, fuel expenses formed 46 per cent of total sales for SpiceJet.
In the June 2015 quarter, SpiceJet recorded 8.7 per cent operating profit margins. (Any efficiently-run low cost airline generates operating margins of 6-7 per cent.)
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The SpiceJet stock has gained over 30 per cent since June end. In the past four years, SpiceJet had suffered losses in every September-end quarter. Chances are it could be different this time.
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