In
September’12 the Indian Government, approved 49% FDI in Indian Airlines.
Kingfisher was already in a holding pattern, trying desperately to get whatever
help it can, after not having paid its employees for a considerable period of
time, Jet Airways had a debt burden which kept mounting every quarter, IndiGo
continued to report profits, and Go Air for once was expanding, consolidating
and claiming profits. But a question to anybody in the industry or outside on
who is better placed for getting investments – ended up with unanimous answer –
SpiceJet. The airline had declared profits in Q1 (Apr-Jun 2012), exceptionally
reduced losses in Q2 YoY (Jul-Sep 2012) and was expanding rapidly on domestic routes
and launching international stations.
The Q400s had arrived and crisscrossed south
and north of the country, Blue Skies policy on international route led to
launching flights to places as far as Guangzhou – a first for Indian carrier,
Kabul – Another first for a private Indian carrier, and between some
unconnected city pairs – Ahmedabad – Muscat, Madurai – Colombo and so on.
Circa
- 2014, and a lot of water has flown under the bridge for SpiceJet. It remains
a mystery as to how and why Spicejet lost the plot and from being the most
suited bride, is now struggling to find a match and as many believe, struggling
to stay afloat.
A
lot of parallels are being drawn with Kingfisher, but luckily salaries still
are on time, International flights have not been pulled out after the initial
network rejig, tax issue has been amicably solved, and the top management is
ensuring that morale of the work force is high with constant presence on
twitter, denying negative reports and introduction of new product and weekend
uniforms. However, few aircraft are grounded and robbed for spares, At least 3
of 6 B737-900s returned to lessor and at least 4 B737-800s being returned to
lessor in the past few weeks, with rumors of employees constantly looking out
for opportunities.
The
re-delivery of aircraft and grounding, along with the unfortunate “Buffalo”
incident at Surat, the schedule and On Time Performance has gone for a toss,
with regular delays across domestic network. The airline has skillfully managed
to avoid negative publicity due to these delays and has ensured that
international flights are not delayed.
The
July – August, traditionally weak quarter, saw frequent sales by SpiceJet
shoring up revenues, Load Factors and constant information by top management on
RASK improvements across all platforms. While a common passenger may not even
be aware about RASK, he or she is more than happy to have cheap tickets to
travel and that has helped shore up Loads for the airline, which is giving it
its much needed cash to meet operational expenditure if rumors are to be
believed. The airline has not announced sale for a long time now.
The
airline carried 32.83 Lakh passengers in Q2, which is a tad lower than much
larger Jet Airways which carried 33.76 Lakh along with its subsidiary
JetKonnect. With a market share of 19.6%, this was the best quarter in calendar
year 2014.
The
last Annual report talked about increased frequencies, improved OTP & Spare
Capacity, none of which has been possible, due to grounding of aircraft and
return to lessors. In fact, for the first time in its history, SpiceJet became
the smallest carrier in Mumbai with least number of departures.
However the results do show some positive signs, but a lot needs to be done for the airline to survive and the recent spate of re-delivery, cancellations, rescheduling is not making it favorite with the passengers.
Issue
of warrants to the promoter group should pump in some “much needed” equity into
the firm after red flags by auditors over ‘going concern’ status in the
previous quarters. The proceeds have been used to for working capital. Yet,
currently the Liabilities outweigh the Assets by INR 1498.6 Cr. & it
continues to be a concern.
On
operational front, inspiring figures are forthcoming (as compared to previous
Quarters) with capacity up 7.0%, RASK up 12.0% and CASK down 7.0%. The impact
of fuel costs reduction wasn’t felt and exchange rate benefits were minimal and
hence, these figures are notable. But
One example, I keep giving to show the gravity of this is when Infosys says that their utilization of resources is 70%, which sounds good but when you translate that to absolute number, it means about 35,000 employees are on bench without work, which indeed is a vast workforce!
Impressive
growth in Other Income driven by ancillary revenues. Stands at Rs. 28.09 Cr.
which represents a 70.4% growth Q-o-Q and 127.1% growth Y-o-Y. Hints at not
only the success of avenues like SpiceMax suite, where the price conscious
Indian is waking up to being charged for added benefits. Operating Revenues at INR
1425 Cr. clocked a growth of 16.4% Y-o-Y, which is extremely striking for a
traditionally weak quarter.
Going
ahead, the return of aircraft to lessors, should help reduce Aircraft Lease
Rentals and Aircraft Maintenance Costs, though might see a temporary increase
in Aircraft Redelivery Expenses which have increased to INR 64.1 Cr. for H1 FY
15 as compared to INR 10.3 Cr. for H1 FY 14. However, this is likely to further reduce capacity and if schedule is not altered and reduced in line with capacity, unlike what is the case now, SpiceJet could be at receiving end from the passengers who are facing severe delays in many cases.
Reasons to Smile
Increase in Load Factor
Drop in Fuel Prices
Some Worries
Re-delivery of aircraft leading to reduced capacity
Impact on On Time Performance and loss of high yielding business travellers
5 straight quarters of losses at a time when the airline needs funds desperately
Auditors concerns
Outlook for Q3
Historically,
Q-o-Q operational revenue growth for Q3 over Q2 has varied from 30.0-50.0%.
Considering a fair 25.0% growth in revenue in Q3 to around INR 1800 Cr. (Q3 FY
14 revenue at INR 1796.3 Cr.) should help in churning out an operational
profit.
However, there will be a significant drop in capacity due to re-delivery of aircraft and thus the historic impact may not be seen this year.
SpiceJet should rest speculation on the fleet, and if there is a fleet plan in place, announce the same in public along with reduction in flights. Misinformation can be deadly, but No information can be deadlier and currently its heading into a phase of No information.
Conclusion
Will operating profits or huge equity investments come true before worries about going concern becomes troublesome? Only future will tell.
"A bankruptcy judge can fix your balance sheet, but he cannot fix your company" - Gorden Bethune, ex-CEO Continental ---------------------------------------------------------------------------------------------------------------------------------------------------
Co-Author : Prathamesh Kini
No comments:
Post a Comment