SpiceJet flies into profit Zone, nets Rs 102 crore in Q3, underserved regional cities pays off
SpiceJet bounced back into profitability in the third quarter of FY13 with a profit of overRs100 crore.
The Kalanithi Maran-promoted low-fare carrier posted a profit of Rs102 crore in the quarter versus a loss of Rs39 crore in the previous year, helped by higher passenger yields, demand from passengers in regional cities and a new kind of aircraft that has helped secure tax breaks and lower operating costs.
A new strategy devised more than a year ago to target crowded foreign destinations and underserved regional cities in India also helped boost performance. Shares of Spice-Jet surged 5.01% to Rs46.15 as investors responded to an impressive turnaround.
The results are a shot in the arm for the domestic airline industry which has been buffeted by a cut-throat price war, overcapacity and higher fuel costs for nearly two years now. But in the past six months, SpiceJet and Jet Airways have narrowed their loss and managed to post profits due to an improved industry environment and shrewd strategies. The withdrawal of Kingfisher Airlines from the skies has also helped, pushing up prices.
SpiceJet has narrowed its loss in the second quarter ended September 12 and it was able to sustain its performance in the third quarter as well. Jet Airways, which will release its results in the next few weeks, is expected to post a profit after a loss of Rs286 crore in the yearago period. The Naresh Goyal carrier had posted a smaller loss in the second quarter ended September 12.
“What has actually happened is that we have benefitted from a strategic shift to international operations growth coupled with regional growth,” said Neil Mills, chief executive officer, SpiceJet. “So, while the domestic market has not grown in terms of yields that much, the improvement in yields because of the international operations is huge,” he added.
SpiceJet’s performance was helped by its twin strategies of targeting important overseas destinations and expanding its regional services by flying to a number of underserved cities.
It started flying to Kabul, Afghanistan, Guangzhou, China, Dubai, the UAE, Colombo, Sri Lanka using the 737 aircraft. The heavy traffic from India to some of these cities helped boost volume and SpiceJet also benefited from higher prices.
Using Hyderabad as a base, it also increased the number of smaller, (the so called tier II) cities.
The Bombardier Q400 aircraft is particularly suited for this operation as its smaller capacity helps manage loads and secure tax breaks. Landing and parking charges are exempted for aircraft of this capacity and the sales tax on aviation turbine fuel is also lower, at 4%, compared with 24% and above for bigger aircraft.
According to website of Directorate General of Civil Aviation, SpiceJet’s market share increased to close to 20% in November this fiscal from 16.4% in January last year.
Passenger growth in smaller cities has also been better than most metros. In the last five years, average passenger traffic at 18 domestic airports has grown at a compounded annual growth rate of 25% in comparison with a 9.7% growth metros.
The airline upped its income from operations by 37% toRs1,603 crore and the number of passengers rose 7% across the network despite a fall in the domestic passengers flying the bigger 737 aircraft. Yields, or operating revenue per passenger divided by the number of passengers flown, rose 29% toRs4,412, more than offsetting the 21.34% rise in fuel costs.