Spicejet is losing one rupee where it was losing four thanks to cheaper fuel and cut in rentals

• Spicejet reported a net loss of ₹112.59 crores for the quarter ended September 30, compared to ₹462.58 crore in the same quarter last year.
• The company has cut down significantly on its expenses — down 60% compared to the same quarter last year.
• The company has also renegotiated its rental contracts after the government capped domestic operations due to the outbreak. Its aircraft rental expense is down 47% compared to the same quarter last year.

SpiceJet carried less than fourth of the passengers between July and September 2020 than it did in the same time last year. Yet, it managed to shrink its losses to ₹112.59 crore, compared to ₹462.58 crore in the same quarter last year.

The latest quarterly loss also significantly lower compared to the loss of ₹593.4 crore in the preceding 3 months, thanks to the 60% fall in overall expenses. The company’s total revenue took a massive hit and was down 63% YoY to ₹274.1 crore compared to ₹1054.98 crore in the same period last year.

What helped SpiceJet to cut down on losses?

The company renegotiated its rental contracts after the government capped domestic operations due to the outbreak. Its aircraft rental expense is down 47% compared to the same quarter last year. "What we have managed to do in the last few months will have a significant long term impact,” said Ajay Singh, chairman and managing director, SpiceJet.

Aviation turbine fuel is one of the significant cost factors for airlines forming nearly 40% of the total cost for domestic airlines. According to analysts at Centrum Broking, Brent crude, and therefore domestic ATF prices, were down 30% compared to a year earlier.

A BoB Capital report highlighted that for every US$5 change in crude, EBITDA margins move inversely by 350bps for airlines. 100 basis points make for a percent.

Scaled cargo operations

SpiceJet is India’s largest cargo operator, and with passenger traffic taking a hit in the past ten months, SpiceJet has rigorously scaled its cargo operations. And, in the second quarter, its cargo operation turned out to be a silver lining. In the second quarter, the company recorded a 61% growth in its revenue to ₹328.54 crore.

The SpiceJet share price has seen a subdued performance in the past quarter. The stock is up just 9% since the beginning of the second quarter — including 6% gains that came in the later half of trading on November 11, just before the latest earnings were announced.

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