SpiceJet is staring at another quarter of losses as air travel continues to remain dull

• According to Elara Securities, SpiceJet is likely to report losses worth ₹150 crore. Its revenue is estimated to decline by nearly 61.2% in the quarter under review.
• SpiceJet carried nearly 77% fewer passengers in the second quarter compared to last year.
• SpiceJet's losses in the last two quarters are 65% more than the profit over the past 10 quarters.

The pandemic slump continues to weigh on the aviation sector. After IndiGo reported losses in its second quarterly earnings — its other listed peer SpiceJet is also slated to follow the same path.

According to Elara Securities, SpiceJet’s net loss is expected to contract on a quarterly basis due to ramped up operations and lower fuel cost. However, on a yearly basis, t is slated to report a loss of ₹150 crore. The revenue from operations is estimated to decline by nearly 61.2% in the quarter under review.

Pain point: Fewer people boarded flights in the second quarter

The pessimism and stigma around air travel continued to hamper the business of the aviation industry, and SpiceJet wasn’t immune to it. SpiceJet carried nearly 77% fewer passengers in the second quarter compared to last year. According to the Directorate General of Civil Aviation (DGCA), India’s domestic air passenger traffic crashed over 58.39% in September on a year-on-year basis. Despite the fact that SpiceJet held the second-largest share in the market at nearly 14%.

Prabhudas Lilladher report also highlighted that while the cap on airlines capacity was increased to 60% by September, the scale-up of operations remained below expectations due to ‘localized lockdowns, slot restrictions at major airports and low consumer confidence.’

Additional challenges

Apart from travel restrictions, the budget carrier had additional challenges to deal with in the form of restricted ticket pricing, classified on the basis of flight duration.

What may cushion SpiceJet’s margin?

While a loss is priced in for the airline, analysts believe that factors like low ATF prices, scaled cargo operations, renegotiating rentals and maintenance contracts may aid its margins.

Low fuel cost

Air 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, around 30% fall in Brent crude and domestic ATF prices (YoY) lead to lower fuel costs.

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

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 may turn out to be a silver lining. In the quarter ended June 30, despite revenue decline, the company recorded a growth of 144% Q-o-Q.

Spicejet’s weak performance leaves investors’ in a lurch

After two consecutive weak quarters, SpiceJet investors’ are looking for signs of recovery. SpiceJet's losses in the last two quarters is 65% more than the profit over the past ten quarters.

And that is the reason even the share price has seen a subdued performance in the past quarter. The stock is up just 2% since the beginning of the second quarter. And, if we exclude today gain — that came on the back of vaccine news — the share price was down 0.30% since June 30.

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