SpiceJet Q3 net profit rises to Rs 73.2 crore, boosted by 46.7% operating revenue growth

FE Bureau
SpiceJet Q3 net profit, 737 MAX aircraft, Boeing, Aircraft maintenance, Ajay Singh, latest news on spicejet

The country’s second-largest carrier, SpiceJet, beat street estimates and reported a 32.9% increase in net profit toRs 73.2 crore for the December quarter, boosted by a 46.7% growth in operating revenue. The airline’s management said it has received an interim offer for compensation from American aircraft manufacturer Boeing, on account of the grounding of its 737 MAX aircraft worldwide. SpiceJet, which has 13 grounded MAX aircraft, did not disclose the amount offered as compensation. The airline has factored in claims from Boeing aggregating toRs 537.8 crore so far in this financial year, which is covered entirely by the interim offer, management said.

Bloomberg consensus estimates (of eight analysts) had pegged the third quarter net profit atRs 57.63 crore. Revenue from operations of the airline also beat estimates and stood atRs 3,647.1 crore, againstRs 2,486.8 crore in the comparable period last year. The airline’s capacity (measured in available seat kilometres) grew 59% y-o-y in 2019 despite the grounding of the 737 MAX since March 2019. The average domestic load factor for the quarter stood at 91.6%.

For the third consecutive quarter, SpiceJet has factored in claims towards costs and losses on account of grounding of 13 737 MAX aircraft. During the December quarter, the company recorded claims worthRs 246.41 crore as a part of its other income, which consequently grew six-fold annually toRs 270.20 crore. "We were expecting the MAX to return to service by January 2020, but that hasn't happened. The continued grounding and the delay in its return to service has undoubtedly hit our growth plans adversely and resulted in inefficient operations and increased costs. That said, SpiceJet expects to grow profitably while maintaining a tight control over costs," said Ajay Singh, chairman and MD, SpiceJet.

A bad festive season put pressure on yields, said Kiran Koteshwar, chief financial officer, SpiceJet. Additionally, the airline’s yields were under pressure during the quarter. Average fare only grew 4% toRs 4,452. "Yields were under pressure because October was bad, but December was good. If we had a good October-November, I think it would have been much better," Koteshwar said.

The airlines’s earnings before interest, tax, depreciating, amortisation and rentals (Ebitdar) grew 59% toRs 761.6 crore. Meanwhile, Ebitdar margin remained flat y-o-y at 19% during the December quarter. Aviation turbine fuel expenses during the quarter rose 38% y-o-y toRs 1,340.7 crore. Fuel cost should not be a problem if it remains in the $60-67 per barrel range. Aircraft maintenance costs increased 63% y-o-y toRs 627.6 crore. However, lease rentals fell 70% toRs 102.5 crore, helped by a change in accounting method.

The results for the quarter were impacted by the company adopting the Ind AS 116 accounting. "In the statement of profit and loss, the nature of expenses in respect of leases has changed from lease rent in the earlier periods to depreciation cost on the ROU (right of use) asset and finance cost on lease liability as per lnd AS 116," the company said. The new accounting standards resulted in aRs 402.12-crore increase in depreciation expense andRs 111.75-crore increase in finance costs. Meanwhile, exchange gains saw aRs 75.93-crore impact and lease expenses were lower byRs 522.67 crore. Without a non-cash forex charge on account of Ind AS 116, the airline’s profit would have beenRs 190.1 crore, it said in a release.

During the quarter, SpiceJet added only six aircraft to its fleet. Koteshwar said the company does not have much visibility on capacity addition till the MAX aircraft return to service, and will be doing small additions. On the compensation for the grounded aircraft, Koteshwar said negotiations are ongoing. "It is an interim offer, which is under discussion… Whatever we have provided for, theRs 537-crore, we have provided for till now, that has been covered by the interim offer," he said.