SpiceJet net down 13% on high fuel costs

Just when it looked like airlines were flying out of the turbulence zone, budget airline SpiceJet sprung a negative surprise on Thursday by reporting a 13.3% dip in its net profit in the quarter ended December 31 at Rs94.45 crore against Rs108.94 crore in the same period last year.

Analysts said the decline in the net was on account of higher fuel costs and flat yield.

“While we had factored in higher fuel costs, the stagnant yield has come as a negative surprise because December quarter, which is a strongest quarter in a year, always has a higher yield than September quarter,” said an analyst with a domestic broking house, who did not want to be named.

He said the yield derived on the basis of revenue per passenger kilometre (RPKM) in the third quarter was Rs3.45 compared with Rs3.46 in the second quarter.
In fiscal 2010, the yield in the third quarter had moved up to Rs3.50 per RPKM from Rs2.76 in the previous quarter.

Ankur Bhatia, executive director of travel conglomerate Bird Group, said it was difficult to pinpoint a reason for the flat yields.

“SpiceJet’s seat factor was 87.8% in the quarter so it is difficult to fathom why its yield has remained flat,” he said.

Bhatia, however, said that going by the initial passenger numbers in the January there is a visible trend of slower demand growth in the aviation market.

“It (demand growth) is lower compared to same month last year,” he said.
Neil Mills, chief executive officer (CEO) of SpiceJet, said he was happy with market yields.

“We are also pleased that the yields in the market remained stable despite an increase of 11% in the market domestic seat capacity,” he said.

Despite a lower profit growth, SpiceJet’s net sales climbed 26% to Rs820 crore
from Rs647 crore. During the same quarter, the airline’s fuel costs rose about 48% to Rs310 crore.

Last quarter saw Jet Airways, Kingfisher and Air India, which together account for 62.4% of total capacity in the domestic segment, increase ticket prices by Rs100 for distances less than 750km and Rs200 for distances above 750km effective from this month to offset impact of higher aviation turbine fuel (ATF).

Low-cost airlines, however, did not go for a similar hike in fuel surcharge as they were better prepared to take the hit of higher fuel on account of high seat factor.