SpiceJet net jumps 21.8% on Jet Airways tailwind

SpiceJet on Tuesday reported a 21.8% year-on-year jump in its net profit for the fourth quarter of the last fiscal as it benefited from the rise in fares due to the grounding of Jet Airways.

For the full fiscal 2019, the company reported a loss of Rs 316.1 crore. The airline has blamed the grounding of its Boeing 737 Max planes, increase in fuel prices and currency depreciation as reasons for the annual loss.

The development comes a day after InterGlobe Aviation, the parent of India's top airline IndiGo, reported a 401% jump in its net profit at Rs 589.6 crore for the January-March quarter, despite its net profit falling 93% year on year to Rs 156.1 crore over the previous fiscal. IndiGo, too, had said it benefited from Jet collapse in the last quarter.

SpiceJet's revenue from operations rose 25% year on year to Rs 2,477.75 crore during the quarter under review. The carrier said it posted a strong recovery in the last two quarters after suffering a loss of Rs 427.5 crore in the first two quarters due to a steep increase in fuel costs and sudden depreciation of the rupee. There was a 25% increase in aviation turbine fuel prices while the rupee fell 9%, resulting in cost escalations of Rs 695 crore and Rs 285 crore, respectively, the carrier said in a statement.

"This recovery comes despite the unprecedented challenges we faced during the March quarter which saw the grounding of as many as 13 of our MAX planes," Ajay Singh, its chairman and managing director, said. The airline had to ground its fleet of Boeing 737 planes in March following air crashes overseas involving aircraft of the same make.

According to analysts, the suspension of Jet operations on April 17 provided SpiceJet with an opportunity to lease 28 aircraft operated by the latter. The low-cost carrier also quickly added more through wet lease in order to tap on the increased fares caused due to sudden vacuum in capacity. Since April 1, the airline announced 106 new flights, including 73 flights connecting Mumbai, 16 flights connecting Delhi and eight connecting Mumbai and Delhi. Its fleet size now stands at 100.

Since the leased planes operated earlier by Jet Airways come with a different seat configuration and even 12 business class seats, SpiceJet, a no-frills carrier, is now toying with the hybrid model. It is offering business class seats at a higher price as sold traditionally by full-cost carriers. As the airline charts into unknown territory, the airline management said that they are keeping an eye on its profitability and may take a "hard look" at the business class seats post the peak season, which ends in June.

Despite the headwinds, Ajay Singh looks upbeat about the future. "With a massive fleet expansion this fiscal, a favourable operating environment, a likely return of the B737 MAX in July, significant improvements in yields and prime slots at key airports, we are confident of a strong performance for FY2020," he said. Further, the airline is expecting compensation from Boeing in the current financial year for the grounded planes, the SpiceJet executives said.

Analysts said the grounding of Jet will surely help in improving the yields of the rival airlines as is seen with the declared results of IndiGo and SpiceJet. The financial numbers of rivals GoAir, Vistara, Air India and others are not available as these are not listed companies.

Kinjal Shah, VP and co-head, corporate sector ratings, Icra, in her latest report, said, "While the increased airfares are likely to support the profitability of the airlines in an environment of high costs, the impact on the passenger growth does not bode well for the industry." The skyrocketing fares following the Jet grounding have led to domestic passenger numbers dropping 4.5% in April, after a torrid 20% average year-on-year growth for five years.