SpiceJet reports 2Q loss in a structurally challenged India domestic market

Negatively impacted by high fuel prices, a weakening rupee and an “irrational” pricing environment in the domestic Indian market, SpiceJet reported an INR2.4 billion (USD48.0 million) net loss and loss before tax in the three months ended 30-Sep-2011 (2QFY2012). This marked a large and negative turnaround from profits of INR101.1 million (USD2.5 million) and INR126.3 million (USD2.0 million) respectively in 2QFY2011. The record quarterly loss occurred despite a 22% increase in revenue to INR76.6 billion (USD153 million) and came amid weakening yields in the pressured domestic Indian market.

SpiceJet’s results are indicative of the Indian aviation industry as a whole, which is currently heavily unprofitable and facing considerable structure challenges. CEO Neil Mills stated “the industry as well as SpiceJet are struggling for the past 6-8 months because of high crude prices, a weak rupee and irrational pricing from one of our competitors”. In the highly-competitive, yet rapidly-expanding markets, fares are being sold below cost in recent months, while airlines’ costs bases have increased, creating significant pressures on yields and profitability. [3100 words]

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This report contains the following subheadings:

• Fuel costs constitute 63% of total revenue in 2QFY2012
• Yield and load factors weaken
• Almost debt free, with no mounting liability issues and a healthy balance sheet
• 28% growth in passenger numbers; market share expands to 14%
• Expansion through Q400 regional operations
• Hyderabad as first regional hub. SpiceJet planning five more regional hubs
• Q400s a ‘game changer’ for SpiceJet
• Committed to LCC model
• Expanding international presence with plans to create partnerships with other international LCCs
• Unprofitable but better placed than some of its peers

This report contains the following charts and tables:

• SpiceJet financial highlights for three months ended 30-Sep-2011
• SpiceJet operating profit margin and net profit margin: 2QFY2011 vs 2QFY2012
• SpiceJet operating costs growth: 2QFY2012