Hit by high maintenance costs, SpiceJet posts modest profit

Budget carrier SpiceJet posted a modest profit of Rs 51 crore for the first quarter ended June 30, 2013, a 10 per cent dip compared to Rs 56 crore for the corresponding quarter last year.

The airline saw increased revenues of Rs 1,704 crore, up 16 per cent on a quarter-on-quarter basis from Rs 1,467 crore. In a filing to the stock exchange, the airline said it was able to control fuel costs by bringing in stringent cost control mechanisms, and better realisations from its overseas routes which lowered fuel costs to 43 per cent of total revenues against 46 per cent in the previous quarter.

The airline also said that had if it factored in the interest cost on corporate deposits of Rs 7.5 crore taken by the company in previous years, the net profit for the first quarter would have been lower by the same amount, bringing the actual net profit figure down to about Rs 44 crore instead of Rs 51 crore.

A worrying sign for SpiceJet, however, is the increased expense on aircraft maintenance on account of its newly acquired aircraft from Bombardier, the regional jets Q400s. SpiceJet had to spend almost 11 per cent of its revenues earned under this head.

Though maintenance costs have come down on a month-on-month basis, they are still high at Rs 199 crore for an airline of SpiceJet's size for a single quarter. The airline has a fleet of 41 Boeing 737s and 15 Q400s.

Jet Airways, in its annual report for 2012, puts its annual maintenance costs at Rs 1,457 crore. Jet has a fleet size of over 100 aircraft.

SpiceJet saw a quarter-on-quarter jump of 48 per cent in its maintenance costs, roughly one-third of its costs under this single head. "SpiceJet is facing huge cost issues on account of higher maintenance outflow because of the Bombardiers being added to its fleet," said a top official of a rival airline not wanting to be identified.

SpiceJet added the Q400s to its fleet to expand its operations and target the growing market in Tier II and Tier III cities.

Another worry for SpiceJet is its slipping load factor. This has come down to 77 per cent from 80 per cent in the corresponding quarter last year. However, SpiceJet has been able to increase its yield by five per cent to Rs 4,278 crore from Rs 4,068 crore. No doubt, SpiceJet - like its rivals - had one airline less to compete with as Kingfisher Airlines is currently grounded.

SpiceJet officials said the airline continues to explore new opportunities for business growth and to improve fleet utilizations. It will add aggressively to its international network and implement multiple initiatives with a view to controlling the overall cost of doing business.

But the airline also indicated the continued pressure on margins due to currency depreciation and higher crude prices continue to exert pressure on margins.

SpiceJet shares fell marginally to close at Rs 25.60 at the BSE on Monday after trading 1.94 per cent higher at Rs 26.25 in afternoon trade.