Chennai: Things may not seem so spicy after all for low-cost budget carrier SpiceJet and its customers. The Kalanidhi Maran-promoted airline has been facing rough weather for quite some time, plagued by numerous issues including losses for five straight quarters, flight cancellations and pilot resignations.
For the past fiscal alone, the airline reported a record loss of a little over Rs 1,000 crore, lost over 40 pilots in the last six months and cut down its Boeing fleet to 26 jets, down from a fleet of 35 earlier this year. High jet-fuel prices, heavy taxation, fierce competition, increasing fleet maintenance and over-capacity on the Indian skies are the key factors compounding the debt of the budget carrier which has payment dues to airports, oil companies and other service providers. The company is a financial mess, posting losses five times higher than the previous year with a total debt of around Rs 1736 crore as on March 2014.
But analysts say that Spicejet is not an isolated case as all Indian carriers are caught in the mire with corporate and retail travel coming down. “The aviation industry is a weak one and it is more so in India where only less than 5 per cent of the total population fly to travel,” said Mr Deep Mukherjee, senior director, Indian Ratings and Research. Aviation turbine fuel (ATF) prices are around 45 per cent to 60 per cent higher in India than other airline hubs in Asia and with ATF eating up 45-50 per cent of the total revenue, it is tough for Indian firms, he added.
However, what is interesting in the Spicejet case is that its new management headed by COO Sanjiv Kapoor, has since October 2013, been shrinking its fleet, workforce and offering discounted fares as low as Rs 500 to fill seats and take on competition from companies such as Air Asia and Indigo. Spicejet managed to reduce its net loss to Rs 310 crore for the second quarter of 2014 against Rs 559 crore for the same period last year. It also saw a 15 percent growth in total revenue in comparison to the same quarter last year.
“The results for Q2FY15 clearly demonstrates the positive impact of Spicejet’s strategy, which is focused on maximizing asset and capacity utilization, thereby maximizing revenues and absorbing fixed costs at a faster rate,” the company said. Spicejet-led market stimulation is what resulted in 28 per cent growth in domestic passenger traffic in India in September, traditionally the weakest traffic month of the year, it added. But what has spooked investors is the red flagging by the airline’s auditors SR Batliboi & Associates in the recent results, casting “doubt about the company’s ability to continue as a going concern.”
Though the airlines promoter, media baron Kalanithi Maran, has pitched in over Rs 1300 crore into the airlines, by increasing his holding to 53.48 per cent from 37.7 per cent in 2010, it is still an uphill task, say industry experts. The airlines may need a war chest of close to $250 million from investors to fly out of its turbulence zone, they add.
