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Spicejet Q2 - Absolute Analysis

 
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ameya
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Joined: 09 May 2007
Posts: 3560
Location: Pune,Maharashtra

PostPosted: Thu Nov 20, 2014 11:18 am    Post subject: Spicejet Q2 - Absolute Analysis Reply with quote

The article is available on the blog post Spicejet Q2 - Absolute Analysis

As SpiceJet declared results late on Friday evening, it was met with criticism from all Quarters. Prathamesh & I wrote a blog post Down but not out - Analyzing SpiceJet Q2 . The top management led by COO Mr. Kapoor alleged that the media was covering the negatives more than the positives and as more and more people joined in, issues started getting mixed with many clubbing operations & finance. Prathamesh was the first to say that these issues should not be mixed.

Percentage can be deceiving as noted in the blog post and with many others; I was on the forefront to request SpiceJet COO Mr.Sanjiv Kapoor, on twitter, to declare results similar to those declared by Jet Airways. Spicejet indeed published the additional data this afternoon, which shows the absolute numbers for few critical parameters like average revenue per passenger, CASK, RASK, ASKM.

The 12% increase in RASK is due to maintaining a balance of 9% reduction in average fare per passenger and 19% growth in Load Factor.

The most significant of these is a positive EBITDAR (Earnings before Interest, Taxes, Depreciation, Amortization, & Restructuring) or simply Revenue Expenses. The reduction in capacity in the last few weeks, also looks like an effort to drop CASK faster than drop in RASK (Due to Cancellations). This will lead to combining flights on a smaller fleet with minimal cancellations to ensure that revenues outpace costs. Excluding fuel, the reduction of CASK from 2.62 to 2.31 has been fast and with further reduction in fuel costs, the overall number should come down too.

Indeed this has to translate into some key parameters and updating reasons to cheer, points to ponder over and Outlook for Q3

Reasons to Cheer
Increase in Load Factors
RASK up 12%
CASK down 7%
Load Factor up 19%
Reduced Losses YoY
All this will translate into increased chances of finding an investor, either an airline or VC

Points to Ponder over
Re-delivery of aircraft leading to reduced capacity
Impact on On Time Performance and loss of high yielding business travelers
5 straight quarters of losses at a time when the airline needs funds desperately
Auditors concerns

Outlook for Q3

Historically, Q-o-Q operational revenue growth for Q3 over Q2 has varied from 30 - 50 %. Considering a fair 25% growth in revenue in Q3 to around INR 1800 Cr. (Q3 FY 14 revenue at INR 1796.3 Cr.) should help in churning out an operational profit. However, with the increase in cost aircraft re-delivery, the operational profit could be under pressure.

However, there will be a significant drop in capacity due to re-delivery of aircraft and thus the historic impact may not be seen this year. By latest counts, 4 B737-900 and 6 B737-800 have been returned in the last 8 10 weeks. This is a reduction of 2400 seats a day, considering a conservative estimate of 6 flights a day per aircraft. This reduction in capacity coupled with fares sold cheap during the multiple sale periods, leading to cancellations and combining of flights could well prove a difficult thing to manage from the revenue perspective. The planned seats to be sold at higher rates closer to departure, well may not be around because flights have been clubbed.
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sumantra
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Joined: 28 Oct 2007
Posts: 4423
Location: New Delhi

PostPosted: Thu Nov 20, 2014 7:34 pm    Post subject: Reply with quote

Ameya+Prathamesh: thanks once again. My reply is essentially the same as in the email I had sent you both.
I am not sure I understand the math and the figures much, unfortunately.
In plain terms, I do not.
As an interested passenger, I read the summary with interest, and will not
be that worried as a flyer, given your points.
Do you both really see anyone trying to buy out SG? The Marans are astute
businessmen, and they would have found someone by now. VC...in this era of
severe depression? Wilbur Ross was almost an era ago. I am personally not
much hopeful of someone trying to take over SG, though all this is from the
comfort of my armchair. I do not understand figures and the math, and am
also bad at drawing conclusions.
The Batliboi concern is indeed quite damning, which indices some concers, as
a traveller on SG, since they conver some destinations which others do not
read, AI does not). SG still does not command high priced seats close to
departure times, even for the lucrative DEL-BOM sector: an acquaintance was
looking at non-AI options, and was shocked to see 5k next-day fares.
The least was SG, consistently.
This again, gets me a bit worried, as a passenger.

Thanks for the analysis again: this helps me draw a perspective from the
comfort of my armchair, as a not-that-infrequent traveller!
Cheers, Sumantra.
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