The SpiceJet Ltd, India’s second largest low-cost airline, seems to be in dire straits. The airline posted a loss of about INR 310.4 crore in the July-September 2014 quarter, its fifth consecutive quarterly loss. Though 45 percent less than the loss reported in the previous quarter (about INR 559.49 crore), this news comes as a major disappointment to shareholders given that the fuel costs were significantly lower this year. The slump in Brent Crude prices has brought down the price of ATF (Aviation Turbine Fuel) used by the airlines quite considerably. Fuel costs account for about 40 to 50 percent of the operational costs of an airline. The appreciation of the Indian rupee against the US dollar did not help like it should have either. The airline reported that it had incurred a one-time expense of INR 75 crore owing to restructuring the organization in the quarter.
Pilots quit SpiceJet
Apart from the financials, the Kalanidhi Maran owned budget airline seems to face another major concern. Over 40 pilots have been reported to have quit SpiceJet in the past six months. Some of these are also commanders, leading up to much speculation over the organization’s stability. The company’s total liabilities are estimated to be about INR 1,459.7 crore and lack of faith in the organization’s financial stability is probably the cause for losing its flight crew.
Last year the low-cost airline is reported to have reduced its fleet strength from 53 to 46 although the company’s website still mentions the fleet strength as 53. Fears that SpiceJet will have to take resort to large-scale downsizing if the company does not receive a healthy dose of funding and investment in the near future is a major concern for the airline’s staff.
In need of funding
With a change in management earlier this year, SpiceJet has been working hard at filling in most of the vacant seats on board its flights by offering a large number of discounts and promotional offers. According to the Economic Times, these discounts and offerings have resulted in the load factor going up 19 percent and the revenue per available seat kilometre going up by 12 percent in comparison with the same quarter in the last fiscal year.
Industry experts agree that SpiceJet needs immediate funding to help reorganize the company, help in planning the turnaround the new management has promised stakeholders. Industry experts also believe that the company will require about USD 150-175 million in immediate funding to take the steam off at the moment.
Auditors pessimistic
Despite having posted five straight quarters of losses, SpiceJet is hopeful of making a turnaround by 2015. Sanjiv Kapoor, Chief Operating Officer of the airline, has gone on record to commit to cost cutting efforts while trying to find investors to pump in additional funds and boost the company. Kapoor has assured the stakeholders that the company continues to hold talks for recapitalization and to find further funding.
SpiceJet’s auditors SR Batliboi and Associates LP, however, still continue to remain concerned. They have pointed out that the company’s liabilities outdo its assets by about INR 1,460 crore. The company’s very ability to survive is in question, if we are to go by their concerns. Kapoor also let it be known that the airline intended to acquire more aircrafts and was likely to own about 35 Boeing planes and 45 Boeing 737 planes by the end of this year.
Sinking share value
SpiceJet has not traded on NSE for over a month and the November 17, 2013 BSE closing stood at 13.82 a share. A plunge of about 11 percent after the declaration of the 2014-15 Q2 results caused the investors much worry. One of the biggest concerns is that SpiceJet may soon go the KingFisher Airlines way. Immersed in debts, KingFisher Airlines has not reported its financial results for three quarters. On the other hand, Jet Airways has made a turnaround with Etihad Airways pumping in much needed funds. The airline reported its first profitable quarter in almost two years.
