Cost controls burnish airline metrics

Bangalore: When budget carrier SpiceJet reported a net profit of Rs 26.3 crore at an average operating load factor of 76% in the June quarter, a senior executive of a leading private full service airline suspected something was amiss.
"At 75-76% load factor, it is technically impossible to make money (at today's yield). You need minimum 80-85% load factor to make money. They (SpiceJet) must have deferred some costs or must have got credit incentive from manufacturer or some extraordinary income (to make that profit)," he said.
But SpiceJet's profit and loss account had no such item, not even aircraft sale and leaseback, an income airlines normally use to prop up bottomlines.
Samyukth Sridharan, chief commercial officer of SpiceJet said falling operational cost had brought down the breakeven load factor drastically.
In short, as operational costs came down, led largely by lower fuel expenses, the airline needed fewer passengers to break even.
A lower breakeven load factor made it easier for SpiceJet to register a profit even at 76% operating seat factor, when its yield for the quarter was just Rs 2,960 per passenger.
In contrast, a budget airline executive said, the average yield in the no-frill segment last year was close to Rs 4,000 per passenger and the breakeven load factor was between 75% and 80%. Despite that, airlines could not be profitable as operational costs soared.
In fact, most airlines have seen their breakeven load factor drop in June as operational costs fell. Full service carrier Jet Airways' breakeven load factor, for one, fell to 84.9% from 90% a year ago.
This, an analyst who did want to be named, said, was because the Naresh Goyal-owned airline's total expenditure on its domestic sector fell 33.2%.
31/07/09 Praveena Sharma/Daily News & Analysis

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Categories: Indian Aviation- In General Jul 2009