SpiceJet caught in air pocket

SpiceJet CEO Neil Mills is upbeat about his airline. “We are in a comfortable zone. I am not worried about a decline in loads as long as revenue increases,” he says.
But not many share Mills’ enthusiasm. And there are enough reasons for that. After two consecutive years of profit, SpiceJet has been slipping on the financial front. The airline ended FY 2010 and 2011 with net profit of Rs 61 crore and Rs 101 crore, respectively, but has posted losses in four consecutive quarters as higher operating costs wiped out revenue gains. Analysts estimate the airline to end FY 2012 with annual loss in the range of Rs 300-400 crore
True, the aviation industry as a whole has been going through turbulent times. But IndiGo, which along with SpiceJet, was considered to be the poster boys of India’s low-cost airlines, posted 18 per cent growth in net profit in the year ended March 2011. Profits jumped to Rs 650 crore from Rs 551 crore on the back of lower maintenance cost, lower interest charges and profits from sale and lease back of planes.
So what has gone wrong with Spicejet? Owner Kalanithi Maran’s recent decision to pump Rs 100 crore in the airline will give fillip to expansion plans and address auditor concerns of eroding net worth. But that won’t be enough to solve the airline’s problems. Analysts caution that a dip in loads, lower yields and reduced cost efficiencies could mar prospects of a quick turnaround.
07/03/12 Aneesh Phadnis/Business Standard

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Categories: spicejet Mar 2012