Monday, November 19, 2018

SpiceJet turnaround comes apart as oil prices rise

While SpiceJet’s managing director Ajay Singh has been credited with turning around SpiceJet, which he took over from the Marans in January 2015, the September quarter has been one of the worst for the low-cost carrier. SpiceJet reported a stinging loss of Rs 389 crore in Q2FY19, following from a loss at the operating profit level of Rs 32 crore.

Singh has been extremely lucky to have run the business at a time when crude oil prices stayed low. In January 2015, oil was ruling at only $47 per barrel and they fell to $28 per barrel in January 2016. When the Marans were in control of SpiceJet, oil prices had climbed to nearly $120 per barrel. Yet, the biggest quarterly loss reported was `559 crore in the September 2013 quarter.

Those were tough times because the macro-economic fundamentals were weak and the rupee depreciated sharply, hitting a lifetime low of 68.85 to the dollar on August 28 2013. In contrast, the rupee has been stable for much of the last four years before it started depreciating since June this year.
While the SpiceJet chief has been applauded for his management skills making profits from an airline business in India, it would appear, has little to do with management and almost everything to do with fuel prices and favourable currency movements.
SpiceJet’s yields dropped 2.5% year-on-year in the three months to September reflecting virtually no pricing power. This, at a time when passenger traffic in the country has been rising; between January and September passenger traffic rose by 21% compared with the corresponding period of 2017.
19/11/18 Arun Nayal/Financial Express