SpiceJet’s Q2 was turbulent but outlook likely better

Market


The September quarter results of budget airline SpiceJet Ltd. did not move the needle on the stock, given the weak performance. So far in calendar year 2022, shares of the airline have declined 43%. Q2 earnings took a hit primarily because of high aviation turbine fuel (ATF) prices and a weak rupee. In fact, average ATF prices were up by as much as 87% year-on-year (y-o-y) in the last quarter.

An 11% y-o-y increase in yield driven by a rebound in travel, though, offered some cushion. Yield is a measure of pricing. As such, the company reported Ebitdar (earnings before interest, tax, depreciation, amortization and rent) loss of 387.9 crore in Q2. In Q1, the loss was at 266.2 crore. Adding to the woes was the company’s weak balance sheet.

However, it is worth noting that SpiceJet’s passenger load factor at 85% was ahead of IndiGo’s 79%. The latter is India’s largest domestic airline by market share.

The outlook offers some comfort as Q3 is a seasonally strong quarter. As analysts at ICICI Securities point out, the average number of daily fliers in November to-date stands at about 385,000 versus 368,000 for the month of October.

“We anticipate (SpiceJet’s) yields to improve, given the festive demand, in conjunction with better operating profitability as restructuring benefits kick in from Q3FY23,” said analysts at Nuvama Research in a report on 15 November.

“The addition of the 737-8 MAX aircrafts will likely help buttress growth – higher capacity (220 seats versus 180 in 737 NG) along with greater fuel efficiency (about 20% more efficient) – will help boost SpiceJet’s competitiveness,” they added.

Meanwhile, the increase in emergency credit line guarantee scheme (ECLGS) limit to 1,500 crore would provide some support to SpiceJet. Also, the hiving-off of cargo business is likely to augur well for operating metrics.

Fall in ATF prices would be a key trigger for the stock, which is down by almost 56% from its 52-week high of Rs87.30 apiece seen in November 2021.

 

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