After notching up losses of Rs 3,000 cr, Spicejet CEO says turnaround in a year after re-capitalisation

Low-cost carrier Spicejet, which has been steadily improving operating performance over the past three quarters, said on Tuesday that it expects to come back to black in a year after it receives fresh capital. The airline, which has accumulated losses of almost Rs 3,000 crore and has a negative net worth of Rs 1,460 crore, is said to be close to clinching an investment deal from an overseas investor, likely from South-east Asia.

The turnaround is slightly delayed because the Kalanithi Maran’s Sun Group promoted airline has returned a few of its older Boeing 737 aircraft over the past few months due to high maintenance costs. This has resulted in a drop in the scale of operations, because of which the cost savings have had a smaller impact.

Sanjiv Kapoor, Spicejet’s COO said that a drop in jet fuel prices will help the airline save Rs 320 crore this fiscal (over FY14). But, if the states reduce the taxes on ATF as is being proposed and jet fuel prices drop a further 3-4% in December, the savings could be over Rs 600 crore.

“We need to re-capitalise given the historic losses, there is no question on that. It will help is get sufficient growth capital and take care of the liabilities. Given our improving operational parameters, I believe many parties are interested in investing in us. There should be no comparison to Kingfisher, because in the last 6 months they had passenger load around 40% and both market share and the product plummeted,” he said.

SpiceJet’s auditor SR Batliboi & Associates has also consistently raised doubts about the company’s ability to continue as a going concern, highlighting the need to attract an investor. SpiceJet has delayed payments to various parties, including vendors and statuary authorities.

As compared to July this year, Spicejet has reduced daily flights by about 40 to 300, largely because its fleet of B737 has come down to 28 (26 are operational) from 35. The airline also has a fleet of 15 Bombardier Q400s turboprops for shorter routes, which it hopes to increase to 25 when it receives fresh funds in order to improve economies of scale for maintenance contracts.

“There are a fair number of flights we are removing from our fleet temporarily as part of the fleet restructuring but should be back to normal by December. We should by back to 35 B737s by  December, and 45-50 B737s by second half of 2015,” Kapoor said.

Kapoor further said that on most operational parameters the airline has been doing very well. In Q2FY15 (ending September 30, 2014), Spicejet saw revenue jump 15% YOY, over double of the 7% capacity increase, even as expenses fell 2%. Load factors were up 19%, while CASK (cost per available seat KM) fell 7%. In the quarter, the airline had reduced net losses by 45% to Rs 310 crore – this included a Rs 75 crore one-off restructuring cost.

The Spicejet scrip at the BSE closed 4.12% up at Rs 14.39 on Tuesday.