SpiceJet turns profitable after 7 quarters, but not out of the woods yet

Ajay AwtaneyUpdated: Wednesday, February 16, 2022, 11:48 AM IST
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SpiceJet has a negative net worth as of December 31, 2021, and the Company's accumulated losses amount to Rs 5453.4 crores./ Representational image |

No-frills carrier SpiceJet on Tuesday reported a consolidated profit of Rs 42.45 crore for the October-December 2021 quarter on the back of higher passenger traffic and improved performance of the cargo business of the airline. The carrier reported a consolidated loss of Rs 66.78 crore during the same period a year ago.

The total income in the December quarter for the airline climbed to Rs 2,677 crores compared to Rs 1,870.6 crore in the same period a year ago, according to regulatory filings made by the company.

On a standalone basis, the airline recorded a profit of Rs 23.28 crore for the third quarter of the current fiscal year. During the corresponding period of last year, it had a standalone loss of Rs 56.96 crore.

Return to profit on back of cargo operations

The return to profit of SpiceJet was on the back of cargo operations and the rebound in passenger traffic, and its settlement with Boeing. SpiceXpress, the logistics subsidiary, continued its growth, reporting increased revenue of Rs 584 crore for the quarter as compared to Rs 498 crore in the previous quarter, a jump of 17 percent. The company plans to significantly increase freighter capacity in the coming quarter.

The settlement with Boeing was a significant event during the quarter. As per SpiceJet’s filings, the company received cash and non-cash accommodations in excess of the amounts due to lessors during the period of grounding of MAX aircraft. Accordingly, basis the various accommodations agreed with Boeing and their 737 Max aircraft lessors, SpiceJet has recognised these amounts under ‘other income’ without quantifying it. Their auditors however feel, the Company should have recognised such accommodations in its entirety during the quarter and have qualified their review report.

The filing reads: "To reflect the true operational parameters of its operating fleet, the management of the Company recognised claims recoverable for such expenses which accumulated to Rs.15,549.03 million till 30 September 2021 under the head ‘other income’ in respective quarters as the management was confident about the recoverability of its claims since the grounding of these aircraft."

SpiceJet's negative net worth

SpiceJet’s troubles are not over yet. The company has a negative net worth as of December 31, 2021, and accumulated losses amount to Rs 5453.4 crores. They plan to carve out SpiceXpress to reduce the losses of the airline.

Further, India's largest airline IndiGo, India’s biggest carrier, also reported a profit in the same quarter but warned of a drop in capacity in the January – March 2022 quarter on the back of Omicron. SpiceJet, which controls 10.3 percent of the Indian market, was overtaken by Go First in December 2021 as India’s second-largest airline as well. And in mid-February, oil companies have hiked jet fuel prices by 5 percent, which could increase costs even further.

Legal challenges continue

SpiceJet’s legal challenges don’t seem to end. The company incurred a one-time exceptional adjustment of Rs 77 crore on account of the settlement with De Havilland of Canada. Spicejet

A dispute with the former owner, Kalanithi Maran, over share transfers is another challenge the airline needs to manage. Maran and his parties have refused to accept SpiceJet’s Rs 600 crore payment offer on Monday and sought a higher settlement. SpiceJet had to postpone their result announcement by a day.

SpiceJet has also faced recent turbulence with Blackrock and other institutional fund managers, who held shares in SpiceJet and who disagreed with SpiceJet's accounting practices, and voted against Shiwani Singh to be reappointed to the audit committee in December 2021.

The Supreme Court of India gave them three weeks to resolve the issues with Credit Suisse AG as well. SpiceJet was earlier pulled up by the Madras High Court who ordered the winding up of the airline in this case.

While the cancellations at the airline have stabilised, for now, it would be prudent to look out for settlements on their legal troubles in the coming days before reacting to the frequent sales that Indian no-frill carriers are renowned for. Cheap tickets are good, but entrusting your money to an airline which is financially stable is a better idea.

(The author writes about Indian Aviation on livefromalounge.com and tweets from @LiveFromALounge)

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