SpiceJet Q4 review: How will low fares, higher fuel cost and demonetisation impact?

Low-cost airline SpiceJet is set to announce its fourth quarter ended March 2017, result on June 3, 2017.

Ansuman Deb, Research Analysts of ICICI Securities said, “Q4FY17 is likely to be the bottom for airline margins as cost tailwinds come back from Q1FY18. As such, valuations will not depend on this quarterly performance. Yet, Q4FY17 will provide insights to how airlines fare in a relatively adverse scenario in their ability to pass on higher costs. ”

Additionally, higher aviation turbine fuel (ATF) cost is also expected to put its profitability under pressure.

In Q4FY17, the ATF prices have increased by 38% year-on-year (YoY) and 11% quarter-on-quarter (QoQ) basis.

Q3FY17 of SpiceJet showed a mixed picture with total income growing by 12.49% yoy at Rs 1,642.40 crore and net profit declining by 24.50% yoy at Rs 181.14 crore. The company had blamed demonetisation at that time.

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Ajay Singh, Chairman and Managing Director of SpiceJet during Q3FY17 said, “We will be relentless in reducing our costs and identifying new avenues for revenue generation.”

Deb said, “Demonetisation was a speed breaker in earnings momentum for SpiceJet in Q3FY17 due to sharp fall in yields. How do the fares manage to recover from d’mon in Q4, which is an otherwise weak quarter, will determine the earnings.”

Average fares of SpiceJet is expected to be at Rs 3,582 compared to Rs 3,600 in the corresponding period of the previous year and Rs 3,584 in the previous quarter.

He added, “Among the two months of data available in Q4, SpiceJet has maintained strong traffic and PLFs, suggesting sustained pressure likely on yields.”

Passenger load factors (PLF) of SpiceJet stood at 91.4% in March 2017, slightly lower from 93.7% in February 2017.

ICICI Securities factors 19% yoy and 4% qoq increases in Available seat kilometres (ASK) at 4,461,856 in Q4FY17, while PAX revenue is seen rising by 15% yoy and 2% qoq at Rs 1,467.8 crore this Q4.

On the back of costlier fuel, SpiceJet's peers Jet Airways and Interglobe Aviation (Indigo) witnessed decline in its bottom-line net profit for Q4FY17.

Jet Airways net profit declined by 91% to Rs 36.80 crore in Q4FY17 verus Rs 397.16 crore in Q4FY17. While Indigo's net profit dropped by 24.5% to Rs 440.3 crore in Q4FY17 as against Rs 583.7 crore in Q4FY16.

Fuel cost of SpiceJet is expected at Rs 542.6 crore, rising by 65.1% from Rs 328.7 crore in Q4FY16 and 14.5% from Rs 473.8 crore in Q3FY17.

Due to higher fuel cost and low fares, profit after tax of SpiceJet is seen at Rs 72.1 crore this Q4, declining by 33.2% year-on-year (YoY) and 60.2% quarter-on-quarter (QoQ).

Meanwhile, total income from operation is expected at Rs 1,677.8 crore, increasing by 13.8% yoy and 2.2% qoq.

Deb added, "Even if we consider a one off demonetisation effect in Q3, the ability to show better yield management of SJet will be tested in Q4FY17, especially with a higher volume base."

Share Price of SpiceJet closed lower by Rs 4 or 3.40% on BSE, at Rs 103.80 per piece on Friday June 2, 2017.