Four-and-a-half years ago, who would have thought SpiceJet, then struggling to remain operational, would emerge as one of India's most profitable airlines.
The Ajay Singh-promoted airline's return flight to profits in the first quarter comes at a time when the giants of Indian skies are either shutting down or burdened with huge debt.
The no-frills carrier, which posted a net loss of Rs 316 crore last financial year, has in the last one quarter done the unthinkable.
It has posted a record profit, expanded its fleeting at an unprecedented pace, increased its market share and posed a challenge to the dominance of the country's largest carrier IndiGo.
Its share price too has zoomed - from Rs 80.30 on February 11 to Rs 137.95 as of close on Friday, a nearly 72 per cent rise in a little over six months.
With good reason. SpiceJet reported its highest-ever quarterly profit at Rs 261.7 crore for the June quarter of FY20 (Q1FY20), as against a loss of Rs 37.9 crore in the June quarter of FY19.
So, what did the trick? Simple. It flew more passengers and managed to earn better returns per seat in the wake of the collapse of Jet Airways. The airlines shared that passenger fares in the quarter were up 11 per cent year-on-year.
This meant operating revenues were at Rs 3002.10 crore against Rs 2220.40 crore for the corresponding quarter last year. On an EBITDA basis, profit is at Rs 747.50 crore as against Rs 100.50 crore for the corresponding quarter last year.
The profit was also boosted by other income of Rs 143.2 crore in Q1 (against Rs 32.89 crore) including Rs 114.1 crore towards reimbursements from Boeing against revenue loss incurred due to the grounding of the Boeing 737 MAX aircraft. SpiceJet's boss Ajay Singh, however, insisted the results would have been 'vastly better but for the painful grounding of the MAX aircraft'.
Deft management and timely government help
This remarkable turnaround has happened within four-and-a-half years of the carrier's fortunes hitting rock bottom in December 2014 when lessors took away aircraft and the airline cancelled more than 2000 flights. The airline was then controlled by Kalanithi Maran of Sun Group, who had acquired 38 per cent stake in the airline in 2010 and later increased it to over 50 per cent.
In early 2015, Singh, who had founded the airline in 2004, retook control. Singh worked on the airline's cost structure, bringing it down even while improving efficiency. He also renegotiated contracts with vendors to achieve one of Asian aviation's spectacular turnarounds.
When Singh took over the bleeding airline with a negative net worth of Rs 1329 crore reportedly for a token amount, there were fears that it may have to be shut down altogether. However deft management and timely help from the Government by way of quick clearances for the takeover saw the airline slowly managing to fly out of turbulence.
Cutting across layers of red tape
For SpiceJet, the first quarter of FY20 was quite eventful.
When all the airlines were busy reaping the benefits from the collapse of Jet, SpiceJet had to ground 12 of its Boeing 737 Max aircraft in March in the wake of an Ethiopian Airlines Boeing 737 Max crash that claimed 157 lives.
However, when Jet finally suspended its operations mid-April, SpiceJet had managed to expand its fleet and operations at a pace never heard of before. Between April and June 2019, the airline added 32 aircraft - 27 Boeing 737 NG aircraft, four Bombardier Q400s and one B737 freighter.
Majority of these planes were previously operated by Jet. SpiceJet simply managed to get the leases transferred in record time cutting across layers of red tape that usually makes such transfers extremely difficult in the Indian context.
At the end of the quarter, SpiceJet's fleet size as a result of these manoeuvres stood at 107, second only to IndiGo among private carriers.
The carrier also grabbed key slots at major airports and international flying rights. The airline has been allotted an additional 48 domestic and international departure slots in the key profit centre of Mumbai; and 15 domestic and international departure slots in Delhi, India's biggest and busiest airport.
Starting April 1, 2019, the airline has announced 130 additional flights that includes 78 flights connecting Mumbai, 20 flights connecting Delhi and 12 flights connecting Mumbai and Delhi.
In an enviable position, but...
This growth has helped SpiceJet to challenge IndiGo.
The carrier has now cemented its position as India's second-largest airline by market share. According to DGCA data, between April and June, its market share went up from 13.1 per cent to 15.6 per cent. During the same period, IndiGo's market share slipped from 49.9 percent to 48.1 per cent.
While IndiGo is having mid-air turbulences as a spat between the co-founders still remains unsolved, SpiceJet, despite the glitches it faced from the grounding of Boeing Max aircrafts, is having a smooth ride. The other big bird - Air India - has no major expansion planned as it is expected to go under the hammer anytime soon. All this leaves SpiceJet in an enviable position.
The carrier is expected to increase capacity by 80 per cent in FY20, almost three times what IndiGo has planned. IndiGo, which had a fleet of 235 aircraft by the end of June, is only expected to increase its capacity by 30 per cent this fiscal.
The company had estimated that the grounded Boeing 737 MAX aircraft will resume normal operations by July/August 2019 as per its understanding with the aircraft manufacturer. This now is unlikely to happen.
"With the current developments and uncertainty around the exact month of resumption, the company plans to cater to the winter season by inducting 5‐10 Boeing 737 NG aircraft and 3 Q400 aircraft during October 2019," SpiceJet said.
Softening of fuel prices is expected to aid to the profitability of not only SpiceJet, but all airlines in the region. Bloomberg data shows jet fuel prices at the Delhi airport, fell to Rs 61,200 a kilolitre on July 1, 2019 from Rs 68,086 a kilolitre a year ago.
However, fall in airfares due to rapid expansions in seating capacity and overall slowdown in economic activity can in the future pose a threat to the aviation industry, including SpiceJet, say analysts.