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Tag Archives: Q4

SpiceJet: Another New Version

06 Saturday Jun 2015

Posted by theflyingengineer in SpiceJet

≈ 1 Comment

Tags

Growth, operational, profit, Q4, Spicejet

SG737

10 year old SpiceJet’s performance in Q4 FY’15 has been promising. SpiceJet as an airline has been promising in certain quarters, profitable in some others, and disappointing in many. One problem that has plagued the airline is impatience. The constant change of top management results in one, big problem: insufficient time for any strategy to bear fruits, no matter how brilliant.

That is because any strategy has a trial and error phase – essential to coarse and fine tune the strategy to the environment – both internal and external to the airline.

In Q4’FY15, SpiceJet changed hands, yet again. The Marans are out, and Ajay Singh is back in. In the quarter, the aircraft lost a Q400 to an accident at Hubli. Active fleet size was down to 17 Boeing 737s and 13 Q400s – a total of 30 airplanes, down 50% from the days of 57.

Things got so complicated at the airline that the one element required to run an airline was missing – Simplicity.

Operational Numbers

SG_op_Q4

The circumstances surrounding the airline, and the situation it was in Q4’FY15 was very different from what was in Q4’FY14. Yet, comparison is worthy to put things in perspective.

Q4’FY15 saw SpiceJet as a shrunk airline – lesser routes, smaller fleet, lesser departures. The number of flights were lower by 43%, to an average 179 a day from 312 in Q4’FY14. Load factor difference was a positive by 13% – which meant the airline carried more passengers per flight, on average. This had two effects – the number of passengers carried was down only 37% despite 43% lesser flights. This also affected the cargo uplift, which was down 8% due to lesser free cargo space available. The average flight length was 752 km – down 9% from 826km. Capacity was down 52%.

SpiceJet is yet to stabilise its operations. An airline has two aims: safe and convenient flights for passengers, and value for shareholders. Part of convenience are frequency and on time performance, with the latter more important.

SpiceJet’s on time performance isn’t one of the best, and that is something that the airline needs to, and perhaps is, working on. SpiceJet has had the highest number of cancellations among all airlines in the month of January and March, and the second highest among established airlines in the month fo February. Stabilisation of such operational parameters is key to SpiceJet becoming a preferred airline.

Down to the rupee

SG_RASK_CASK change_Q4

Unit revenues speak volumes about an airline’s efficiency.

We look only into Income from operations (Net sales), and ignore all other incomes, as this is the real measure of the airline’s core activity’s performance.

Q4’15 had a revenue of INR 4.15/seat-km (or per ASK= RASK), which is 3% higher than what was realised last year. This shows that the increase in load factors had a positive impact on unit revenues, thanks to the strategies employed by the former CCO Kaneswaran Avili and the VP Revenue Management Fares Kilpady. This also reflects network rationalisation.

When an airline shrinks, costs get complicated. There are certain costs that are hard to shrink, such as employee costs, as layoffs are subject to an airline’s culture. Employee costs per ASK shot up 63% to INR 0.57/seat-km. Further, staff salaries were upward revised after Q4’14.

Although the airline shrunk its fleet, it were the leased Boeing 737s that moved out, not the owned Q400s. Capacity dropped, but the depreciation and amortisation costs associated with the aircraft didn’t. This resulted in the associated costs rising by 48% to INR 0.16/seat-km.

Airport charges went up by 18%, in part due to the reduced flight lengths, which means the airline had more take off and landings for the same capacity. This may have also negatively impacted aircraft maintenance. Spares pool policy may have also had an impact. If an aircraft went for a C-check in this period, costs may have been impacted too. Maintenance costs per ASK went up 3%.

Other operating costs went up 17% to INR 0.16/seat-km.

Other expenses, which includes administrative expenses went down by 5%.

Lease rentals per unit went down 18% to INR 0.61/seat-km, owing to higher utilisation of aircraft which diluted this fixed cost.

Aircraft fuel costs went down 31% to INR 1.52/seat-km largely due to the fall of ATF prices.

Fuel, Maintenance, Staff, Lease and amortisation (as Q400s are owned, and is the equivalent of lease costs) and other operating expenses form a chunk of the expenses, and these 5 together account for 92% of expenses. These costs together went down by 12% to INR 3.62/seat-km in Q4’15 against INR 4.13/seat-km in Q4’14.

Redelivery expenses are one-off expenses and went up 626% to INR 0.35/seat-km. Other expenses are arguably not part of the operating expense consideration set.

With this, the operational cost per available seat kilometre (which excludes one-off redelivery costs and administrative ‘other expenses’) is INR 3.98/seat-km, which is 10% lower than the INR 4.44/seat-km in Q4’14.

With an operational RASK of INR 4.15/seat-km, and an arguable operational CASK of INR 3.98/seat-km, the airline was arguably operationally profitable by INR 0.16/seat-km.

Core operating costs and revenues are stressed upon as this is a reflection of the performance and efficiency of an airline’s core activity. However, an airline will need to be efficient throughout the structure. SpiceJet realised a loss of INR 102 Cr due to the total operating RASK and total operating CASK amounting to INR 4.15/seat-km and INR 4.71/seat-km, respectively.

Extraordinary Income and bottom line

Insurance companies paid INR 161 Cr for the Q400 that was written off after an accident at Hubli, Karnataka. SpiceJet received INR 61 Cr. This, along with other income of 91 Cr added INR 153 Cr to the books. Finance costs drained INR 28 Cr. Overall operating loss drained INR 102 Cr.

The airline realised a net profit of INR 22 Cr, and the insurance pay off was responsible for the tip over into the black.

Comparison with AirAsia India

SG_vs_I5_Q4

While a comparison between a small start-up airline and a larger, older airline is fair to neither airline, a comparison will help show what’s possible.

Unit costs (per seat-km) of staff is leaner at SpiceJet as it is a larger airline, however, this can fall further. SpiceJet cannot escape amortisation & depreciation costs as Q400s are owned, while AirAsia only leases airplanes. Fuel expenses per ASK are higher at SpiceJet due to the higher fuel burn per ASK of the Q400, the possibility of higher burns due to ATC congestion at metros, and higher load factors.

All of AirAsia’s airplanes in Q4 were new, and almost fresh out of maintenance when delivered, needing hardly any maintenance. Such may not have been the case at SpiceJet, which could have taken up the maintenance cost up.

User charges are higher at SpiceJet as AirAsia India does enjoy certain benefits from Bangalore airport – the only airport it used to fly into in Q4. SpiceJet flew into all metros.

Aircraft operating lease expenses appear lower at SpiceJet as of the 30 aircraft in the fleet, only 17 were leased. Q400’s lease costs do not figure in the lease expenses.

Other operating expenses are lower at SpiceJet due to a larger fleet diluting costs. However, ‘other operating costs’ for SpiceJet may not be the same as AirAsia India’s.

Where SpiceJet can trim its cost are in the ‘other expenses’. However, AirAsia India has lower administrative costs as many resources are shared with the AirAsia Group.

The cost structure (see pie charts) of both airlines show the cost structure for both airlines. Generally, a cost structure which has a larger share of fuel cost indicates a leaner structure.

Cost_structure_SG_I5

A chance to renew

What the management did in FY 2014-2015 to SpiceJet has been impressive – revenue management and market stimulation has resulted in a positive impact on unit revenues even with higher load factors and promotional fares. Such practice, if continued, may benefit the airline in the current fiscal.

The airline scaled up its fleet in Q1’16 temporarily through the wet-lease of 3 Boeing 737s. Unverified information point to 2 additional Q400s joining the fleet, and an active evaluation of wet-leasing Airbus A320 aircraft. Whatever the aircraft type, and however questionable it may be, the airline is going to, and needs to increase its fleet size.

SpiceJet has another opportunity to keep the system lean as it regrows. Good contracts, scaling up and high asset utilisation will reduce fixed costs. Good market study, prudent and well researched network growth, leveraging the benefits of the Q400 to do what the market leader cannot, and differentiation of in-flight services can allow SpiceJet to realise good unit revenues even in the light of competition.

Revenues aren’t much of a problem at SpiceJet, but can be bettered through better core service – frequency and on time performance. Costs are the biggest problem in the airline, and will need to be trimmed down significantly.

SpiceJet has what it takes to grow to an extent that allows it to compete non-head-on and healthily with the market leader. Focus on basics and differentiation are key.

AirAsia India posts a loss of INR 21 Crores for Quarter ending December 2014

27 Friday Feb 2015

Posted by theflyingengineer in AirAsia India, Airline

≈ Leave a comment

Tags

Air, Asia, cancellation, CY, delays, Factor, Fleet, forecast, FY, India, Load, loss, profit, Q3, Q4, Quarter

AirAsiaIndia ATB

In the quarter ending December 2014 (Q3FY’15 – India), AirAsia India, an associate of AirAsia due to the latter’s share of 49% in the India venture, posted a net loss of INR 21.7 Crores.

In the same quarter, spanning the months of October, November, and December 2014, the airline faced a significant challenge. The airline was faced with a shortage of senior cabin crew, effects of which were largely seen in November and December – very significant delays of many flights (up to 5 hours and more) and the cancellation of some. The airline was forced to play around with its schedules to match the flight duty time limitations (FDTL) of its senior crew, which resulted in the delays and cancellations.

Cancellations at AirAsia India rose from 0% in October to 2.65% in November, and dipped to 1.92% in December. In the quarter, a total of 4,019 passengers were affected by delays more than two hours (2% of the passengers carried in the quarter), and 513 passengers were affected by cancellations (0.2% of the passengers carried in the quarter), as per DGCA data.

In the quarter, the airline flew a total of 201,000 passengers, out of 253,852 seats, resulting in a load factor of 79.2% for the quarter. In the month of November, passengers carried dropped to 61,000, down 5,000 passengers compared to October, while load factors increased to 79.8%, up from 76.2% in October, perhaps indicating that the loads in November were driven by servicing affected passengers.

December is a month of high domestic travel demand. December 2014 was AirAsia India’s first month of operations in a high demand season, which resulted in domestic load factors rising to 81.5% – its highest since start of operations. Considering that the target customers for AirAsia India are leisure travellers, AirAisa India was expected to have recorded higher load factors. This figure was the lowest among all airlines in India for the month, either due to the airline’s limited network or an image that was impacted by the high number of cancellations and delays that continued into December.

AirAsia India ended the quarter with a fleet of 3 Airbus A320 aircraft, of which two are used (from AirAsia Malaysia), and one is new (directly received from Toulouse). The third aircraft entered commercial operations on 18th December 2014.

In the quarter, the airline added only one destination to its network – Pune, on the 17th of December 2014, while doubling the frequency on the Bangalore-Jaipur sector, and halving the Bangalore-Chennai frequency. The airline presently services Chennai, Cochin, Goa, Chandigarh, Jaipur, and Pune from Bangalore, and Jaipur from Pune.

Forecast

As per AirAsia, AirAsia India will receive just three additional aircraft in the year 2015, raising its total fleet to just six (6) aircraft by the close of calendar year 2015. All three aircraft will be used (older) airplanes from AirAsia Malaysia. In the same year, the group will receive only five new airplanes from Airbus, of which one will be for Malaysia AirAsia, two for Phillipines AirAsia, and two for Japan AirAsia which presently has no aircraft.

AirAsia India is forecasted to have a load factor of 81% in Q4 FY’15 (Q1 CY 2015). This may seem difficult considering the airline is entering another lean season, and its past performance in both lean and peak seasons hasn’t been encouraging enough to support this forecast.

However, one tactic that the group may resort to is to feed traffic from Malaysia AirAsia and Thai AirAsia into Bangalore, which can then be picked up by AirAsia India to offer more connections in India, such as Jaipur, Chandigarh and Goa to passengers of the other two AirAsia associate airlines.

Says Tony Fernandes, AirAsia Group CEO, “For a new airline, the AirAsia brand is strong in India and the load factor of 80% recorded in 4Q14 speaks for itself. Looking at the growth potential there, an additional aircraft was added in India during the reported quarter hence it ended the year with a total of 3 aircraft. Though the associate, due to the local regulations, is only allowed to operate domestic routes in its first five years of operations, AAI has the advantage of getting traffic feed from MAA and TAA which also flies in to AAI’s hub in Bangalore. This differentiates AAI from its competitors.”

AirAsia’s A320NEOs will be delivered only at the end of calendar year 2016. Further, in 2015 and the next few years, the group will not be taking in large number of aircraft every year like before, in an attempt to preserve cash.

For the quarter, Thai AirAsia was the only associate to record a net profit. Indonesia AirAsia, Malaysia AirAsia, Philippines AirAsia, AirAsia Japan and AirAsia India recorded net losses. Indonesia AirAsia and Malaysia AirAsia however recorded operating profits.

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The 3rd A350: “Carbon” signature livery: On track for the 2014 Q4 EIS

03 Friday Jan 2014

Posted by theflyingengineer in General Aviation Interest, Manufacturer

≈ Leave a comment

Tags

2, 2014, A350, Airbus, Carbon, F-WWCF, Flights, MSN, Passenger, Q4, Qatar, Signature

A350_MSN2The Airbus A350 program seems to be on track for the planned 12 month certification program, and the planned entry into service (EIS) in what was earlier reported by Airbus as the “second half of 2014”, and now, more precisely, “Q4 2014”; On Thursday 2nd January 2014 Airbus rolled-out its third A350 XWB flight-test aircraft, MSN2, from the paint shop in Toulouse.

The rolling out of the A350 fitted with a cabin was well timed: January 1st 2014 marked 100 years since the first scheduled commercial airline flight took off, with just one passenger, from St-Pertersburg, Florida, to Tampa, Florida, in a flight that lasted just 23 minutes.

The first A350 to enter commercial service will be for Qatar Airways.

This aircraft, F-WWCF, is the first of two A350 flight test aircraft to be equipped with a full passenger cabin interior, and features a distinctive “Carbon” signature livery to reflect its primary construction from advanced materials. 53% of the A350 XWB’s airframe is made-up of carbon-fibre reinforced polymer (CFRP) including Airbus’ first carbon-fibre fuselage.

The other aircraft to be fitted with a cabin will be MSN 5, which is in the final assembly line and is expected to fly in a few months. MSN 1, 3 and 4 are dedicated to avionics, noise testing, and various other systems work through the flight test program. These three aircraft will not be fitted with a cabin, but rather, equipped with heavy flight test installation.

MSN2 will join the A350 XWB flight test fleet in the coming weeks and will be the first A350 to transport passengers when it undertakes the Early Long Flights (ELF) later in the year. The “passengers” will be Airbus employees.

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