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Tag Archives: Quarter

Analysing IndiGo’s performance in Q3’16

12 Friday Feb 2016

Posted by theflyingengineer in Airline, IndiGo

≈ Leave a comment

Tags

Analysis, Ancillary, Cargo, CASK, December, Expenses, Factor, Indigo, Load, Operating, profit, Q3, Quarter, RASK, Revenues, Seat

6E A320 BIAL

IndiGo performed well in Q3’16, but was it the airline’s best quarter in the fiscal in terms of performance? We dive into the numbers, comparing Q3’16 with three other quarters, while forecasting the airline’s performance in Q4’16 – the current quarter.

Click here to access the analysis.

Was the first quarter really ‘Hot & Spicy’ or ‘Red’ for SpiceJet?

04 Tuesday Aug 2015

Posted by theflyingengineer in SpiceJet

≈ 1 Comment

Tags

2015, 2016, Analysis, Costs, loss, performance, profit, Q1, Quarter, revenue, Spicejet

Spice 737

In a previous piece, The Flying Engineer had estimated the operational profit of SpiceJet to lie in the INR “around or less than between INR 80 – 110 crore” range. The airline realised an operational profit of INR 70.7 crore. With the results declared exactly a week ago, we shall analyse the actual performance of the airline in Q1 FY 2015-16 (Q1’16).

We first start with costs, as an airline usually has a better grip on costs than revenues. Capacity is measured in seat-kilometres (Available Seat Kilometre – ASK), and costs and revenues, from operations, are referenced to unit capacity. We compare Q1’16 with the same quarter in the last financial year – Q1’15.

Operating Costs

Q1'15 vs Q1'16 SpiceJet Financial Performance - Operations

Average fuel price in Q1’16 was 28.4% lower than that in Q1’15. The fleet had also shrunk from a Bombardier Q400 : Boeing 737 ratio of around 1:2 to 1:1.3. This impacted fuel costs positively. Due to this ratio, a larger portion of the fuel burn was realised by the Q400s, which enjoy a flat 4% sales tax on fuel, as against as much as 28% sales tax in some airports, applicable to the Boeings. With operations being dominated more by the Q400s, which fly routes much shorter than the Boeings (upto 85% shorter routes on the domestic network), the average stage length had reduced, leading to an increase in the number of departures per unit capacity. More departures and hence landings per unit capacity translates to a higher fuel burn, but this was offset by the Q400’s lower fuel price and perhaps better fuel saving techniques employed at SpiceJet. Unit fuel costs fell by 30.3% despite fuel prices falling only 28.4%.

The changed turboprop : mainline jet fleet ratio also affected lease costs. The Q400s are owned, and hence no lease is paid for such airplanes. As a result, the lease costs of the Boeings (including the wet leased Boeings and Airbuses) were diluted over a capacity that was generated in a larger part by the Q400s. Unit lease rental costs fell by 12%.

Poor on time performance and increased cycles per unit capacity may have led to increased airport charges, though the Q400s do enjoy landing and navigation charges benefits. It is also possible that there may have been an increase in landing, navigation, other airport charges, in flight & other passenger amenities by authorities. Unit airport charges rose 14.8%.

Aircraft maintenance costs were dominated in larger part by the Q400s, which were also utilised higher. The US Dollar strengthened 6.1% against the rupee, which would have led to increased costs. Maintenance costs for each Boeing are expected to have remained largely unchanged. Unit maintenance costs rose by 14.9%.

The quarter witnessed no significant aircraft re-delivery activity, which dropped unit re-delivery expenses by 90.4%.

Other operating costs rose by 45.7% per unit.

Unit employee expenses were impacted by both having a smaller capacity, and the hike in salaries to crew to stop pilots from leaving the airline. This resulted in unit employee expenses rising by 25.5%.

Depreciation and Amortisation expenses are largely dominated by the Q400s. With lower capacity, this expense was rose on a unit basis. Unit Depreciation and Amortisation costs rose 36.2%.

Other expenses, which include a wide variety of costs including hotel and accommodation expenses for crew, dropped by 16.3% on a unit basis.

Overall, unit costs dropped by 12.8%, aided largely by the absence of significant re-delivery expenses and the steep fall in fuel prices. The airline has scope to further streamline costs in at least three areas, with the other areas being out of the airline’s control. When streamlined, either through practices or scale, unit total operational expenses may further fall by 4.3%. With the present scale of operations and in the present environment, this translates to INR 45 crore.

The cost structure at SpiceJet, Q1’16 v/s Q1’15 is shown below:

Q1'15 vs Q1'16 Unit Cost Structure

Operating Revenues

SpiceJet’s revenues were adversely impacted by lower airline capacity, poor on-time performance, and increased competition leading to lower prices. The first two factors may have made the airline lost high paying, time-sensitive and last minute (D0-D7) passengers. In the 13 month period June’14 to June’15, SpiceJet had the lowest OTP amongst private airlines for 9 months. Further, the cargo carried by the airline on a unit basis dropped by 4.9%, perhaps on account of Q400s dominating a larger part of the capacity. Unit sales fell by 1.1%.

Other operating income rose by 56%.

In total, operating revenues fell by 1% on a unit basis.

(If the Q1’15 P&L statement was not re-classified, unit revenue would have fallen by 2% during the comparison)

Per passenger Revenues

In Q1’15, the sales per passenger (includes ancillary revenue) was a good INR 5,006 per passenger (at re-classified P&L figures). In Q1’16, the the sales was INR 4,215 per passenger. This represents a drop of 15.8% in the sales per passenger.

Usually, a drop in the sales per passenger should not be a concern if the airline flies more passengers. However, a drop in net sales per passenger per ASK (the first number in the unit revenues and cost graph above) is a cause for worry. The drop was INR 0.05/seat-km). This shows that sales per passenger has dropped to a level that overall leads to lesser revenue despite very high load factors.

To put things in perspective, the below graph shows the per passenger sales required to achieve the same net sales from operations, with varying load factors. For example, flying with load factors of 55% at INR 6,939 sales per passenger will generate the same sales as flying 90% load factor at INR 4,240.

In Q1’16, SpiceJet had load factors of 90.5% (Domestic + International). In Q1’15, SpiceJet had load factors of 79% (Domestic + International). If SpiceJet was to have realised the same revenue in Q1’16 with only 79% load factors,the airline would have needed a per passenger sales of INR 4,833. However, the airline in Q1’15 (same quarter, last year) had a per passenger sale of INR 5,006.

This means that had SpiceJet flown with Q1’15 load factors and per-passenger sales, would have realised an increase in sales of 3.6% or INR 39.53 crore in Q1’16. This shows that increase in load factors does not always imply an increase in either Revenue per seat kilometer (RASK) or total revenues.

To have realised this additional INR 39.53 crore, SpiceJet should have generated sales of INR 4,366 per passenger (+INR 151) in Q1’16 at 90.5% load factors.

Per Passenger Sales SpiceJet Q1'15 vs Q1'16

Of course, unit revenues (RASK) is the most reliable method of gauging performance. But, in the case where RASK falls, the argument above is used to show that the load factor game must be played carefully.

The above argument does not consider the fact that per passenger sales and/or RASK (RASK and per-passenger sales are not directly comparable) can be safely reduced when per passenger costs and/or CASK also reduce. Ultimately, profit is driven by the difference of revenues and costs, and not determined by either revenues or costs alone.

Operating Profit

Unit operating profit rose by 201%, despite a fall in unit revenues, largely due to a fall in costs. Fuel today accounts for 35% of the SpiceJet’s operating expenses. Last year, for the same quarter, fuel accounted for 43% of SpiceJet’s operating expenses. If aircraft fuel prices were at the 2014 April-June levels, the airline would have flown into the red.

Had the airline maintained the unit revenues (RASK) of Q1’15, the airline would have generated an additional INR 11.4 crore over the Q1’16 operating revenue of INR 1,106 crore.

Other Income

Other income at the airline was INR 26.7 crore, against INR 28.9 crore in Q1’15 (re-classified).

Finance Costs

Finance Costs in the airline was INR 25.5 crore, against INR 48.7 crore in Q1’15

Profit before tax

In Q1’16, other income (not from operations) and finance costs are almost equal, cancelling out each other. This makes profit in Q1’16 solely due to operating profits, unlike the Q4’15 quarter (ending March 31st 2015) where the airline stepped into profits due to the insurance payoff. Operating loss in Q4’15 was INR 102 crore. Operating loss before depreciation and amortisation expenses was INR 72 crore.

Hot and Spicy or Red?

The Hot and Spicy part is the reduction in finance costs. The Red part in in the operational costs and revenues. Overall, the airline has the potential to perform much better, and hence we’d consider the performance Red, despite the profit. The turnaround has started, but the airline is not yet ‘there’. Costs have to lean and revenues must grow. Good on time performance (OTP) is key. As seen above, sale per passenger and RASK have taken a hit, perhaps largely due to the poor OTP of SpiceJet, and in part due to competition.

Comparison to Estimate

In the estimate of SpiceJet’s Q1’16 performance (click here to read), our estimate of total operating expenses was lesser by 0.26%, while our estimate of revenue from operations was higher by 1.67%. Changes in accounting practices (re-classification, as declared in the Q1’16 financial results) have also impacted the estimate errors. The lower or our estimate of the airline’s operating profit was higher than the actual by 13%. Below is the comparison:

Q1'16 actual vs Q1'16 estimate

SpiceJet: Out of excuses

20 Monday Jul 2015

Posted by theflyingengineer in SpiceJet

≈ Leave a comment

Tags

Financial, FY16, loss, profit, Q1, Quarter, Spicejet

737 SpiceJet

SpiceJet had a great opportunity to report profits in Q3’15 (the quarter ending December 31st, 2014). It didn’t. Before the quarter could conclude, the airline had stalled.

Then there was a stall-recovery. The Marans got out and Ajay Singh got in. The very next quarter, Q4’15, saw the airline posting a net profit thanks to an insurance claim from a Q400 that was written off at Hubli.

Legacy issues, one time costs, redelivery expenses, economic slowdown, high dollar rates, and high fuel prices were some of the reasons given in the past. This time around, the situation is much better. Ajay is doing a good job renegotiating contracts in manners that benefit the airline.

For the quarter ending June 30th 2015, we estimate the financial performance of the airline. Profit? Loss? Click here to read all about it.

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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