SpiceJet losses are soaring. Blame air incidents, rising expenses, pandemic

Indian budget airline SpiceJet has reported losses of Rs 838 crore in the July-September quarter of 2022 even though its revenues increased substantially in the same quarter.

This is because of the cascading impact of a heavy increase in aviation turbine fuel expenses and foreign exchange losses due to the depreciating rupee combined with the effects of DGCA's order that made SpiceJet operate only 50% of its aircrafts.     

Some context: The aviation sector is one of the sectors that was largely hit by the Covid pandemic. As the industry worked hard to recover from the pandemic losses, it faced two different crises - ie increased fuel prices due to the Russia-Ukraine war and the depreciating value of the Indian rupee. On top of that, SpiceJet was ordered by the DGCA to operate only 50% of its flights from July 2022 to October 2022 since it found SpiceJet's operations to be ''unsafe'' for passengers. This meant that the airlines company would earn lesser revenues and would still incur fixed costs. 

SpiceJet's financial figures look bad: 

• Net loss of Rs 788 crore for the April to July 2022 quarter which grew to Rs 837.8 crore by the end of the September 2022 quarter. Their September 2021 losses were about Rs 560 crore. 
• Total income of Rs 2,100 crore as of September 2022 quarter as compared to Rs 1,500 crore from April to September 2021.  

But it also reported some good news like:  

• SpiceJet has the industry’s highest ''load factor'' of 85% for domestic scheduled flights ie it is basically the best airline when it comes to filling available seats with passengers. 
• SpiceJet also reported a 30% increase in number of flights and a 11% increase in yield ie average revenue earned per passenger per mile.
• SpiceJet's cargo division called 'Spice Xpress' which will now be a separate airline, had reported revenues of Rs 239 crore and a net profit of Rs 18 crore in the first quarter of 2022 despite high ATF prices with an increase in profit margins from 4% to 8%. In the second quarter of July to September 2022, Spice Xpress reported a profit of Rs 21 crore on a revenue of Rs 206 crore.   

So why is SpiceJet facing such massive losses?  

1. Losing market share to industry's key players: In the aviation industry as of August 2022, Indigo is the market leader with 58% market share followed by Tata Group's Vistara having 10.4%. Air India, Go First and Spice Jet have about 8- 8.5% market share. Now SpiceJet is losing market share to competitors like IndiGo, Akasa Air and Vistara.

As per Directorate General of Civil Aviation's data, SpiceJet's share of domestic passenger market dropped from 9.7% to 7.7% in July-September 2022 quarter while that of Indigo expanded from 56.3% to 58%.

2. Huge expenses: SpiceJet's unaudited financial statements for the second quarter shows that: 

• Revenues have almost doubled from Rs 2,830 crore (Apr to Sep 21) to Rs 4,580 crore (Apr to Sep 22). But costs like aviation turbine fuel and foreign exchange losses increased by more than three times in the last 6 months as compared to the expenses in Apr to September 2021.
• SpiceJet had spent Rs 1,100 crore on aviation turbine fuel from Apr to Sep 21 but between Apr to Sep 22, they had to spend Rs 2,630 crore for the same fuel.
• Similarly, SpiceJet incurred an expense of about Rs 116 crore between April to Sep 21 on foreign exchange losses whereas they incurred an expense of Rs 630 crore in Apr to Sep 2022.

3. Regulator trouble: SpiceJet has faced many issues in the last 12 months. In May 2022, a Mumbai to Durgapur SpiceJet flight experienced severe turbulence while descending and hurt about 14 passengers. In Sept, one of those passengers succumbed to the injuries and passed away.  

In July 2022, when the Directorate General of Civil Aviation inspected the operations of SpiceJet, it found that there were shortage of aircraft spares and aircrafts were inadequately maintained. Thus the DGCA ordered SpiceJet to run only 50% of its flight operations till October 30. But SpiceJet has now been allowed to run its operations in full capacity from October 30 to March 2023. 

In July 2022 and October 2022, a couple of SpiceJet flights made emergency landings after smoke was detected inside the cabin. These incidents increased the flight cap on SpiceJet till October 30, 2022 and the DGCA also suspended the license of the flight's pilot. 

4. Financial issues: SpiceJet was in the news in August 2022 when it was involved in a court case with the Credit Suisse bank and the case went to the Supreme Court. This was followed by SpiceJet's terrible Q1 loss announcement which was then followed by the resignation of SpiceJet's CFO Sanjeev Taneja in September 2022.  

5. Effect on the share market: SpiceJet's share price was Rs 132 when it got listed in August 2019. As of today, it has fallen by 71% and now stands at Rs 38. Shares fell by 4% in the morning hours on November 15, 2022 after the Q2 results were shared with the stock exchange.