We don't have problem of poor yields, no need to cut capacity: SpiceJet CFO

Kiran Koteshwar, CFO, SpiceJet
Planes are full but airlines are not making money. India’s oldest private airline, Jet Airways, is staring at multiple defaults while the profit of the largest carrier by market share, IndiGo, fell by more than 95 per cent. In such a situation, SpiceJet almost bucked the trend. While the airline reported a loss of Rs 380 million in the April-June quarter, it was primarily impacted by a Rs 635 million provisioning for settling the shareholding dispute of the company. SpiceJet Chief Financial Officer Kiran Koteshwar is optimistic about the airline’s prospects and tells Arindam Majumder that it has been able to make money on non-metro routes. Edited excerpts:

Your numbers look decent without the legal provisioning.

If I take out the provisioning related to exceptional items, my profit is Rs 254 million. That is my pure operational profit. The revenue per available seat kilometre (RASK) is Rs 4.33 against Rs 4.13 last year. That is a 5 per cent improvement.

So your airline has seen an improvement in yield?

The RASK includes the component of ancillary revenue and other income. Even without that, the passenger yield has increased 4 per cent.

How did you manage an improvement in yield this quarter?

The company’s revenue performance has been good in the last three or four quarters. We have been able to absorb a lot of operational and gestation costs. I will give you a classic example. Our capacity went up by 14 per cent and revenue by 20 per cent. The balance 6 per cent is only because the airline has been able to get more yields from passengers.

Which are the routes on which you have seen an improvement in yield?

We have not done a route by route calculation but we have seen a lot of improvement in Tier 2, Tier 3 cities.

With competition increasing in Tier 2 and Tier 3 cities, what is the forecast?

Competition is increasing everywhere. I will tell you why. When the market has grown on average by 20 per cent, industry capacity has grown by 19 per cent. Last quarter there was competition, but we still made money on those routes. If someone wants to compete with us on regional routes, they will have to bring another 50 aircraft. So, in the near term I don’t see much competition there. Moreover, one or two players in a market doesn’t mean anything. There are enough markets, where we can fly.

Do you feel this is the time to cut capacity?

I don’t think so. When there is strong volume growth in the range of 20 per cent, there is no need to rationalise capacity. Today, the problem is not about capacity, volume or revenue. Our problem is rising fuel cost. If fuel keeps on climbing for a year, along with the exchange rate getting weaker, we might have to rethink our capacity strategy.

So you don’t think there is a problem of weaker yield in the market? 

We don’t have a problem of yield. That’s why we are bringing in additional capacity. There is an inflationary trend quarter on quarter. We have been able to get that increase out of people. We are not overpricing but we are able to get the pricing. That has been possible because we are not heavily discounting. We have been able to grow 14 per cent year on year and our yield too has improved. So if we have grown and our yields are improving, that means we are selecting good routes.

Will you induct capacity from the secondary market or wait for the Boeing 737 Max to arrive?

We will ideally like to wait for the new planes because they give us fuel efficiency.