SpiceJet’s decision to reduce its fleet size and cut down on flights not alike Kingfisher’s

SpiceJet’s decision to reduce its fleet size and cut down on flights to address its working capital woes has prompted investors to compare its fate with that of now-defunct Kingfisher Airlines.

While SpiceJet’s future prospects depend to a great extent on how quickly its promoters can solicit fresh infusion of funds, a relatively lower debt and lower cost of operations due to its low-cost carrier model puts the airline in a better spot than Kingfisher.

SpiceJet has been facing fund crunch to run its daily operations — referred to as working capital issues. This is partly attributed to the unprofitable operations on its new routes that could not fetch high passenger traffic. Its strategy to offer tickets at abysmally low prices further put pressure on operating profitability.

Amrit Pandurangi, senior director at Deloitte, said, “The comparison between the operations of Kingfisher and SpiceJet ends with the financial difficulties they face. Beyond that, it is Spice-Jet’s strategy to offer abysmally low discounts almost at every key route that has worked against it.”


The company’s revenue doubled to Rs 6,356.3 crore in three years to FY14. However, its accumulated loss in the same period, represented by reserves and funds on its balance sheet, shot up to Rs 1,588 crore from Rs 84.3 crore.

SpiceJet was hit by erratic growth in passenger traffic in the last three years, firm crude prices and weak rupee against the dollar.

Passenger traffic fell by 4.2% in FY12 against an 18% growth in FY11, marginally recovering in FY14 with a 5% growth. Rashesh Shah, aviation analyst at ICICI Securities, said, “SpiceJet derives 90% of its revenues in Indian rupee, while close to 75% of its costs is dollar-denominated.”

While SpiceJet’s woes are large, they are not insurmountable. What distinguishes it from Kingfisher is that its promoters have shown consistency in infusing funds into the business. SpiceJet’s promoters have infused Rs 1,300 crore so far. On Thursday, they paid Rs 5 crore to aviation authorities towards the dues of Rs 200 crore.

Another factor is the relatively lower debt on its books. Kingfisher being a full service carrier had bigger fleet size than SpiceJet’s, which is a low-cost carrier. Kingfisher debt, as per figures it last reported, was Rs 7,500 crore as opposed to SpiceJet’s Rs 1,506 crore at the end of the September quarter. To reduce its expenses, SpiceJet has reduced its daily flights to 232 from 331 in FY14.

It has also scaled down its capacity to 37 aircraft from 58 in FY14. The recent data shows that passenger traffic has improved by 15% in the past six months.

A sharp fall in global crude oil prices, too, augurs well for the airline. It currently spends Rs 150-200 crore to service debt. With a topline of over Rs 6,000 crore, it needs to generate an operating margin before depreciation of 4-5% to pay interest.

The airline would find it easier to take advantage of the demand revival and gain market share if it can secure a strategic investor, which would help it resolve the working capital issues.