Fuel price cut to reduce 4% costs: SpiceJet

ATF prices are being cut by Rs 4000 per kilo litre. Commenting on the price cut, Ajay Singh, Director at SpiceJet states that the aviation industry may not pass on the fuel price cut to consumers. He further adds that the fuel price cut will reduce costs by 4%. Singh also says that they need to watch their competitors' move before cutting prices.

Excerpts from CNBC-TV18's exclusive interview with Ajay Singh:

Q: With regard to the just announced cut in aviation fuel prices, how do you see this panning out for your company, will there be improvement in margins?

A: Certainly, this is a significant cut and fuel is the largest part of the aviation cost. So a cut of about 9-9.5% would mean a 4-4.5% difference in terms of overall aviation cost. So it is certainly a welcome move.

Q: Are you not seeing any of them passing it on and making those margins less likely to stay on your bottomline?

A: Given the history of this industry for the past year or so, because of capacity addition and competition, margins have been on the decline and airlines have been making losses, I would be surprised if the industry were to pass on these cuts at this stage. However, because of the competitive environment we have to see what others are going to do before we make up our mind. But quite clearly, the preference would be to not pass on this cut.

Q: Given this 4-4.5% benefit, how would you expect to revise your guidance for Q4 of this particular financial, in terms of what you might do on margin and profit?

A: SpiceJet is in a special circumstance; we had a truncated quarter. We are aligning our financial year to March this year. So we have to see what the impact is going to be but there is certainly going to be a positive impact.

Q: Overall as a percentage of sales, how much do you expect fuel prices to effectively come down by?

A: Given that we are close to EBITDA breakeven at this point of time, a 4% decline in cost would mean as a percentage of sales; roughly equivalent difference.