Jan 21, 2013 10:44 PM IST | Source: CNBC-TV18

Q4 will be challenging quarter; expect low demand: SpiceJet

In an interview to CNBC-TV18, Neil Mills, cheif executive officer, SpiceJet gives his views on the airline's Q3 results.

In an interview to CNBC-TV18, Neil Mills, cheif executive officer,  SpiceJet gives his views on the airline's Q3 results. The airline reported a whopping Rs 102 crore net profit for the December quarter against Rs 39 crore loss it reported in the year ago period, boosted by improved yields and better fleet optimisation.

Mills says the average passenger yeilds the past quarter was up 29% year-on-year (YoY). Mills says higher contribution from their global business help the profit numbers. The airline's Q3 passenger traffic increased at 7% (YoY).

Despite the positive numbers, Mills is expecting a challenging quarter ahead. He is expecting lower demand in terms of load factor in Q4.

Below is the edited trasncript of Mills' interview to CNBC-TV18.

Q: These are very good set of numbers going by what the street was expecting and going by your own previous performance. Take us through the key parameters that led to this? What have you done in terms of capacity? What have you done in terms of yield per passenger?

A: Yes, ofcourse we are very happy with the results that we are posting now. Rs 102 crore in the current environment is a fairly significant achievement. What we are trying to do is certainly alter the route mix. Higher component of international flights have certainly helped a lot. We also focused regionally and that has helped us contribute to the bottom-line.

However, we have also enjoyed 29 percent increase in passenger yields over the same quarter last year. Last year was artificially depressed but this year we have managed to keep the yield at a reasonable level and atleast managed to recover costs, which has significantly improved the bottom-line.

Q: In absolute numbers, last quarter we saw yield go to about Rs 4,800, what was the level this time around and what were load factors for this quarter?

A: The yield that we enjoyed last year was Rs 3,420 and this year it is Rs 4,412 so it is a significant improvement but it is still pretty average low fare anyway. So, we are managing to maintain the fact that we are a low fare airline and make sure that low cost carrier provides that to the customer, but 29 percent on year-on-year (YoY) basis is obviously a huge improvement from where it was before.

Q: You were managing a load of about 66 percent in Q2, Q3 onwards you carried more passengers and then you had one competitor less. What would your load factor be  between 75 and 80 percent?

A: We are at 75 percent load factor which is a significant achievement considering where the average yield actually moved to. So, we only lost 5 percent on load factor versus last year despite, having increased the realisations by 29 percent.

Q: What about the fact that you had the scheme of about Rs 2000 on some of the routes. Do you think that will lead to lower yields or better load factors into Q4?

A: It will increase the load factors for sure. What it will certainly do is, it will increase the revenue per flight in the weaker quarter, particularly in February and March. So, those seats will translate a couple of percentage points increase in load and there is a small marginal cost for actually carrying another couple of passengers on those flights. We certainly believe that promotion is not only good for the customer but certainly good for Spicejet too.

Q: What did you do by way of operating margins this quarter in Q3 itself and therefore what might it be in Q4?

A: Q4 is always a slightly more challenging quarter. The demand certainly reduces particularly around exam time, but that is what we have seen year on year. The industry, though it still has some challenges, has seen certain players in the industry turning corners. And these are players who are in a better position to look at the tougher quarters as well as the better quarters.

Q: The numbers - in terms of either operating margins or earnings before interest, taxes, depreciation, and amortization (EBITDA) margins for Q3 itself?

A: On EBITDA we are running at 10 percent margins and we have managed to deliver at 7 percent Profit after Taxes (PAT) margins.

Q: What was the passenger traffic increase?

A: The passenger traffic increase that we had year-on-year was 7 percent.

Q: Would you want to split that in terms of domestic and foreign at all?

A: What we have is that we are pretty much flat. Infact, there is marginal reduction in domestic passengers, particularly on the longer haul Boeing operations. However, we have had an 82 percent growth in the regional passengers year-on-year and 80 percent growth in our international passengers on year-on-year basis, albeit both of those are very small starting points. However, the focus for flight schedule is not only the domestic Boeing operations, but also the regional operation is also increasing significantly as is the international. So, our focus is to become more diversified, particularly to try to reduce the split, but also to hopefully increase the margins going forward.

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