Are SpiceJet and Go FIRST weak links in India’s expanding aviation market?

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Over the past few months, the Tata Group has taken one decision after another that will impact aviation in India over the long term. As it merges AirAsia India into Air India Express and Vistara with Air India over the next 15 months, it is chasing one thing: market share.

The Tatas have publicly stated their intention to corner a 30 percent market share as a group, a modest target that could easily be achieved well before the planned five years.

IndiGo dominates with a 50+ percent market share in India and there is no other airline with a double-digit market share. The obvious question then is: Which airlines will occupy the remaining 20 percent of the market, and how? Do other airlines have a future?

The questions are pertinent for two carriers – SpiceJet and Go FIRST. Let’s look at them and the other carriers in the reckoning.

By market share, the carriers are SpiceJet, Go FIRST, Akasa Air, Star Air, flybig and the state-owned Alliance Air. It is almost certain the government will continue supporting Alliance Air until it comes up for sale. The other airlines are private.

The networks of flybig and Star Air are heavily loaded with regional routes, which gives them the breather needed in the initial years of operations. Flybig has been on a sticky wicket since inception, often getting flak for operations in the northeast and vacating all other routes.

Star Air, on the other hand, is expanding, and is expected to add two E175s to its fleet soon. The size of both airlines and their network exclusivity would mean they could tide over the competition.

Akasa Air, which started in August, has said repeatedly it is well-funded and could possibly place another aircraft order soon. The airline, still in its initial stages, will have adequate capital to burn as part of its business plan, knowing fully well that a breakeven isn’t possible immediately.

That leaves two airlines – SpiceJet and Go FIRST.

Weak link?

For a long time, SpiceJet was the undisputed No. 2 in Indian skies – until the air pockets became too hard to handle. It’s been in financial stress, almost perennially, and unless there is a major fund infusion soon, chances of growth are difficult.

The airline recorded a loss of Rs 5,153 crore over the past 16 quarters. With a negative net worth and frequent auditor questions on its ability to continue as a “going concern,” SpiceJet must find a way out of its spiral.

Go FIRST has not been able to operate all its planes due to issues with replacement engines. A lower count of operational aircraft impacts revenue. The airline’s IPO has been delayed indefinitely and relies on loans and funds from the parent group to continue operations.

When these two airlines come under pressure, what can help them turn the tide?

Possible measures for survival

Could either of them or both look for a stake sale? Kingfisher Airlines and Jet Airways failed to sell a stake while they operated and what happened after is known to all. The value of an airline is at its best when it is still operating.

A strategic partner could do wonders. SpiceJet and Go FIRST won’t have the challenges that Jet Airways did – of being a feeder to a Middle Eastern carrier and its own hub in Europe.

SpiceJet and Go FIRST already have a niche network, having diversified to smaller towns and beyond with limited focus on metro-to-metro connectivity. While this means lower business traffic, it also means strong positioning in a different market segment.

Could Go FIRST also enter the regional connectivity scheme to gain some sort of buffer in terms of finances?

Of the many SpiceJet announcements that have hardly materialised is the codeshare arrangement with Emirates. Had it gone ahead, it would have been a game changer.

Do the two airlines have the system readiness and maturity to enter into a codeshare with global airlines? There is an opportunity emerging as Vistara merges with Air India. That means codeshare arrangements can take place with only Air India and IndiGo – and there definitely can be a third.
For SpiceJet, the money spinner could be the cargo business. While it has been evaluated on a slump sale basis, the airline has said it would move cargo out as a separate entity this quarter.

The details are awaited, but it has a first-mover advantage in a market that is getting as congested as scheduled passenger services.

SpiceJet, Go first, weak link, aviation market, Indiaars. For the sake of the industry and stability, though, the stakeholders should try to do everything possible to prevent the fall of another airline.