Shares of budget airline SpiceJet were in high demand last week, rising 25 per cent as the benchmark index rose 1.69 percent. The share price is still 17 percent lower from a year ago, while InterGlobe Aviation, the operator of rival airline IndiGo, has advanced 25 percent in this period.
The gains were surprising, coming as they did within days of SpiceJet obtaining an extension for holding its annual general meeting, amid a spate of postponements by the airline in the past year.
Does the market believe the airline has any “spice” left, especially after its market share dropped below that of one-year-old Akasa Air? Or is that the problems at Akasa Air are giving hope for SpiceJet to bounce back?
Not just this. The airline faces many court cases, including insolvency petitions involving former promoter Kalanithi Maran who has to be paid, as per a Supreme Court ruling.
Wet-leased aircraft
SpiceJet has relied on wet-lease arrangements for quite some time now. It has added capacity, albeit expensive, during peak travel months. The first of many Corendon Airlines aircraft started operating this week. This will help SpiceJet add capacity, which means more revenue, although that may not translate into profit.
Wet leasing is expensive. It warrants one crew member from the airline to be part of the operation and comes with crew, insurance and maintenance. With many cases filed by lessors and the recent Go First run-in with aircraft lessors, the airline will find it difficult to get additional leased planes.
Clearing dues
Recently, the cash-strapped carrier announced the allotment of Rs 4.81 crore of equity shares on a preferential basis to nine of its aircraft lessors to clear outstanding dues of Rs 231 crore.
The airline's board also approved the allotment of 34.1 million shares and 131.4 million warrants at an issue price of Rs 29.84 each to promoter Ajay Singh's group Spice Healthcare.
Market share
As Akasa Air took the fifth spot in terms of market share, SpiceJet was relegated to sixth position. It could have even slipped to seventh had it not been for Go First’s suspension of operations.
Akasa Air’s fast growth has come with challenges. An exodus of pilots and cancellations for various reasons have given SpiceJet a window of opportunity to claw back market share. Though psychological, it would instil confidence among employees and travel agents to sell more seats.
Critical finances
While there could be positives like settling with lessors, hiving off SpiceXpress, adding capacity, and bringing more planes into active service, the airline’s financial condition remains precarious. With a network that does not cater to regular business travellers and one that is largely non-metro centric, SpiceJet seems to be making the most of a good season by adding capacity temporarily.
The conversion of debt to equity means a significant reduction in outstanding loans, something that will be reflected in the airline’s results for the second quarter of FY24, due between October 1 and November 14.
What will matter for the airline is debt reduction.
The airline is famous for making announcements and not following up on them. From the famed codeshare with Emirates to the induction of MAX aircraft, there is a list of announcements that has never materialised.
Yet, the airline has been able to continue flying and retain its pilots – even when rivals have found it hard to keep their flock together.
IndiGo is literally going places, Air India is expanding rapidly, with the low-cost arm poised to almost double over the next 15 months, which begs the question: How will SpiceJet continue to find its niche it once served?
So far, the airline has proved everyone wrong – and this has not happened once but time and again. What next? In a market where 80 percent of the market share will be with IndiGo and airlines of the Tata Group, the remaining 20 percent is where the battle would be in future.
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