Why SpiceJet lost market share in March despite Jet Airways crisis

Mumbai: The Jet Airways crisis was expected to bring market share gains for other airlines. IndiGo (InterGlobe Aviation Ltd), India's largest airline by market share, has taken the largest bite, with its domestic market share rising 350 basis points to 46.9% in March, compared to February.

But market share gains have not come through for low-cost peer, SpiceJet Ltd. In fact, the measure has declined marginally by 10 basis points to 13.6% in March, compared to February. As the chart above shows, all other airlines gained, making SpiceJet the only airline to lose market share in March.

One basis point is one-hundredth of a percentage point.

Analysts say SpiceJet’s unimpressive performance in March is a one-off and was owing to the ban on the Boeing 737 Max 8 aircraft during the month. The airline had 12 operational 737 Max 8 aircraft.

According to news reports, SpiceJet has inducted some of Jet Airways’ Boeing 737s. To that extent, this would help it offset the capacity loss arising from the Max 8 ban. As such, for investors, it will be crucial to watch how April shapes up and whether SpiceJet can recover market share losses.

Investors appear gung-ho about the gains that SpiceJet would be able to garner with Jet Airways’ crisis. Both airlines fly similar Boeing 737 narrow-body aircraft for domestic operations.

According to analysts at Elara Securities (India) Pvt. Ltd, SpiceJet could acquire most of Jet Airways’ 79 grounded Boeing 737s (excluding 737 Max 8) on an operating lease even at lower rentals, as lessors would lose about two months on non-utilization if they lease these aircraft to airlines outside India. The brokerage firm expects SpiceJet to potentially gain around 5% market share in FY20.

No wonder, SpiceJet shares have flown up at a faster pace than those of IndiGo so far in 2019; increasing by 43%, compared to the 27% gain in the latter’s shares.

Sure, inducting more aircraft will fetch more revenues for SpiceJet. However, it’s worth noting here that in the cut-throat aviation market, this does not guarantee higher profitability. Therefore, profitability will depend to a great extent on the pricing scenario.

The Jet Airways crisis has sucked out capacity from the market and pushed up fares meaningfully. But, the moot question is how long will this last.

The capacity expansion plans of various airlines are expected to cast a shadow on the healthy pricing environment, from a medium-term perspective.

Moreover, these developments come at a time when crude oil prices are inching up. If crude oil prices remain high, then SpiceJet can find itself in a tricky place.