Two Key Things That Keep IndiGo Ahead Of SpiceJet

 

SpiceJet Ltd. has added the most capacity since the grounding of Jet Airways India Ltd. Yet, its larger peer InterGlobe Aviation Ltd. remains better placed operationally in a market grappling with falling yields, volatile costs, and engine glitches.

Average fare per passenger per kilometer, or yields, has been falling in India because of higher capacity addition, weak demand, and India’s competition. Crude prices and the dollar remained relatively volatile. For an airline, cost volatility is high, as 60–70 percent of its expenses are dollar-denominated, and fuel accounts for more than a third of its costs.

Both SpiceJet and IndiGo, operated by InterGlobe Aviation, saw costs also rise due to Boeing 737 Max aircraft's grounding and the replacement of engines of Airbus A320neos, respectively.

IndiGo, India’s largest carrier, scores higher on two key parameters even as SpiceJet is looking to catch up.

Book your IndiGo Airlines or SpiceJet Flight at a Cheap Price from IndiGo Airlines Dhaka Office or SpiceJet Dhaka Office

Costs

IndiGo’s cost per unit is lower than that of SpiceJet. On average, in the last five quarters, IndiGo’s cost per available seat kilometer remained lower by 17 percent, according to data disclosed by the companies. That helped the airline to report profits or pare losses even as yields declined.

Cash

IndiGo has a stronger balance sheet with higher free cash on books worth Rs 8,700 crore and a better liquidity ratio — cash-to-sales — 26 percent. Usually, keeping a fifth of the sales as money is considered safe for airlines globally.

A stronger balance sheet is even more important for airlines as the operating environment is volatile because of changing costs.

IndiGo, with three times the size of SpiceJet, doubled its share in the domestic market in the last five years. Its international share doubled in just a year, and the airline plans to add more capacity on global routes.

International operations act as a hedge against foreign currency movements and help lower costs. That’s because the fuel used for international flights does not attract any taxes and is cheaper outside India.

IndiGo still aims to grow its overall capacity by more than 20 percent. But it lowered the forecast twice in 45 days and now hopes to increase capacity by 22–23 percent in the ongoing fiscal ending March, down from the original estimate of 30 percent.

What SpiceJet Is Banking On?

SpiceJet expects the return of Boeing 737 Max aircraft, which were grounded because of global safety issues. The planes are 15 percent more fuel-efficient than SpiceJet’s existing fleet and have 20 percent higher seating capacity.

The airline expects the aircraft to be back in service by the end of January. However, Boeing has said that additional delays are possible as regulators around the world evaluate the 737 Max, including its proposed software upgrade.

SpiceJet plans to negotiate higher discounts with Boeing, thus boosting sale and leaseback income on aircraft delivery, said Edelweiss Securities in its note. The company also expects compensation from Boeing for the grounded planes in the coming quarters.

SpiceJet has partly offset the 737 Max grounding by adding capacity, aided by the closure of Jet Airways. The Ajay Singh-led airline increased its capacity by more than 50 percent in the second quarter ended September — the most in the last four years. That’s because, according to SBICAP Securities, it received most of the slots vacated by Jet Airways.

Book your IndiGo Airlines or SpiceJet Flight at a Cheap Price from IndiGo Airlines Dhaka Office or SpiceJet Dhaka Office

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