scorecard
  1. Home
  2. business
  3. corporates
  4. news
  5. It’s not just COVID-19 ⁠— SpiceJet’s survival is getting challenged by rising costs, low cash, and new players with deep pockets

It’s not just COVID-19 ⁠— SpiceJet’s survival is getting challenged by rising costs, low cash, and new players with deep pockets

It’s not just COVID-19 ⁠— SpiceJet’s survival is getting challenged by rising costs, low cash, and new players with deep pockets
Business4 min read
  • SpiceJet is challenging an appeal to shut down the airline after consecutive years of losses made worse by the pandemic and rising cost of fuel.
  • Meanwhile, the mighty Tata Group and billionaire Rakesh Jhunjhunwala are preparing to join the race to dominate Indian aviation.
  • In 2015, its current Chairman and Managing Director Ajay Singh took over the airline for ₹2 a share, promising to turn it around, but now, in 2022, the fortunes aren’t looking any better.
  • Check out our weekly explainers on the hottest topics and sign up if you like them.
The odds of SpiceJet’s survival are turning against the Gurugram-based low-cost airline with every passing day.

Two years of losses, followed by a pandemic that brought business to a near standstill, and added more to the losses, leading up to a default of $20 million and a court order to fold the company is a short summary of the company’s recent history.

And up ahead this rocky road awaits a tight contest with the mighty Tata Group and billionaires like Rakesh Jhunjhunwala. Chairman Ajay Singh’s fight for his pride and the airline seems to be getting tougher.

SpiceJet’s losses have more than tripled since 2019
SpiceJet

Revenue

Loss

FY2021

₹6,072 crore

₹1,029 crore

FY2020

₹13,134 crore

₹936 crore

FY2019

₹9,179 crore

₹302 crore

Source: Company’s financial reports

Ironically, even after that sharp fall in fortunes, Ajay Singh is still sitting on a handsome profit because he got the shares at a paltry sum of ₹2 a share from Sun Group’s Kalanithi Maran. The stock is still trading at ₹65 apiece, but Singh’s profit is just on paper for now.
The immediate challenges

In December 2021, the Madras High Court had reportedly ordered the winding up of SpiceJet and asked the official liquidator to take over the airline’s assets. This happened after the company failed to pay dues of around $24 million to Switzerland-based SR Technics, which provided maintenance and repairing services to the airline for a decade.

Adding to it, the airline barely has any money to pay GST dues of ₹285 crore. This, according to a Business Standard report, has prevented SpiceJet from sending back 13 Boeing 737 aircraft to its lessors.

Due to non-payment of tax dues, the tax authorities have refused to grant a ‘no objection certificate’ to SpiceJet to give back the leased aircraft to its lessors.

Even If SpiceJet survives these, there will be more turbulence ahead

Even with the limited competition so far, SpiceJet has only lost customers ⁠— its market share has gone down to 10% at the end of November from 13.2% in November last year.

The company could argue that it’s the second biggest player, but the gap between Singh’s airline and the market leader Indigo, owned by Interglobe Aviation, is a staggering one. And it could get worse with new players with deep pockets entering the space.
In October 2021, Tata Sons bought Air India from the government. Another airline joining the race is Akasa Air, co-founded by billionaire and marquee investor Rakesh Jhunjhunwala.

“If a downturn like this comes around again and you have guys like Tatas, Rakesh Jhunjhunwala willing to pump in a lot of money into the new product. And you are sitting crash-strapped, not able to access capital, you are as good as pushing yourself out of the market,” said Praveen Paul, a Bengaluru-based aviation consultant.

And the pandemic isn’t helping

“I think SpiceJet’s revival will take much longer. Now lots of restrictions posted by many cities, states, governments and in any case business travel was going to take a lot of time, which has already come down. Besides, we are already in winter and people are deferring their holidays both domestic and international. So overall industry outlook is not good with oil prices remaining firm and demand not picking up,” said aviation expert Amrit Pandurangi.

Rising fuel prices are making it worse. Aviation turbine fuel (ATF) prices have nearly doubled in the last 12 months. Given that these costs account for up to 40% of an airline’s total operating costs, this is a major cause of concern for the ailing SpiceJet.

“All these airlines have huge dues to pay regularly. It is like people paying EMI, they have to pay lease for aircrafts, pay parking charges whether or not they fly aircraft, air traffic charges. Only variable cost for airlines is fuel cost and air traffic charges, everything else is fixed cost,” Paul said.

SpiceJet was co-founded by Ajay Singh in 2005 with the objective of making flying affordable for all Indians. In 2010, Singh exited the airline. Five years later, when the airline was on the verge of shutting down, Singh rescued the airline by buying 58% stake at a dirt cheap price. Now, in 2022, the future isn’t looking any more rosy than it did in 2015.

SEE ALSO: Asia’s richest man Mukesh Ambani makes a new purchase to take on Amazon and Swiggy in quick commerce
Indians will soon be able to carry e-passports while travelling
Mukesh Ambani-led Reliance Industries raises $4 billion in US dollar bonds

READ MORE ARTICLES ON


Advertisement

Advertisement