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SpiceJet seeks Gulf investors

Low-cost carrier says its interested in tie-up with foreign airline.
NEWS, Aviation

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By: Daniel Shane

India’s SpiceJet held “preliminary discussions” with Gulf airlines about making a potential investment in the low-cost carrier, CEO Neil Mills told Arabian Business.

Any tie-up between Chennai-based SpiceJet, which has a network of 41 destinations across South Asia and the Middle East, would depend on a major policy shift in India’s aviation industry, which currently prohibits foreign direct investment (FDI).

"There have been preliminary discussions to check in principle whether there is interest on both sides and the confirmation there would be 'yes there is',” Mills said.

He added that as the framework for FDI in Indian aviation is not yet in place, overseas carriers were reluctant to enter more formal negotiations.

"[Talks have] been on a preliminary basis, because they've quite rightly said 'what's the point in investing money in due diligence if the rule to enable [an investment] doesn't even exist',” Mills said.

Mills declined to disclose which airlines SpiceJet had held these preliminary talks with, although Arabian Business understands that Qatar Airways is one of them.

Any future tie-up, he added, would provide reciprocal benefits. "We've got a good network and we're carrying 36,000 people a day [and] about 1m people a month now, so we've got good feed and good catchment,” Mills said.

A partnership with an international carrier would also give SpiceJet access to economies of scale on procurement contracts and long-haul options for its passengers, Mills added.

Mills said he could not give an indication on the timescale of any change in India’s aviation policy to allow FDI. "Part of the issue is that the majority of carriers have realised they can't use [FDI] anyway,” he said. “Either their debt burden is so large that nobody would want to take a stake in them because you inherit a stake of the debt, and other carriers are already owned up to 49 percent on an offshore basis anyway.”

He added that SpiceJet was “not holding our breath” on a change in regulations.

Saj Ahmad, chief analyst at StrategicAero Research, told Arabian Business that India's FDI rule on airlines would "stay the same for a while yet", although a foreign airline could feasibly buy a stake via SpiceJet's parent Sun Group, although he said this strategy would likely still draw scrutiny from Indian authorities.

Ahmad agreed that SpiceJet would make "very good value for investment" ahead of rival budget carrier IndiGo, which he said has "overburdened itself with questionable growth plans". Ahmad added that SpiceJet had a "fantastic cabin product on a par with its GCC rivals" and was also a more attractive investment than Air India and Jet Airways.

SpiceJet CEO Mills also told Arabian Business that SpiceJet will begin a daily service to the Saudi Arabian capital Riyadh from its hub in Delhi by October.

The carrier, which launched its third international service to Dubai in June, will also begin flying to the southern Chinese city of Guangzhou around the same time, Mills confirmed, following media reports last month.

“We’ve got Guangzhou in China and Riyadh in Saudi Arabia coming next,” he said. “They should be done by the end of September but certainly October." The Delhi-Riyadh route will be served by one of SpiceJet's Boeing 737 aircraft.

Mills said SpiceJet was currently not assessing any other Gulf routes. “Not at the moment. Certainly not for this season, but we may look next season," he commented.

He added that the airline had applied for "another eight to ten routes... on an international basis," but did not disclose where as the carrier was still negotiating with the Indian civil aviation authorities. "Let’s see what response we get from [Indian] authorities before we start looking at the challenges at the other end," Mills said.

Indian carriers have intensified their focus on international markets this year after the Indian government cancelled its policy of giving state-run Air India first refusal on overseas routes and Kingfisher Airlines decision in March 2012 to scrap its international routes altogether.

In the company’s latest first quarter results, SpiceJet reported a 51 percent increase in revenue to INR1407 crore (US$251.6m) and a 26.1 percent lift in passenger numbers. The carrier posted a profit of INR56.1 crore, SpiceJet’s first following a streak of five straight quarterly losses.

The airline’s market share stood at 18.6 percent.

SpiceJet currently operates a fleet of 35 Boeing 737 craft and 12 Bombardier Dash 8 Q400.

Owned by Indian billionaire Kalanithi Maran, SpiceJet competes with IndiGo, India’s largest low-cost carrier.

Mills added that the Dubai service, which flies from both Mumbai and New Delhi was “performing just fine”. “The weakness that everybody said was on that route, we’ve not seen. With the product that we offer and the pricing that we offer, there’s been a lot of demand on that route,” Mills said, adding that were currently no plans to increase capacity on the service.
 

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