While there are issues with the grounded 737 MAX fleet as well as new inductions, analysts at Edelweiss Research believe capacity growth for SpiceJet is expected to accelerate, with new plane additions expected to resume from April 2020.
In 2020-21, they expect 56 per cent capacity growth, compared to 21 per cent for IndiGo. The addition of new planes will bring down SpiceJet’s fuel costs, as they are 12-15 per cent more fuel-efficient and have higher capacity, compared to the current fleet.
The other benefit is that its cost structure is expected to converge with that of IndiGo’s, which has the lowest per unit cost in the industry. This will add to its profits, as the company is already ahead in per unit revenues on account of higher regional routes, load factors, and better yield management.
What could boost revenue growth for SpiceJet are the international routes which have seen 60 per cent increase in capacity in the first half of 2019-20. The company will benefit from higher load factor, as analysts expect international traffic to grow by about 15 per cent over the next couple of years.
While there are multiple positive, analysts at JPMorgan highlight the risk of divestment at Air India, which could lead to increase in competitive intensity. This is because the national carrier controls 13 per cent and 66 per cent of the domestic and international passenger market share, respectively, and has key slots and bilateral rights.