After flying over turbulence, SpiceJet looks to soar ahead

Stock gained more than 150% in 2017, giving Ajay Singh a net worth of $789 million

The year 2017 has been a happy one for SpiceJet. Its flights were full throughout the year, on-time performance was high, and a favourable fuel price helped it make money.
 
The markets, which always treats airline stocks cautiously, were excited about the stock, which surged more than 150 per cent when compared with 2016. According to Bloomberg, it was the best performing airline stock in the world.
 
The phenomenal surge propelled promoter Ajay Singh towards the billionaire club. On December 29, SpiceJet’s share price closed at Rs 145.95, giving Singh an estimated net worth of Rs 5,248 crore or $789 million. He has a 60.25 per cent stake in the company.

 

Singh surged past Naresh Goyal, owner of rival Jet Airways, which has almost twice the number of planes than SpiceJet. Goyal, with 51 per cent stake in Jet Airways (along with his daughter Anita), has a net worth of Rs 4,815 crore ($723.76 million).
 
Singh took over SpiceJet in 2015 when the airline was staring at closure. The market rewarded the company due to consistency in performance throughout the year, he said. “Every month of last year, load factor was in excess of 90 per cent. Every single month of 2017 has been profitable. We started flying in UDAN (the government’s regional connectivity scheme) and all our routes are now making money. We have placed a large plane order. We have kept up great punctuality. The product is improving. So, all that and the expectation of a higher growth in the next few years has been rewarded by investors,” Singh said in an interview.

 
An analyst with a top brokerage said the airline was active this year and had publicised a number of steps that boosted investor’s confidence. “They have been very busy this year, almost with one or two announcements every year, which the market took positively,” he said.
 
SpiceJet placed a massive order of 205 Boeing 737 Max planes worth $22 billion, delivery of which will start from July. The airline followed it up with 50 Bombardier Q400 planes. The new planes will help the airline increase capacity. “The delivery schedule is very rapid. There are about 16 deliveries in 2018 and then they accelerate in 2019 and 2020,” Singh said, adding that the new planes would help the airline reach new geographical areas, while tackling raising fuel price which threatens to pinch the airline’s pocket. “The new 737 Max 10 that we have ordered are more fuel efficient and have longer flying range. It will help us to look at Fareast Asia.”

 
Analysts also credited the airline’s near-monopoly on regional routes with the enviable load factor it had in 2017. Pricing on some of the routes resulted in much higher yields when compared with key metro routes. “SpiceJet, which has a sizeable capacity on such routes, has better yields despite high load factors and heightened competitiveness on metro routes,” SBICaps said in a research report.
 
SpiceJet was one of the first major airlines to jump into the UDAN bandwagon. Singh said it proved successful. “All our UDAN flights are profitable and we will be equally aggressive in the next round of bidding too,” Singh said, adding that 2018 would be another good year.

 
SpiceJet plans to launch seaplanes in 2018. Two trial flights have been done. “A number of state governments like Kerala, Rajasthan, Uttar Pradesh have shown interest in the project and I expect it to start soon in 2018,” Singh said.
 
Analysts, however, cautioned that Singh was trying to do too many things at the same time. “Markets sometimes do not take kindly when promoters are over-aggressive. Fuel price is likely to climb in 2018 and going slow is always good,” said an analyst.
 
Singh, however, remained unperturbed. “A lot of plans are lined up. The product will improve. There will be control on cost structure. I expect 2018 to be one more busy and happy year,” he added.