Will Jet Airways’s planes take SpiceJet to new highs or lows?

Though low-cost carrier (LCC) SpiceJet plans to fly about 28 Boeing 737 Next Generation (NG) aircraft vacated by the beleaguered Jet Airways, industry insiders are holding their breath to see if the Gurugram-based airline will be able to operate them profitably or get pulled down in the process.

The situation becomes tricky as the operational costs of a full-service carrier like Jet have always been higher in comparison to a budget airline.

A back-of-the-envelope calculation done with the help of aviation analysts and industry experts reveals that SpiceJet’s attempt is unlikely to bear fruit in the short run but can turn productive later on. The Ajay Singh-promoted carrier is so far said to have signed letter of intent (LoI) for 28 Boeing 737 NGs earlier operated by Jet and talks are on to induct another 15 aircraft to take the tally to 40 in the next few weeks. The airline has also hired around 1,000 Jet employees including pilots to run these aircraft, SpiceJet management earlier said.

Analysts claim that SpiceJet decided to lease Jet Airways’s planes after 12 of its own Boeing 737 Max planes were grounded in March after an Ethiopian Airlines’s plane crashed the same month.

Industry sources said right from the start, leasing planes that earlier belonged to Jet cost much more for SpiceJet as B737 NGs are in great demand following the grounding of B737 Max planes around the world.

Also, the global airlines are believed to be looking to extend their leases for B737 NG planes, which has further firmed up the demand. Experts from the leasing industry said the leasing price has increased by about 10% in the past couple of months. Earlier, the monthly lease rental, which depends on several factors including the age of the aircraft, creditworthiness of the airline, market demand, contract terms, etc, was anywhere between around $2,00,000 and $2,50,000.

“So the planes did not come at a bargain for SpiceJet,” said Ameya Joshi, a Pune-based industry veteran who has earlier worked with Kingfisher, GoAir and AirAsia in their core network planning team. Joshi is also the founder of aviation analysis blog called Network Thoughts.

Moreover, the seat configuration of Jet Airways is another problem which SpiceJet is struggling with to bring down the operational costs. A typical Jet Airways plane has 168 seats, including 12 business class ones that are charged several times higher than the economy class. SpiceJet, on the other hand, has a seat configuration of 189, out of which it sells some of the seats as SpiceMax that comes at around Rs 1,000 premium.

On an apple to apple comparison, a typical Spicejet configuration has 12.5% more seats per plane. Hence, in order to recover the costs created out of differences in the number of seats, SpiceJet will have to increase the fares and market the business class seats separately, which remains to be seen.

According to industry experts, the airfares have already soared in the past couple of months due to a shortage of capacity in the Indian aviation market and it makes more sense for SpiceJet to deploy its own planes at higher fares, and not those of Jet Airways. “That would not bring any immediate benefit to SpiceJet. They can earn some brownie points from hiring Jet staff, planes and slots. Of course, they can be of great benefit in future,” adds Joshi. 

SpiceJet executives said the only option left with them is to reconfigure the seating arrangements once the planes go for heavier maintenance checks and aircraft get grounded for several days or weeks. However, this will again depend upon how soon the 737 Max issues get resolved.

Mark Martin, CEO and founder of Dubai-based Martin Consulting, said during the heavier maintenance period, SpiceJet may not only reconfigure the seats but also change cargo area, in-flight entertainment, etc, to bring down the cost of operating 737 NGs to that of its own similar aircraft.

According to experts, there is a shortage of over 180 aircraft in the Indian aviation market, which has lead to fares spiralling. Though the government is clear that the slots vacated by Jet will only be given to airlines that bring additional capacity, the supply remains insufficient.

SpiceJet, Vistara, AirAsia and IndiGo are vying for Jet slots and staff. Air India, too, showed interest but later retreated due to lack of vendor.

There is no sufficient data available to compare operational costs of Jet Airways’s B737 NGs with the planes in SpiceJet’s fleet. The airlines do not reveal operation cost for individual type of aircraft.

COST CONUNDRUM

• SpiceJet is said to have signed letter of intent for 28 Boeing 737 NGs earlier operated by Jet
   
• As compared to Jet Airways, a typical Spicejet configuration has 12.5% more seats per plane