SpiceJet makes smart move with Tigerair but where are the funds?

New Delhi: The interline agreement that SpiceJet and Singapore’s Tigerair announced today is significant for many reasons. But it surely puts all speculation about debt laden SpiceJet’s quest for funding, at least from a strategic partner like TigerAir, at rest. The pact involves no equity investment what so ever and a statement from SpiceJet made no reference to either the frantic hunt the airline has been conducting for a suitable partner nor reasons for reaching just an interline arrangement with Tigerair instead of getting some money. In many ways, investors of SpiceJet could see this announcement as a let down.

Actually, an interline agreement is a smart strategy from SpiceJet. Such an agreement refers to a pact to issue and accept tickets for flights that are operated by the two airlines. It isdifferentfrom a codeshare since here, the operating airline’s own flight numbers are used for tickets. Here’s why it is smart:

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

1. It allows extensive benefits to flyers of both airlines since it offers much better connectivity. From January 6, flyers on SpiceJet’s domestic network from 14

Indian cities can enjoy seamless connection through Hyderabad onto Tigerair’s Singapore-bound flights. The 14 Indian cities are Ahmedabad, Bhopal, Chennai, Kolkata, Coimbatore, Delhi, Goa, Indore, Mangalore, Madurai, Pune, Bengaluru, Tirupati, and Visakhapatnam (Vizag). Similarly, Tigerair’s flyers can now book directly for connections to various Indian cities on SpiceJet’s domestic network.

[caption id=“attachment_1137683” align=“alignleft” width=“380”]  Apart from the interline agreements, SpiceJet urgently needs to tie up funds. Is the interline agreement with Tigerair a precursor to funding or an equity stake sale? Only time will tell. AFP[/caption]

Impact Shorts

More Shorts

Chennai Ranks #1 in Challan Checks: ACKO Insights for Smarter Car and Two Wheeler Insurance Decisions

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

2. Since both the partner airlines are low fare, SpiceJet has been able to offer introductory promotional fare, start from Rs 4,699 one way (all-inclusive) and return starting from Rs 9998 (all-inclusive).

3) The enhanced connectivity from a south Indian airport couldcausesome worry to aggressive competitors like IndiGo which have already begun “blocking” slots at Chennai airport. All this is leading up to the imminent launch of AirAsia India, which has made Chennai its base. So SpiceJet’s making Hyderabad its base for interline agreement with Tigerair is smart strategy in countering competition

4) Last but not the least, Tigerair is one of the low fare subsidiaries of Singapore Airlines. Singapore Airlines has alreadyannounceda megatie upwith Tata Sons for floating a full service airline in India. So with this interline agreement, not only does Tigerair get an entry into the lucrative Indian market, it gets a chance to compete with localcompetitorAirAsia which is also starting up in India.

So this interline agreement is sure to reap benefits for SpiceJet. But this still leaves thequestion of fresh funding, which the airline needs urgently, wide open. Firstpost had said earlier that mounting losses and an unstable cost environment could make further funding of SpiceJet’s operations difficult.Rashesh Shah and Darpan Thakkar of ICICI Securities have said in a note to clients last month that the airline’s networth is negative Rs 603 crore as on September 30 and its loan liability is over Rs 1700 crore. SpiceJet posted its highest ever quarterly loss in September at Rs 559 crore due to escalating costs, currency weakness and passenger slowdown.

It has in the past been engaged in talks with several potential investors, including foreign airlines, but no funding has materialised from these efforts so far. Promoters have been infusing funds into SpiceJet regularly but that is not sufficient.Vikram Suryavanshi of Antique Stockbroking said in a note last month that he now expects the airline to post a loss of Rs 530 crore this fiscal against earlier estimate of Rs 99.1 crore profit since its profitability is highly sensitive to fuel costs.

Apart from the interline agreements,SpiceJet urgently needs to tie up funds. Is the interline agreement with Tigerair a precursor to funding or an equity stake sale? Only time will tell.