Should you invest in SpiceJet for long term? Stock Analysis by Finology

SpiceJet, an Indian budget airline company, has the industry-highest seat capacity utilisation of 92.3%, along with the highest revenue per seat per Km.

Finology Research Desk has analysed the company this week, providing a clear verdict on whether SpiceJet is good for long term investing or not. Find out in this article.

What makes the Aviation Industry special?

In recent years, India has been the fastest-growing aviation market globally. In FY 2024, India emerged as the 3rd largest aviation market globally (behind the US and China), achieving record-breaking milestones.

The total number of passengers soared to 184 million, representing a 14.5% increase compared to FY 2023. This growth far exceeded pre-pandemic levels, with passenger traffic surpassing FY19 figures by an impressive 10.3%.

Number of passengers for Domestic Airlines (in Millions)
 

Source: Indigo Annual Report 2024

Domestic travel surged past pre-COVID benchmarks, while international travel saw a remarkable 14.6% increase. This surge reflects India's strong consumer base and rising middle-class aspirations, which drive demand for air travel.

The Indian carriers collectively achieved over 1,150 daily aircraft departures, driven by thriving greenfield and brownfield airport infrastructure expansions. India has the world's largest and youngest workforce among the world's top economies and boasts a rich reserve of human capital, poised to meet the rising demand for aviation professionals. Moreover, heightened investments in airport expansions and partnerships with Original Equipment Manufacturers (OEMs) highlight the sector's focus on long-term growth.

Air Passenger Traffic in India (2010 to 2024)
 

Source - Statista 

The number of domestic passengers in FY2024 (153.7 million) was just over double that of international passengers (66.7 million).

Domestic passenger traffic saw a compound annual growth rate (CAGR) of 9.7%  from 2014 to 2024, while international passenger traffic saw a 4.5% CAGR during the same period.
 

Understanding the Business Model of SpiceJet

SpiceJet is principally engaged in providing air transport services for the carriage of passengers and cargo and related allied services such as in-flight sales, ground handling business, and other allied services at airports.

 

 

Segment	Revenue (₹ in Million)	Percentage
Passenger Revenue	64,324.99	90.8%
Cargo Revenue	3,249.13	4.6%
Sale of Food and Beverages	200.78	0.3%
Incentives Received	32.63	0.05%
Income from Training Services	171.90	0.2%
Subsidies Received	1,250.71	1.8%
Ground Handling Services	1,553.28	2.2%
Others	54.91	0.1%
Total	70,853.06	100%

 

SpiceJet operates on a low-cost carrier (LCC) model, providing affordable air travel to many passengers while maintaining high safety and service standards. By employing a mixed fleet of  Boeing 737-8 MAX, Boeing 737-800 and Bombardier Q400 aircraft, the airline efficiently connects major cities and smaller towns, enabling extensive market coverage.

SpiceJet's business strategy is centered around 2 things: cost optimisation and revenue enhancement. The airline minimises operational expenses while maximising income through innovative offerings. Alongside its low fair structure, SpiceJet generates significant ancillary revenue by providing premium services like SpiceMax, SpiceCafe and SpiceScreen, which offer enhanced benefits at higher fairs, sell in-flight meals and other add-ons.

This balanced approach allows SpiceJet to maintain financial viability, attract a large passenger base and compete efficiently in domestic and international markets. The affordability, connectivity, and value-added services position SpiceJet as a strong player in India's aviation sector.
 

Porter's 5 Forces Analysis for SpiceJet

 

 

1. Threat of New Entrants – Moderate

The aviation industry demands substantial capital investments, adherence to stringent regulatory standards and the establishment of comprehensive infrastructure. These factors create significant barriers to new entrants. However, the liberalisation of India's aviation policies and rapidly expanding market have attracted new players. For instance, Akasa Air's entry has intensified competition, particularly in the low-cost segment. SpiceJet's established brand and operational experience offer a competitive advantage, but the continuous emergence of new airlines necessitates vigilance and adaptability.

2. Bargaining Power of Suppliers – High

SpiceJet relies heavily on limited aircraft manufacturers, such as Boeing and Bombardier, which enhances supplier bargaining power. Additionally, fluctuations in aviation turbine fuel (ATF) prices significantly impact operational costs. Global supply chain descriptions and rising fuel prices have further stained the airline's financials. 

3. Bargaining Power of Buyers (Passengers) – High

Indian passengers are notably price-sensitive, with many airlines offering competitive fares. This abundance of choice empowers customers to demand better services at lower prices. SpiceJet's market share has experienced fluctuations, dropping to 2% in September 2024, indicating challenges in retaining customers' loyalty amid stiff competition. To address this, SpiceJet has introduced value-added services and promotional offers, striving to enhance passenger experience and regain market share.

4. Threat of Substitutes – Moderate

For short-haul travel, India's extensive railway network and improving road infrastructure present viable alternatives to air travel. However, for long travel and time-sensitive journeys, air travel remains unparalleled. The increasing affordability and efficiency of high-speed trains could pose a future threat.

5. Industry Rivalry – High

The Indian aviation market is characterised by intense competition, with players like Indigo commanding a significant market share of 62%. SpiceJet's market share has experienced fluctuations, dropping to 2.3% in August 2024, reflecting the fierce rivalry and operational challenges it faces. The airline has reported financial losses, with a net loss of ₹423.7 crore for the fiscal year ending March 2024.
 

Why did we reject SpiceJet for Finology 30?

1. High Promotor pledging

Promoters have pledged 52.8% of their holding.

It increases financial risk, stock volatility & raises governance issues.
 

Source: Finology Ticker 

As of January 2025, Ajay Singh, the promotor of SpiceJet, has reduced his stake in the airline from 47.6% to approximately 30% by diluting over 10% of his shareholding. This strategic move was part of a  successful Qualified Institutional Placement (QIP) that raised ₹3,000 crore, aimed at addressing the airline's financial challenges and stabilising operations.

2. Depleting Fleet

SpiceJet's fleet size has shrunk from its peak of 94 aircraft in FY20 to just 28 in Q1 of FY25, which presents significant challenges for the airline's operational and financial health. 

 

Source: Investor Presentation of Q1FY25 - SpiceJet

Key impacts of reduced fleet size:

• Revenue Pressure

A smaller fleet directly impacts the airline's ability to generate revenue.
 

Source: Finology Ticker 

SpiceJet's net sales have shown a concerning decline from ₹12,374.57 Cr in FY20 to ₹7,085.31 Cr in FY24, reflecting a 42.7% drop over four years.

Fewer flights lead to lower passenger volume. According to data from the Directorate General of Civil Aviation (DGCA), SpiceJet's passenger numbers plummeted 38% to 576,143 in November 2024, as against 930,495 in January 2024.

• Market Presence

Fewer aircraft means fewer routes, reducing accessibility and competitiveness in the aviation market. With only 28 operational aircraft, SpiceJet struggles to maintain its network, ceding market share to competitors such as Indigo and Air India.

SpiceJet's market share has shrunk to just 2% in September 2024, down from 7.3% in January 2023, as per the data released by the Directorate General of Civil Aviation (DGCA).

3. Volatility in ATF

Aviation Turbine Fuel (ATF) accounted for around 55% of SpiceJet's total expenses in FY24, so any rapid price increases would make it difficult for the airline to manage costs and maintain profitability.

This chart by the International Air Transport Association (IATA) highlights the fluctuating nature of jet fuel prices.
 

 
Source: IATA

This volatility arises from 2 key factors:

• Crude oil prices (Green Line): Crude oil prices are influenced by global geopolitical events, supply-demand imbalances, OPEC decisions and economic decisions, while economic slowdown can lead to price drops.
   
• Crack Spread (Red bars): The "crack spread" or the profit margin for refining crude oil into jet fuel adds an extra layer of unpredictability. Crack spreads can widen during high demand for refined products, refining capacity constraints or natural disasters affecting refineries.

4. High Fixed Costs

On top of the reduced fleet, high fixed costs and high airport charges exacerbate the airline's financial strain, especially with reduced operational revenues.

5.  High Outstanding Liabilities

The airline's dues to lessors, engineering services and maintenance vendors have reached approximately ₹3,700 crores. This has resulted in the grounding of aircraft, shrinking its active fleet to 28 as of Q2 FY25 compared to its peak of 90 aircraft in FY20.

Additionally, it owes ₹650 crores in statutory dues, including unpaid GST and employee provident fund contributions. These financial strains caused operational disruptions, such as restrictions on SpiceJet flights in Dubai in August 2024 due to unsettled dues.

Its earnings can cover only 12% of interest charges!

Additionally, Crisil has downgraded the rating to D - "ISSUER NOT COOPERATING." Despite repeated attempts, CRISIL Ratings couldn't obtain info on SpiceJet's financials & strategic intent.

The Bottom Line

The airline faces financial turbulence marked by declining fleet size, heavy debt, promotor stake dilution and exposure to volatile ATF prices. However, the growing aviation industry offers a silver lining.

With passenger demand expected to rise due to increasing disposable income and expanding regional connectivity, SpiceJet's low-cost carrier (LCC) business model positions it to capture market share.

However, its ability to leverage this growth will depend on stabilising operations, raising adequate funds and regaining investor confidence. Despite potential opportunities, high risk makes this a cautious bet for investors.

For Finology 30, our ideology has been to focus on strong business models with robust financials. So, we decided not to go ahead with SpiceJet Ltd.

However, there are very few stocks that made it to Finology 30. Check them out here.