FDI in Spicejet: What makes it favorable?

The government of India is mulling the proposal for introducing Foreign Direct Investment (FDI) in aviation sector for quite some time now. If and when it happens, FDI is expected to ameliorate the problems of airline companies to a great extent with the infusion of funds. However, with many airline companies reporting losses and some on the verge of being declared bankrupt, there is not enough encouragement for foreign direct investors to place their money on Indian carriers. FDI cannot be panacea for ailments plaguing India civil aviation. Spicejet is one of the major Indian carriers which are likely to benefit from the FDI. The main reasons for this are:

• Better regional spread than others: Amongst all carriers, Spicejet airline has a better spread of operations than the others in the domestic sector. In fact, this is a major factor which distinguishes it from its competitor, IndiGo airlines. Spicejet has major thrust in the south Indian region and does not take its flights to nearby international destinations except Kathmandu, Dubai and Colombo. It has better connectivity with the tier II and tier III cities.

• Good space for receiving FDI: The chief competitor of Spicejet, IndiGo, already had investments from US based company and there is not much further scope of receiving the FDI. All other airlines do not have a history of profitable operations which would make them lucrative for receiving FDI. Spicejet, thus, stands a unique advantage in this regard since it is expected to turn profitable by next year.

• Better growth projections: Spicejet is currently the number three player in aviation sector in India, behind Indigo airlines. It, too, has ordered for the aircraft to fuel its ambitious expansion expectations after Indigo airlines. However, it is better positioned to utilize its new aircraft for meeting those expectations. Making Delhi a regional hub and with clear focus on expanding further in North India presents a clear focus on priorities of deployment of new aircraft.

While Spicejet is a no-frill airlines which offers cheap air tickets to customers and is expected to perform financially better next year, it is a natural for being considered as a foremost FDI recipient.