Spice Jet Grabs Third Largest Market Share In February 2013

The aviation space in India has suddenly turned vibrant. Be it Kingfisher Airlines’ efforts to get new wings or Air Asia’s (world’s largest low cost airline) attempt at testing the Indian markets; the Indian aviation sector has remained abuzz. Based on such factors, we at DSIJ had published a special report. One part of that story dealt with special fares offered by aviation companies. The special offer was kick-started by Spice Jet in the month of January 2013 and was followed by other aviation players.

About the special offers, we had categorically stated that though this is a good strategy to generate cash (as all companies were able to generate a good amount of cash flows), it is not a sustainable and fruitful option in the long run.

Now, after two months, some impact of these offers is visible in the market shares enjoyed by the various aviation players. Helped by the special price offer sales, Spice Jet has gained a good amount of market share and speeded past the state-run Air India in the February 2013.

According to latest figures announced by the aviation regulator, the Directorate General of Civil Aviation (DGCA), Spice Jet flew 20.4% of domestic passengers in February 2013 as against 18.4% in January 2013. This was ahead of Air India as its market share dipped from 20.3% to 18.9%. As a result, Spice Jet became the third largest market share holder pushing Air India to the fourth position.

On the market share front, IndiGo stood as the front runner with 27.40% market share in February 2013 (unchanged since January 2013). The consolidated market share of Jet Airways declined to 25.40%from 26.20 per cent in January 2013 making it the second largest. Go Air also managed to gain a marginal share as it managed to carry 7.80%.

The moot question here is whether Spice Jet will be able to sustain the third position. Our take is that the primary factor to have helped Spice Jet move ahead of Air India is its first mover advantage in terms of offering special fares. As it began the offer early it managed to get an advantage from February onwards. But the noticeable factor is that all the others (Including Air India) have also gone ahead with such offers and hence the impact of the same will be visible in the forthcoming months. It thus seems quite difficult for Spice Jet to sustain these levels.

Further, the entry of Air Asia is about to change all the dynamics of the Indian aviation industry. So the figures are expected to change significantly. In our earlier special reports we had categorically stated that the aviation sector is going through difficult times and hence any sudden revival is not expected. Rather concerned over the industry's weak financial position, aviation regulator DGCA had intervened in January 2013, persuading other airlines not to slash fares along the lines of Spice Jet’s scheme. However, everyone from the industry has joined the euphoria triggering a full-blown fare war. We still recommend investors to stay away from the sector.