SpiceJet, Tigerair Finalise Interline Agreement

SpiceJet (SJL), a low-budget airline which enjoys 20% share in the Indian market, has signed an interline agreement with Singaporean carrier Tigerair for a 3-year period. An interline agreement simply means a pact to issue and accept tickets for flights that are operated by the partner airlines.

Tigerair, established in the year 2004, has under its wing four airlines viz. Tigerair Singapore, Tigerair Australia, Tigerair Philippines and Tigerair Mandala. The airline operates a fleet of 50 Airbus A320-family aircraft across 13 countries in Asia-Pacific, with over 50 destinations.

As announced by SJL, starting from January 6, 2014, customers from 14 Indian cities can fly to Singapore from Hyderabad's Rajiv Gandhi International Airport. The 14 cities include Ahmedabad, Bhopal, Chennai, Kolkata, Delhi, Goa, Coimbatore, Pune, Indore, Mangalore, Madurai, Bengaluru, Tirupati and Visakhapatnam. As per the disclosure, there is no equity investment made by the company, and this agreement is just to approach more number of Indian cities through Hyderabad airport.

During the announcement, Sanjiv Kapoor, COO of SJL, commented that this interline agreement will bring two low fare Asian carriers together, which will benefit travellers from India as well as Singapore.

On the face of it, this agreement will surely spell benefits for SJL. However, the aviation industry remains highly competitive. Recently, Tata Sons has floated two joint ventures, one with Singapore Airlines and the other with Malaysian player AirAsia, which are waiting for regulatory clearance. In addition, SJL's rival airline like IndiGo and GoAir will also provide tough competition.

On the financial front, SJL posted a net loss of Rs 559.5 crore during the September quarter of FY14. Its topline for the same period stood at Rs 1257 crore. Both the operating margin and net profit margin remained negative, down to 38.47% and 44.5% respectively.

Considering the huge loss of SJL in Q2 FY14 and the increasingly competitive environment in the aviation industry, we advise investors to stay away from this stock.