Is Economy-Only Seating the Future of Aviation?
Can you guess which Asian airline almost went bankrupt in 2014 but has since rebounded and has become the "world's best-performing airline stock?" You might want to say Malaysia Airlines, but you'd be wrong. It's actually an all-economy low-cost carrier you may not be familiar with: SpiceJet.
India-based SpiceJet has seen its stock grow 124% already in 2017, with its stock value septupling (that's 7x) over the last two years:
So, what's the secret to this carrier's (current) success?
SpiceJet is basically India's Ryanair. The low-cost carrier operates two aircraft types (vs. only one for Ryanair) and uses new fuel-efficient aircraft rather than purchasing old, cheap planes. On board, it's all economy seating with a snug 29-inch pitch. And, there's no loyalty program, which means the airline doesn't have to bother with upgrades or elite benefits. Its only mission is to simply get passengers from point A to point B.
And, it seems that SpiceJet still has plenty of growing to do. The low-cost carrier has just 12.6% of the Indian market as of May 2017. Yet, the airlines now boasts an industry-topping 94.3% load (the percentage of seats filled on flights). For reference, the top US airlines had between 81.6-86.7% loads for the same period. It seems that with more aircraft, SpiceJet can grow even more.
And, the airline is working on getting those aircraft. SpiceJet currently has orders for 142 new Boeing 737 MAX, which would be a gigantic order for any airline. But, since it's coming from an airline that currently has just 52 aircraft in service, it's even more remarkable.
It seems like SpiceJet's significant order is just the start for the Indian aviation market. Boeing estimates that Indian airlines will need to order 1,850 new aircraft over the next 20 years in order to meet the demand in the market. SpiceJet's current orders represent less than 8% of the expected need.
However, the airline's growth hasn't been without issues. SpiceJet's run as an airline almost ended in 2014, when it couldn't even pay its fuel bills — leading the company to ground its entire fleet temporarily. More recently, a SpiceJet pilot was one of three to falsely claim to be running out of fuel in order to get priority landing.
Will SpiceJet's current success inspire other carriers to try to match its model?
H/T: Bloomberg
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