SpiceJet Plans Airline to Connect Small Indian Cities

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SpiceJet Ltd., the Indian discount carrier backed by billionaire Wilbur Ross, plans to set up an airline connecting smaller cities in the country to lure rail passengers.

“For aviation to grow, we have to win customers from the trains,” Chief Executive Officer Sanjay Aggarwal said in an interview with Bloomberg Television from New Delhi today. “To win the customers, we have to provide the connectivity that trains provide.”

Setting up a regional airline that feeds into the discount carrier’s network will enable SpiceJet to win some of the 15 million passengers who take trains every day in the country. Still, the need to supplement a fleet of Boeing Co. 737 aircraft with smaller jets and better train fares will be challenges the airline needs to overcome, an analyst said.

“When an existing low-cost airline starts regional services, it starts to complicate its business model of a single aircraft type,” said Binit Somaia, a Sydney-based director at Centre for Asia Pacific Aviation. “In smaller sectors, you have to keep your costs to a minimum, as you can’t really be much more expensive than trains,” he said in a phone interview.

The New Delhi-based carrier, the only Indian discount airline to fly an all-Boeing fleet, may lease aircraft with a capacity of 40 to 60 seats to set up the feeder service, Aggarwal said. It has begun a study to assess the potential for this business, he added.

Indian Carriers

SpiceJet fell 0.5 percent to 14.29 rupees at 1:27 p.m. in Mumbai trading. The stock has fallen 9.8 percent so far this year, extending last year’s 82 percent plunge.

Seven new airlines have been set up in India in the past six years and passenger numbers doubled between 2004 and 2007 as economic growth boosted incomes and lifted demand for air travel. India’s carriers have ordered more than $30 billion of planes in the past six years to tap this growth.

India’s domestic air traffic will grow 11.5 percent in the 20 years to 2026, making it the world’s fastest-growing aviation market, according to Toulouse, France-based Airbus, the world’s largest planemaker. In comparison, China’s domestic traffic will grow 8.4 percent and the U.S., the world’s largest aviation market, will grow 2.4 percent, according to Airbus.

SpiceJet will also consider starting flights to the Middle East, Southeast Asia, Nepal and other neighboring countries when it gets permission to fly overseas in May 2010, Aggarwal said. Indian rules require local carriers to fly five years on domestic routes before starting international flights.

The airline may break even or earn profits in the fiscal year beginning April 1, Aggarwal said. The carrier posted a net loss of 179.6 million rupees ($3.6 million) in the three months ended Dec. 31, compared with a 93.38 million rupee profit a year earlier on costs related to settling litigation.

SpiceJet will add nine more planes in the next three years to its current fleet of 19 planes, Aggarwal said. In August, U.S. investor Ross and Goldman, Sachs & Co. agreed to invest as much as $100 million in the airline.

Source:www.bloomberg.com

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~ by anand213 on March 1, 2009.

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