DGCA lifts 50% cap on SpiceJet Flights

Blog DGCA lifts v2

Compiled by- Vinit Furia
DGCA lifts 50% cap on SpiceJet Flights


Beginning 30th October 2022, the low-cost carrier SpiceJet will no longer be bound by the operational restrictions of just 50% of the capacity which was set by the Indian aviation regulatory body Directorate General of Civil Aviation (DGCA). The limitations which were put in place since late July were a result of an operational inspection post several instances which diagnosed the airline to be incapable of safe operational practices. The unsafe practices, however, were fixed and hence the cap was lifted. But let us look at the behind-the-scenes.

Background

SpiceJet is one of the country’s oldest low-cost carriers, beginning in 1984, succeeding the branding of ModiLuft with the German flag-carrier Lufthansa as a technical partner. The company has changed a lot of owners, from Ajay Singh to Sun Group and then back to Ajay Singh. And hence came a lot of undos and redos to the company decisions. Having had a lot of run-ins with qualms about the sustainability of the company owing to the massive losses reported by the company, it still can not be said to be a stable business.

Operational Concerns

The July inspection by the aviation regulator came after the airline’s multiple technical and mechanical malfunctions in a shorter duration. A growing disregard for safety, lack of funds resulting in degrading safety margins, and a bad credit reputation with spare part vendors. The DGCA purely was upholding the nation’s air safety methods as stated in a statement.

The airline has been repeatedly raising funds ever since to get back on its wings and make up for the lack of spare parts and safety standards subsequently. The regulator has now been assured of the safety to operate all the routes safely.

Hopes of Growth

The Airlines had lost a huge business of the summer schedule owing to the restrictions. But winds look favorable this winter for revenue growth. The winter schedule of airlines runs from 30th October to 25th March. SpiceJet now is geared for growth in this schedule to make up for all the lost business this winter. It can now operate 3,193 flights weekly which is a reasonable 6.6% jump from the last winter schedule as you can see below.

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The optimism is also reflected in the stock price of the company with big green candles and percentages outperforming the Sensex 1D growth on certain days. Despite the growing optimism the fact of the matter doesn’t discount the fact that the stock’s performance has been -46% YTD.

Conclusion

The myopic optimism seems to rally the stock price with the growth perspective. The company’s financials are clearly not in a very good place owing to the debt and lack of credit rating. Can this bring a sweet takeoff to the company’s financials or would it result in a turbulent landing? Only time can tell. Tell us your thoughts in the comments below.