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The world's top airline stock is SpiceJet with 124% advance
[NEW DELHI] Two and a half years after SpiceJet Ltd was forced to ground its entire fleet on its inability to pay a mere US$2.2 million in fuel bills, the budget airline has become the world's best-performing airline stock - with US$26 billion in plane orders to boot.
The company's co-founder and Chairman Ajay Singh has played the white knight, injecting capital, cutting loss-making routes and aggressively adding capacity in one of the world's fastest growing markets. To top it all off, crude prices are staying low.
For investors, that's been a winning formula: SpiceJet shares are the best performers on a Bloomberg Intelligence index of airline stocks this year. The stock is up 124 per cent in 2017 and has gained more than 800 per cent since the company's near-demise in December 2014, giving SpiceJet a market value of US$1.2 billion.
The outlook for aviation stocks looks good "as long as oil prices are under control," said Mahesh Patil, co-chief investment officer of Birla Sun Life Asset Management Co, which has US$30 billion in assets. Birla held a stake of about 1.2 per cent in SpiceJet as of May 31, according to Bloomberg data.
More people will prefer to travel by plane as ticket prices fall, Mr Patil said, declining to comment specifically on the carrier.
SpiceJet's stock is "greatly undervalued" even at these levels, Chairman Singh said in an interview to Bloomberg Television on Monday in Washington, ruling out any plan to sell a stake. Only 3 per cent of Indians fly today, offering a huge room for growth, he said.
"There's no reason for us to sell any stake at this valuation," he said. "We think there's tremendous potential in India's aviation market." India, which was the world's fastest growing aviation market last year, is crucial for planemakers like Boeing Co and Airbus SE, as airlines see increased demand from the rising middle class. Demand has pushed Singapore Airlines Ltd and AirAsia Bhd to set up local units that are grappling with poor infrastructure, stiff competition resulting in below-cost fares and taxes that make jet fuel the costliest in Asia.
SpiceJet's majority shareholder and Mr Singh announced an order for the latest variant of Boeing's workhorse 737 model worth US$4.7 billion on June 19. A day later, he followed up with an order for as many as 50 Bombardier Q400 turboprops worth US$1.7 billion.