SpiceJet’s chairman and managing director, Ajay Singh, is affectionately known by staff as the company’s saviour, after buying back the airline when it was close to a shut-down in 2014.
“We wouldn’t be here if not for him coming back,” said an employee who welcomed FlightGlobal to the airline’s headquarters in Delhi.
Singh founded SpiceJet in 2005 but sold his stake to Kalanithi Maran’s Sun Group five years later. The low-cost carrier faltered under the new leadership, logging four consecutive years of severe losses and bringing the airline to a suspension of operations and what looked to be an inevitable collapse. This was when Singh returned and gave the airline a new lease of life.
“The first thing we did was to get our consumers’ trust back. Secondly, we had to communicate to them that airline will fly and will keep flying,” says Singh. “Unless you create that confidence, no one will book tickets and that means no cash flow.”
The 51-year-old says he had to negotiate with creditors and ask for time to make repayments, and more importantly, to restore staff morale because it was “completely destroyed”.
“The next thing was to get our operations right again, by ensuring that we stop cancelling flights… Fly the aircraft on time and only on profitable routes, and up till today… bring down the cost of operations, while increasing revenues.”
A hallmark of SpiceJet’s turnaround had been that determination to cut costs and boost revenues.
While Singh would not disclose the airline’s CASK, he says it is “one of the lowest in India”. Load factor for the carrier has also been “above 90%” over the past 22 months.
While ancillary revenue accounted for only 6% of the total when he took control in 2014, today it is at 16%. The target is to increase it to 20% by the end of the next fiscal year.
Spicejust has also logged its eighth consecutive quarter of profit. Net profit for the three months ended 31 December came in at Rs1.8 billion ($26.8 million) on revenue of Rs16.4 billion.
THE PREMIUM ECONOMY FACTOR
Since Singh’s return, SpiceJet has embarked on several marketing campaigns to promote its ancillary products.
The airline boss singles out its SpiceMax product – essentially a premium economy offering with more legroom – as having brought “significant boost” to its ancillary revenue. It was also able to add the seats simply by reducing pitch on some rear rows.
Its entire fleet of Boeing 737s and Bombardier Q400s are fitted with SpiceMax seats – 30 on the narrowbodies and four on the turboprops.
“There was no impact on our cost, just more revenue,” Singh explains.
He admits however that the premium economy model “has not done very well” across the Indian market. Locals are still very much price-conscious and will go for the cheapest fare. Business travellers, meanwhile, still prefer the traditional business class offering.
The low-cost carrier also records ancillary revenues from seat selection, priority check-in, hot meals and luggage services.
FAITH IN RCS
One area of growth that the airline is banking on is the success of India’s new regional connectivity scheme (RCS). Singh says SpiceJet will deploy its Q400s on RCS routes, using them to feed passengers into its main network.
“In India, what we call ‘small towns’ are really not that small, compared to many other parts of the world… The RCS routes that we have bid for have a population of more than two million people,” he says. Some RCS routes under consideration connect tier two and tier three cities, while others connect tier two and three cities to the metros.
The RCS is part of New Delhi’s plan to boost regional connectivity by providing subsidies for carriers to develop new routes, at the same time reviving more than 300 unused airstrips and airports.
“It makes sense for airlines to use the power of that network. It is dangerous to ignore any of the potential traffic that can feed into your main network,” Singh says, adding that SpiceJet could “rejig” its network to take advantage of that feed.
Flight Fleets Analyzer shows that SpiceJet’s Q400 fleet stands at 17. Singh says the turboprop operation has been profitable and that the carrier will lease another five turboprops “in the next six months”.
He describes the RCS as “the perfect solution” to further raise the Q400 fleet’s average utilisation of 12 hours a day. SpiceJet’s 31 737s, meanwhile, have an average daily utilisation of 14 hours.
LONG-HAUL, LOW-COST? NOT QUITE YET
Despite local media reports that SpiceJet intends to buy Boeing 787s to launch long-haul, low-cost services, Singh is adamant that no decision has been made.
“As far as widebodies are concerned, we are still studying the feasibility,” he says. “We believe that long-haul, low-cost can only work if cost per seat is truly, really low. We are concerned about profitability – to make money. Not to win market share.”
Data from FlightMaps Analytics shows that the airline currently flies to six international destinations: Malé, Colombo, Bangkok, Dubai, Muscat and Kabul.
SpiceJet's Route Network, February 2017
With progressive delivery of the 142 737 Max 8s on order, SpiceJet expects CASK to drop “significantly” thanks largely to the aircraft’s improved fuel burn.
Another area that will reduce CASK is lower finance costs. Singh says SpiceJet will do sale-and-leasebacks for the batch of 737 Max 8s that will be delivered between 2018 and 2020. The airline is also contemplating setting up a leasing arm – albeit at the “very preliminary stage”.
CALL FOR NEW DELHI TO DO MORE
Despite lauding the RCS as a “good idea”, Singh says more can be done by New Delhi. Most pertinently, he believes that the government has to reduce fuel tax to a level that is “on parity with the rest of the world”.
The country also has one of the highest taxes on the MRO sector. At present, local MRO companies pay a 12% service tax, a 19% import duty on spare parts and a 13% royalty fee for work done at airports owned by the Airports Authority of India.
Such costs have driven SpiceJet to set up its own MRO centre in Chennai. Singh says the facility, which will mostly perform C-checks on its own Boeing aircraft, will be completed within six months.
“[The government] still has an old mindset where air travel is for the rich, and so it should be taxed. They have failed to realise that air travel is now fast becoming a common mode of transport for all,” Singh says.
Against such demanding operating conditions, Indian airlines have sometimes found it hard to keep their heads above water. SpiceJet is no exception, and Singh adds that there will be constant effort to reduce costs.
For SpiceJet, the climb out of the pit was a long and tedious process. Armed with faith in a new civil aviation policy, a focus on cost savings, and new aircraft to enhance its operations, the airline has a renewed sense of optimism.
“We’ve come a long way in the last two years. People who swore never to fly with SpiceJet again are now back with us,” Singh says.
Source: Cirium Dashboard