Why SpiceJet lost its CEO

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Neil Mills
Neil Mills

Neil Mills’ cheap ticket scheme caused a rift between him and the promoters

A day after SpiceJet Chief Executive Officer Neil Mills put in his papers, a number of reasons have emerged for his exit.

According to industry sources, it was differences between Mills and the airline’s promoter Kalanithi Maran, on the poor earnings in the last fiscal when SpiceJet posted a loss of Rs 191 crore, which led him to quit.

The poor performance was attributed to the ‘fire sale’ (cheap ticket scheme) that Mills had spearheaded in January.

During the offer, flight tickets were sold at as low as Rs 2,000. The airline had sold 10 lakh tickets under the offer.

Industry watchers say that the sale was one of the main reasons for a rift between Mills and the promoters.

Analysts believe that the strategy of offering cheap tickets may help an airline increase its load factors, but it deals a blow to the yields (revenue per passenger), and this was what SpiceJet had faced.

Foreign partner?

Though SpiceJet has not commented on Neil Mills’ status, his resignation could also be a precursor to the induction of a foreign airline partner.

SpiceJet’s promoter Kalanithi Maran is said to be currently abroad finalising the deal.

According to media reports, Qatar Airways and Kuwait Airways have shown an interest in the low-cost carrier.

What is probably leading to such speculation is a statement that SpiceJet had issued to the BSE on July 15, which said, “We reiterate that few investors have evinced interest in the company post Government of India allowing FDI in civil aviation sector to foreign airlines, it will be very pre-mature to comment on the possibilities of any fresh equity issuance to such interested parties or confirm/ deny names of any specific entity.” The company did not offer any comments on the issue on Wednesday.

More troubles

Whatever be the reason, Mills’ resignation will compound the airline’s troubles. SpiceJet’s shares plunged about 3.5 per cent on the bourses on Wednesday and closed at Rs 26.45.

Mills had joined the airline in October 2010 shortly after Kalanithi Maran, the Chairman and Managing Director of the Sun Group, acquired a 37.75 per cent stake in the carrier.

The exit comes on the heels of the airline’s Chief Commercial Officer Harish Moideen Kutty putting in his papers last month.

“An unstable top management team will definitely not augur well for the company,” said Jasdeep Walia, aviation analyst, Kotak Institutional Equities Research.

Also, the second quarter is a lean period for the sector and this could mean multiple blows for SpiceJet, whose debt more than doubled to Rs 1,429 crore in FY13 as against Rs 650 crore in the previous fiscal, say analysts.

Aviation analysts are also criticising SpiceJet’s strategy of rapid fleet expansion when passenger traffic was declining, leading to a fall in yields.

SpiceJet has a market share of about 20 per cent as opposed to IndiGo’s 30 per cent.

Mills’ exit has come at a time when the aviation industry is struggling with mounting debts, a volatile rupee and the traditional lean season.

(This article was published on July 24, 2013)
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