‘Intelligent discounts can lure more fliers’

SpiceJet says the recent discount offer will have an overall positive impact on revenues and realisations even if the loads are expected to increase less sharply. In an interview with Business Line ,

SL. Narayanan, Chief Financial Officer of Sun TV group, shared some insights into the company’s plans including fleet choice, expansion, routes. SpiceJet, the first carrier to get the licence for direct import of ATF, has shelved the plan as it is no longer viable.

At a time when the aviation industry is incurring record losses, why are you dropping prices?

We are doing this primarily because of the poor seat loads on most days during the period from the second fortnight of January till end March. This is a recurring annual phenomenon and requires some tactical planning.

With some intelligent discounting, we believe we can induce some demand. With this scheme, we are hoping to fill a substantial part of our seat capacity, which would otherwise go waste.

These are executed quickly within a limited time frame, and highly capacity controlled to prevent revenue dilution.

The impression I have is that the ‘sale’ of last year was a failure…

It is different this time. Unlike what we offered last year, the recent scheme is not a “one-size-fits-all” sale.

Last year we sold tickets for all routes at an all-inclusive flat price of Rs 2,013, irrespective of distances.

This time, the discount applies at a rate of 50 per cent on the base fare, whereby longer flights will be sold at a higher price than short haul sectors.

Besides, we are carefully controlling the inventory on offer by restricting the sale to dates of travel that are at least a month away.

So now the loads are expected to go up less sharply but with an overall positive impact on revenues and realisations.

You also restructured your network recently…

Yes. We have done this with a view to improving fleet optimisation. A total of 39 routes that were not working well have been rationalised. We have added new stations, dropped a few, increased frequencies in some sectors and reduced in some others. For example, we added new destinations such as Hong Kong and Dhaka. We will be discontinuing our Pune-Bangkok, Varanasi-Sharjah, and Delhi-Guangzhou flights.

Recently, the promoter invested fresh funds…

The Sun Group has stood by the airline and made several rounds of additional equity funding in the last three years. The industry has been through tough times and hence the need for fresh capital. The recent investment of Rs 135 crore by promoters would increase their holding in the company from 53.5 per cent to 58.5 per cent. The infusion will be in the form of warrants, which will convert post April 1, 2014.

There has been market speculation about SpiceJet changing its choice of aircraft…

No. We have no plans to make any major change in the foreseeable future.

How does your fleet of Bombardier fit in your scheme? Because, most low cost airlines operate with only one configuration. Does it not add to your complexity and thus add to your cost?

There are 90-odd airfields in India of which only a third are capable of landing narrow body jets. The remaining are located in smaller towns where demand is pretty robust. So, flying smaller aircraft is a good way to connect these locations and also to bring in traffic that feeds our trunk routes. Today, we have feeder traffic from places such as Tuticorin, Belgaum and Vijayawada to trunk routes such as Chennai and Hyderabad.

What’s happening on your proposal to import ATF directly?

We have now deferred the plan as it is working capital intensive and also the appreciation of the US dollar makes it less attractive. It would have made a lot of sense when the dollar was at Rs 55-56. Now at conversion rate of Rs 62, the arbitrage is pretty thin.

What’s your view on foreign direct investment in the aviation sector?

I feel there is a lot that remains to be done in terms of improving the climate for investment. I see no reason why FDI limit in civil aviation should not be increased to 74 per cent. There was a time when any proposal to increase FDI limits in telecom was invariably stalled with several vociferous apprehensions relating to national security. But things changed. Similarly, we should have absolutely no fears of a foreign airline holding majority stakes in an Indian carrier, especially when we have a very strong regulator like DGCA.

With a few more airlines to entering the fray, do you think the market would get more competitive?

It is always good to have competition. Passengers will have a good choice. But it is all the more important that the country does not allow too many players at a time while the existing players are still struggling.

It will lead to a situation where airlines will invariably resort to price discounting. And extreme price competition would destroy the economics of everybody’s operations. Perhaps the Government should have allowed more time for the existing players to stabilise, consolidate and become stronger.

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