Pointing out that the fare discounting which SpiceJet started earlier this year has no relation to the current situation that the airline is facing, Sanjiv Kapoor, Chief Operating Officer , tells Business Line on how the airline views the Directorate General of Civil Aviation’s (DGCA) directive putting it under heightened security.
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Ans: We do not have a meeting scheduled with the DGCA as yet. We have requested for a meeting early next week. On Monday, we have a meeting with members of the Board in Chennai. Perhaps Tuesday will be the earliest that we can meet with the DGCA and we will update it on whatever information we get from our Board.
Q: The airline has said that the move to stop booking beyond 30 days will be counterproductive. Can you explain why you feel this way given your truncated fleet?
Ans: On a normal day about one-third of our revenues come from bookings beyond 30 days. If you have a sale or promotion it is much higher. If you cut that booking period out beyond 30 days immediately almost one-third of the revenue goes away. At a time when we are trying to turnaround and generate revenues, pay off liabilities and meet payments it makes it harder. That is why we are saying it will be counterproductive.
Q: Currently how many airports have you stopped operating to in India?
Ans: There is only one to which we have stopped which is Surat and that is because of a buffalo hit. We have not put a time line on when we may restart. We are also pulling out of Lucknow starting December 10 which is because of the reduced fleet. There are a few more (airports) which we are finalising, may be by Monday we will share those details. Between 5-6 stations we may have to consider closing temporarily.
Q: Temporarily will be how long?
Ans: Depending on by when we are able to ramp back our fleet. With the reduced fleet it does not make economic sense to operate to as many stations because economies of scale work against you. You do not have the economies of scale to operate on such a wide network.
Q: Currently you have 22 Boeing 737 and 15 Q400 aircraft which are...
Ans: We plan to stay at that level for at least the medium term.
Q: Medium will be how long?
Ans: May be till the middle of next year when we can reassess whether we have started growing again.
Q: The current Boeing 737 fleet is of leased aircraft which you could have a problem paying?
Ans: All our Boeing 737 are leased; all our Q 400 are owned or financed here.
Q: So there could be some problems if the lease rentals come up for payments?
Ans: We are making lease rental payments. That is between us and the lessors. But one of the reasons that we took the tough decision to reduce our fleet was to get some relief from the monthly payments until we get the turnaround and get the funding.
Q: Given that the DGCA has said that you should not book beyond a month, will SpiceJet find it tougher to pay lessors?
Ans: Not just lessors if you are cutting off one-third of revenues then obviously it makes it that much more difficult to meet your costs. That is why we will appeal to DGCA to reconsider that decision.
Q: Does the DGCA action make it more difficult for the promoters to find an investor?
Ans: I think most mature investors will understand that this is a one of a kind situation. The solution is largely funding which (if) the investor is providing then it will take care of the situation. I do not think (the investors will) do a knee jerk reaction.
Q: You expect to get some kind of idea of whether the promoters will come up with funding early next week some time?
Ans: I cannot comment on specifics. The funding aspect is being handled by the Board.
Q: How will you now react to people who say SpiceJet is going the Kingfisher way given that for the first time you delayed payment of salaries and there have been issues with the Income Tax Department as well and now the DGCA has sent out this notice to you?
Ans: There are some superficial similarities one of which is that we have reduced our fleet and the second may be related to certain payments such as taxes and salaries. I want to make it clear that we have paid off the taxes and never ever defaulted on salaries except this month and now within the first 5 days of the month we have paid 85 per cent of the staff. It is certainly very different from what I understand it was during Kingfisher’s time. I was not in India at that time.
More fundamentally there are so many differences. We have had record loads this year. We have reduced our costs significantly year-over-year. We have increased our unit revenues year-over-year, we have stimulated the market. We have reduced our losses by half.
This year has been a very positive trajectory for the airline which differentiates us from other airlines which might have been going through tough times. But right now we are going through a complicated situation primarily because of some legacy liabilities which we have dealt with after taking some tough decisions.
Q: Do the global crude prices being at record lows give SpiceJet a chance to survive for some more time?
Ans: I would not like to use words survive a little longer etc. We are here to stay. Certainly fuel price reduction is a huge plus and advantage.
We are very grateful that since June this year global crude prices have fallen by 33 per cent while the price of aviation turbine fuel has fallen by about 14 per cent. We are grateful for the 14 per cent but we are hopeful that much more of the 33 per cent will be passed on to us.
Q: How much has fall in ATF prices helped in rupee terms?
Ans: Let me give this in a broader term. Based on fiscal 2014 our fuel costs were ₹ 3,200 crore. When it came down 10 per cent that is a saving of ₹ 320 crore for the year using FY 2014 as the base line. Add another 5 per cent that is another ₹ 160 crore so it is almost ₹ 500 crore of saving which is huge. It is only part of what I think the potential is.