‘We had to improve reliability of operations’

When Ajay Singh came back at the helm of SpiceJet, things were falling apart at the budget airline. But as he gets ready to complete one year of his return, the airline has turned around strongly and even posted handsome profits in recent quarters. BusinessLine caught up with him to find out how his second stint has been so far. Excerpts:

In the last one year since you came on board SpiceJet has reported profits in three quarters. How much is due to lower oil prices and how much due to your political clout?

What does political clout have to do with anything? SpiceJet has reported profits (because) it has done all the basics right. We have tried to reduce costs and this includes costs other than fuel. We have tried to increase both passenger and ancillary revenues. And because we succeeded in reducing costs and increasing revenues we have made profits.

In all the three quarters of this financial year, SpiceJet made more money than ever in its history. In Q3, there was some ₹240 crore of profit, which is the single most-profitable quarter in SpiceJet’s history.

The first profits came in 4-6 weeks after you returned. Did the previous team do something right?

We had been working informally with this company since it shut down on December 16. I had been working with the team to see that we started getting the basics back on track. We had to improve reliability of operations. In December, the on-time performance was at 40 per cent and there were huge cancellations.

Our objective was to quickly get a handle on operations by ensuring we cancelled as few flights as possible and fly them with a reasonable degree of certainty.

We started negotiating with some contractors to renegotiate costs. We tried to make the network more concise by shutting down some airports and trying to fly more flights into other airports. We also started focussing on ancillary revenues.

It was close to 6 per cent, now it is 16-odd per cent. And the oil prices came down. The government was helpful in the sense that it was very clear when we started this process in December that they would like to see if there was any possibility of the airline remaining operational.

The general impression is that thanks to your political contacts AAI was easy on you as far as dues were concerned…

Not at all. Actually the Government in real terms could actually do very little. If you remember the Marans had asked for bank funding to keep the airline going. The government never provided any bank funding.

Oil credits were sought, but once I got involved not a single rupee of credit was taken from the fuel companies.

As far as airports are concerned, pretty much what they do is put you on a cash and carry once a lot of dues become payable. That is what they did with SpiceJet.

Where did all this money come from? There was talk about American financial investors…

Money started coming in because people started booking tickets. The DGCA had restricted bookings to only 30 days. It is like the RBI saying that a bank is going to fail. DGCA action led to a run on SpiceJet.

Did the Marans pump in any money?

There were certain statutory amounts which the Marans paid for through the deal. The bulk of the money to run operations were actually generated in SpiceJet through bookings. We were generating close to ₹ 12-13 crore a day.

That was enough for how many flights?

For 200 flights that we were flying then. And as the amount of money generated increased, it was enough for our flights and for paying our dues.

In SpiceJet’s revival there was public support, manufacturer support, there was partner support.

In what sense was there manufacturer support?

Initially part of the funding came from the fact that SpiceJet had deposits with Boeing, and Boeing returned some.

Why? Did you cancel orders?

No we did not cancel the orders. Initially they were a little over funded.

How much will that be?

About ₹100-150 crore.

What happened to the ₹800 crore that was to come?

Some of it came from Boeing, some came from the Marans, some came from banks. In terms of American funding what happened then was we were approached by a few people to fund the airline significantly but by the time the diligence was done and by the time it came around to investments SpiceJet’s stock had risen significantly.

The valuation had gone up as the airline had started doing much better. So those investments we never did get because they would have come at a discount.

‘Fundamentals are key’

Kapil Kaul, CEO and Director of aviation consultancy and research firm CAPA South Asia, on SpiceJet.

Performance till date: SpiceJet’s turnaround is work in progress but results have been remarkable for the airline. Another two-three quarters like the third quarter will signal a strategic and directional shift for SpiceJet.

Critical areas: Operational capability, costs and productivity, route network model, revenue management, and people development need to be taken to the next level to ensure structural turnaround for the airline. Focus on fundamentals will be critical.

Key success factors: Massive drop in fuel costs which also led to growth stimulus due to lower fares, significant capacity moderation at industry level in fiscal year 2016 and Ajay Singh’s knowledge of LCC business model and execution skills.

COMMENT NOW