We don’t do anything at the cost of profitability: SpiceJet CEO

Ajay Singh

Airline has paid back ₹2,000 crore; focus was mainly on cutting costs: Ajay Singh

Bengaluru, February 13



Low cost airline, SpiceJet has had a remarkable run during the last two years posting eight consecutive quarters of profits. In an interview with BusinessLine, the airline’s CEO, Ajay Singh on the sidelines of the CNN Asia Business Forum meet, shares the way ahead and the challenges that confront the carrier. Excerpts:

Spicejet must be one of the few airlines which has had a successful turnaround. How much of money have you returned to the lessors, oil companies etc. so far?

An airline shutting down is a very bad thing not only for the airline but for the sector itself.

When we started the process of turning around the airline in 2015, we didn’t want to see a repeat of Kingfisher Airlines. We wanted to pay everyone whom we owed money.

So, we decided to resolve these issues head on. We told them that here is the plan; we asked them to believe us. What else could we do anyway? But we were happy they trusted us. We have also shown that we were worthy of that trust.

In the last two years, we have paid more or less everyone. We have totally paid back ₹2,000 crore.

No equity has been raised and no loans have been taken for the revival of the airline. The government provided us with moral support which actually helped us a lot.

The turnaround has actually been built on aggressive pricing; rapid expansion leading up to a huge order being placed with Boeing?

It was for us to get the costs down. We worked hard to renegotiate contracts, cut out unviable routes and at the same time get more frequencies on certain routes. You might feel the pricing might be aggressive but the actual fact is that the average fares have gone up and so have the yields.

Our average fares are probably higher than our nearest competitor. Our ancillary revenues which used to be around 6 per cent is now at 16 per cent.

You see, the model has remained the same but earlier it was bleeding and now we have had profits for the last eight quarters. So, a lot of hard work has gone into it to lower costs all around. The debt too has reduced considerably which is about ₹500 crore which is payment as usual.

You have ordered for around 155 aircraft, GoAir and Indigo have done something similar which all adds up to about 450-500 aircraft on order. But are there are enough parking slots in our airports?

We have about 400 aircraft and China has 5,000. There is no question that more people will fly as one rationalises costs.

At a macro level there is enough demand. Once you place a large order of aircraft, you bring down engineering costs, cost of fuel, you bring down profitability.

Is there a challenge as far as airport infrastructure is concerned? Yes there is. But that is something which the government has to work on. My solution is to strengthen airports in tier two and three cities.

The fact is the estimates for growth have gone wrong because when the airports were planned, the crude prices were high and one thought that the growth won’t be so high. Also, the new aircraft are not coming today.

Hopefully, the infrastructure will catch up.

What happens if the fuel prices go up?

They have already doubled over the last one year; from $35 to $55. If they remain range bound, then it should be fine.

At these numbers, it is quite sustainable but if they go beyond $70, then the fares will go too to a level, where demand gets impacted. They way we are trying to get around the issue is to buy more aircraft, bring down costs. These are the hedges against cost spikes.

Will you at some point of time, phase out Bombardiers?

The Bombardier fleet actually makes money. But when we took over, the costs were high. But we have brought it down by around 15 per cent of operating the fleet.

We are going to add more capacity and we think this fleet has the potential to fly to smaller airports. We are not looking to get rid of them.

With this kind of pace of growth, will it come at the cost of profitability?

We don’t do anything at the cost of profitability. We are not looking at market share at all. In fact, this has been one of the problems at SpiceJet earlier. It was running after market share at the cost of profitability.

Results are there to see. If the market share goes up, then it is fine but we will remain focused on profitability.

Has the issue with the former promoters, the Marans, been solved?

The issue is with the arbitrator now. The basic issue was that they had issued some warrants to themselves, when we were not in the picture.

They had applied for permission from SEBI and the BSE but it was declined.

We said we will issue the warrants subject to the approval from SEBI and the BSE which again was turned down.

Anyway, the money that has to be returned has to be done after eight years.

Published on February 13, 2017

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