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‘Profitability Is More Important Than Market Share’
After a great turnaround, SpiceJet is now entering a new growth era, SpiceJet chairman and managing director Ajay Singh tells BW Businessworld
Photo Credit : Ritesh Sharma
After a great turnaround, SpiceJet is now entering a new growth era, SpiceJet chairman and managing director Ajay Singh tells Ashish Sinha.
Seven continuous quarters of profits and best passenger load factor; how are things now for SpiceJet?
So far, so good. Given the place from where we came — when the airline was shutting down — we have come a long way. Today, we have one of the best on-time performances (OTP) and the highest load factor of 92 per cent for 19 months in a row. We are in a good position.
What did you do to make things right?
The very first thing was to instil confidence in everybody that the airline will continue to fly and not shut down. We had to give the confidence to our business partners, travel agents, employees and everybody connected with the business that the airline will stay and prosper. That is how we started restoring confidence. We decided that there won’t be any more cancellations going forward. We made it a point to tell everyone which flights were flying and which were not. I wanted to be honest with everybody. I wanted to put operations back in order. We had to ensure that the planes were not going to be taken away by the lessors. We took aircraft on wet lease.
How bad was the financial situation in those days?
It was very bad. We were in a situation where immediate payables of around Rs 2,200-2.300 crore were hanging on our head. It was clear that the money could not have been paid right away. So, I asked everybody to give me some time before I could start paying back. We had to make a timetable. I got tremendous support from lenders as many felt that since I had done this before, I would be able to do it again. I told everyone that I will not be asking for more. But I also told them that I will freeze the current payments and pay on a day-to-day basis. The very first task was to keep all the aircraft flying. For that we needed money, for aviation turbine fuel (ATF), and salaries of employees. The basics had to be done. So, we started doing those things right.
It must have been a crisis time for SpiceJet then?
Yes, it was a crisis time. It was compounded by the fact that Directorate General of Civil Aviation (DGCA) had stopped us from selling tickets in advance for more than 30 days. That was bad for us. It was like the regulator telling people that don’t do business with a particular bank because it may go bust. Fortunately for us, people had good faith in the brand. So when we started flying, people started returning to us. Plus, we Indians tend to back the underdogs. Media supported us, of course. As people started booking tickets, the cash flow began to improve. Our partners, travel agents, started to put in advances. We froze the past dues. We spoke to everyone and kept them informed. We were paying for everything current. The word started to go around that we were back and improving.
How much time did it take to see the positive results?
It happened in early February 2015. By then, customers had started coming back to SpiceJet. The changes happened within the first quarter itself. Internally, we started to work on contracts. A lot of planes were grounded, those assets required a lot of clean-up. From the time I took over, the idea was to get the capacity back. We started looking at senior management to see if they could fit the new regime that I wanted to bring in. So the top layer left eventually, and those below it came up to take on the responsibility. And these were the guys I had worked earlier with.
But what about low market share of SpiceJet compared to the market leader?
From 6-7 per cent, now SpiceJet has a market share of nearly 13 per cent. For me, profitability is more important than market share. In aviation, it is not difficult to get market share. One way is to dilute fares to increase the market share. But that won’t be a sticky market share. Today, our average fares are the highest among the low-cost airlines — around Rs 3,500. Listed rivals are at par or little above ours. Today, we have paid back almost everybody, including the government and tax authorities. We must have paid back Rs 1,700-1,800 crore or more. We have repaid all the banks. We do not owe a single rupee to any bank. All repayments are from internal accruals. It has been a solid and credible performance. At an operating level, we are a profitable company.
What are the challenges now?
How do we grow profitably? We need to ensure we have a good contract with an airline maker. So, Boeing has been selected now. Going forward, we will continue to reduce our costs. And then, we will continue to create more differentiation to our customers. Our flights are full because we are on time, we serve hot meals, we have the lowest cancellations, and we give more space in the premium economy (six inches of extra space) so people just fly with us over and over. To fly on time, fleet should be in top shape, all systems and processes should work smoothly, and this is not easy to do day in and day out.
In your estimate, how will the regional connectivity scheme (RCS) of the government help the market grow?
The regional connectivity scheme per se is a fine piece of policy. Today, there are around 320 airstrips that are unutilised. A lot of growth is happening in small towns, so they need air connectivity. The RCS will help these cities grow at an even faster pace. Now the question is how do you do it and who funds it? We all know that these smaller towns will be serviced mainly by small aircraft. Now, RCS entails collected funds. Our view is that the government could have found many other ways to fund it. Asking the airlines to pay or the current customers to pay, is not fair. Our airfares are the lowest in the world, while our airport and ATF costs are among the highest. So it is not a sustainable mechanism. Airlines have objected saying that the customers need not pay this. Initially, we had told the government that aviation is not a rich man’s business. It is a common man travel. But the government is still of the mind-set that air travellers should be able to pay that extra amount to fund RCS. Let’s see how it develops.