‘Spicejet Won’t Do Business Without Ensuring Profit’
SpiceJet is the largest regional operator with 20 planes connecting small destinations. And overall, it has been a profitable venture
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Ajay Singh, chairman and managing director of SpiceJet speaks to Ashish Sinha on the new aircraft orders, regional connectivity scheme and the importance of doing business profitably. Edited excerpts:
Having placed one of the largest orders with Boeing, how are you financing it?
All the funding is done for the aircraft that are to be delivered in the first two years. This is happening through the ‘sale & lease back’ model. We have got very favourable terms for that. Between August and December 2018, Boeing will deliver nine aircraft. Another 9-10 will be delivered in 2019, and around 20 more in 2020. Till 2020, we have ensured the financing because that was important. There is no debt and we have not raised any fresh equity. Whatever needs to be paid, we have funded it from internal resources. Now work will begin for tying up the finances for the post-2020 period.
You have been talking about direct import of aviation turbine fuel (ATF). Any progress on that front?
We are examining in detail the various aspects of direct import of ATF, which can considerably bring down the fuel cost. At present, we are studying the entire chain to see how best this can be done. I am hopeful it should happen soon.
What will the arrival of the new set of aircraft mean to the business of SpiceJet?
As the new planes start coming, the fuel cost will reduce drastically as they are 15 per cent more fuel efficient. The engineering cost will also reduce because of the negotiations that we have with them now. The acquisition cost is already lower. There will be a significant drop in the cost base. Therefore, we are hoping the profitability of SpiceJet will increase dramatically. In terms of routes, our objective remains to fly profitably. So we will keep looking at routes that give maximum profit margins. There will be some (new planes) added to existing destinations; some to destinations where we are present on both sides but there is no connection, and some to new destinations.
Are you happy with Ude Desh Ka Aam Nagrik (UDAN), a flagship regional flying scheme?
SpiceJet is the largest regional operator with 20 planes connecting small destinations. And overall, it has been a profitable venture. SpiceJet will not do business without ensuring profit and return. As far as UDAN is concerned, we have started Mumbai to Porbandar and Mumbai to Kandla flights. Also, Hyderabad to Pondicherry, Delhi to Jaisalmer, to Kanpur, to Jalandhar and Aadampur are operational. We are operating these flights at 90 per cent passenger load factor. UDAN is important for India. We hope many people will participate in it. We are certainly participating in the next round. Besides providing connectivity, it opens up new airports. Since Independence we have only operated on 75 airports. Now more airports are opening up. We are the only airlines not taking any subsidy from the government. There are other benefits such as reduction in taxes or exclusivity on certain routes that we are taking, but no money from the government.
How important are the ancillary revenues for you?
Ancillary revenues are an incredible part of any low-cost airline. Today, we do 16 per cent of our revenue from our ancillary business. It was 6 per cent when I had taken over the airline. So ancillary revenues mean a lot. The idea is to try and increase it further. Our idea behind Spice Style was simple: if we can sell products onboard, we can also sell online on our own website and some partner websites. At low investments, we hope to push the ancillary revenue going forward.
Airport infrastructure in India is struggling and the situation is not improving. What needs to be done?
Whenever there is growth like the one in aviation sector, the corresponding infrastructure struggles to keep pace. It is true everywhere. The airport infrastructure, especially in Mumbai and Delhi, is pretty strained. Therefore we are working with the government to see how best we can make use of the existing infrastructure. As we know, a new airport is being planned in Mumbai, but that is going to take some years. In Delhi there is capacity to build a new runway and the terminal spaces are being expanded but probably it is a little late. They DIAL (Delhi International Airport) should have started sooner. Having said that, in tier-2 and -3 towns where growth is happening, there is still a lot of capacity. And we are hoping to use that capacity going forward in places such as Jaipur or Chandigarh. While this happens, we are hoping that extra capacity gets created at Delhi and Mumbai. The Indian aviation market is growing at the fastest pace in the world. So creating adequate capacity and infrastructure remains a big challenge.
In your efforts to reduce the fuel cost, what is the latest update?
In India, the ATF is among the costliest in the world. Across the globe, it is counted as part of the Goods and Services Tax framework, and not as a petroleum product. And if that were to happen in India, we can get input credit for fuel; there will be a huge difference in the economics of aviation. So we have raised this issue with the government and the finance ministry, and we will continue to pursue it because it is important that aviation is not treated as something that belongs to the rich. The middle-class uses flights in very large numbers. And it’s another mode of travel, therefore it should be taxed like it is anywhere in the world.