Can Ajay Singh turn SpiceJet around?

While the airline is generating enough cash to maintain operations at current levels, its future will depend on cash infusion and the operational changes that follow
SHARMISTHA MUKHERJEE (sources quote 20,000 direct and indirect ous operational changes.
New Delhi, 29 December jobs) that the closure of the airline would
entail. But others weren’t ready to be as
SPICEJET’S SHRINKING NUMBERS The two mistakes

S
piceJet made headlines through all accommodating as the government. On Industry watchers point out two broad
of 2014, mostly because of the fre- December 15, oil companies refused to NUMBER OF FLIGHTS A DAY PILOT STRENGTH mistakes in SpiceJet’s strategy. The first
quent flash sales it launched to provide fuel on credit to SpiceJet. DURING NORMAL was former CEO Neil Mills’ decision to
attract customers. Concern was raised on Operations were severely disrupted in the OPERATIONS: change the airline’s business model.
the deteriorating financial health of the next couple of days. It is at this time that 400 SpiceJet decided to seek the first mover
airline from various quarters intermit- Ajay Singh, former promoter and director 345 advantage on uncharted sectors like
tently: the Airports Authority of India of SpiceJet, stepped in. Some cash was DGCA ANNOUNCEMENT Hubli, Tirupati and Amritsar. As a result,
(AAI) threatened to withdraw credit facil- arranged for the airline to restart opera-
248 230 AFTER CRISIS: it was forced to change its fleet from a sin-
ity to the carrier a number of times, audi- tions. SpiceJet has now started operations 115 commanders and gle type of aircraft, the Boeing 737, to
tors termed the airline a “going concern” on 230 sectors, against 345 in July, and has 17 co-pilots have
MARKET SHARE (2014) (%)
include 78-seat Bombardiers. Most budg-
at quarterly results and employees sent pressed into service 18 Boeing 737s (com- resigned 20.9 et carriers stick to one aircraft family in
July quarter 2014 December 16 December 29
frantic mails in June when SpiceJet failed pared to 37 last year). 18.6 18.6 order to keep the expenditure on mainte-
EXPECTED TOTAL 17.8
to turn in the TDS certifi- Sources in the civil avia- 17.3 nance and spares on a tight leash.
cate/Form 16 in time. The “Since the tion ministry say the airline
NUMBERS AFTER FLIGHT SpiceJet, however, did not assess if these
Directorate General of Civil restriction on not has paid up to ~13 crore of
NUMBER OF AIRCRAFT z Boeings z Bombardiers CANCELLATIONS: sectors could generate sufficient business.
Aviation undertook a finan- accepting bookings dues to oil companies (only 150-200 pilots will go The second mistake was its aggressive
cial audit of the airline in beyond 30 days was ~1 crore is pending). Now, it is THE PROBLEM: turnaround strategy based on discounted
August. But it was only when eased, the airline buying fuel on a cash-and- These pilots will not be fares in the hope that the loss would be
reports of delays in salary has started carry mode, they add. 37 able to work for more than made up by the increase in
payments started coming out generating ~9 to SpiceJet, ministry officials IndiGo, AirAsia or passenger load. This did not happen.
earlier this month that a slew ~10 crore a day. say, has opted for cash-and-
15 20 15 18 15 Vistara and even GoAir Airlines typically have two ways to
of measures was put in place Expenses stand at carry because oil companies drum up business. They can keep fares
as only Jet Airways
to safeguard stakeholders around ~5 crore” offer a discount of 13-16 per stable even if it means low passenger loads.
(read passengers, vendors, cent through this route. Now, Peak December Operational operates Boeing 737 Jan Mar Jul Sep Oct That is what IndiGo does. The alternative
airport operators, lessors) in the event the however, it is willing to pay more, provid- operations 29 aircraft planes Sources: Govt data, companies SpiceJet chose was to drop fares and
airline went bust. ed oil companies offer 30-day credit, as is improve revenue through higher passen-
What kept the authorities from inter- the case with other airlines. The airline ger loads. There is nothing wrong in this as
vening earlier? SpiceJet had been prom- has also assured AAI that it will give a ing ~9-10 crore a day. Expenses stand at sible investment in the Kalanithi Maran- will get the airline back on track. SpiceJet long as the cost of the flight is covered. If it
ising a possible recapitalisation of the air- bank guarantee of ~120 crore soon. around ~5 crore. The resources are suffi- promoted airline. has an exposure of about ~100 crore to City is not, the downside of this strategy is
line for some time now. The civil aviation SpiceJet has dues of ~200 crore (as of cient to maintain operations at current lev- Ministry sources add that Singh has Union Bank, secured through collateral. severe. “Higher passenger load means you
ministry additionally was concerned December 5) with AAI. Earlier, it had giv- els,” says a person in the know. Company submitted a plan to the government which It has also tax dues of ~100 crore. The mon- have to load more fuel, the staff will be
about the loss of en a bank guarantee of ~82.5 crore, accord- sources say SpiceJet is in talks with two might involve a consortium of foreign etary infusion by investors could be under pressure because the airline has to
employment ing to sources in the company. US-based private equity funds for possible investors. All told, the plan is to pump in accompanied by seri- handle more passengers, the
investments and a deal in this regard is about ~1,200 crore, which experts believe chance of delay will be
Tying-up funds likely to be sealed in the next six weeks. enhanced and if you
SpiceJet has mobilised up to ~200 crore Earlier, funds such as Goldman Sachs and are on cash-and-car-
from investors. “Since the restriction on Indigo Partners had evinced interest in the ry for oil, you have to
not accepting bookings beyond 30 days Indian aviation market. Senior executives fork out more,” says a
was eased, the airline has started generat- from JPMorgan are understood to have met senior executive with
civil aviation ministry officials an airline.
regarding a pos- It still works if an airline
makes the revenue on a flight to
match costs. Though SpiceJet’s revenue
per available seat kilometre did improve, it
did not meet the cost of available seat kilo-
IN THE PIPELINE: meter. So its operational losses continued.
SpiceJet is believed to be SpiceJet’s financial results for the second
in talks with two US-based quarter of 2014-15 reveal the airline’s rev-
private equity funds for enue per available seat km went up by 12
possible investments and a deal per cent to ~3.35 but its cost of available
in this regard is likely to be sealed in seat km was much higher at ~4.07. This was
the next six weeks despite the passenger load climbing from
69 per cent in the second quarter of 2013-14
to 82 per cent in the same quarter a year lat-
er. And while its losses fell, they were still at
~310.4 crore for the quarter.