With Indian airlines facing cost pressures on account of rising fuel prices and depreciating rupee, low-cost carrier SpiceJet is looking to decrease its dependence on revenues from passenger operations by increasing its ancillary revenues. Ajay Singh, chairman and managing director (CMD), SpiceJet, which inducted its first aircraft for dedicated freighter operations on Monday, told Pranav Mukul that it was important for airlines to increase yields by passing on cost increases to customers. Edited excerpts:
Aviation sector is bleeding right now. Are there any cost management processes in place?
Increase in ancillary revenues is important in the context of rising cost pressure on airlines. The entire aviation sector is in a challenging situation right now. But despite the cost pressure, we believe there are margins in the cargo business, which is why we are starting it. Under these conditions where airlines are facing cost pressure, increasing ancillary revenues is even more important. We need to rationalise costs, there is no question about that. We have petitioned the government to reduce taxes and duties on aviation that are not applied to our peers around the world. And it is also important that we also increase yield and pass on some of the cost increases to the customers.
How do you explain launching dedicated freighter operations at such a challenging time?
We see a significant space for dedicated air freighters. The economy is growing at 8 per cent and there is an e-commerce boom that is happening. All e-commerce players are looking for services through which they can provide their products in four hours, six hours, overnight. We think that the time has come for dedicated freighter aircraft.
Do you plan to expand cargo operations going ahead?
SpiceJet plans to have an air cargo fleet with the first four freighters scheduled to be inducted in FY2019. To begin with, the air cargo operations will cover Delhi, Bengaluru, Guwahati, Hong Kong, Kabul and Amritsar. Let’s see how the market reacts to this.
We expect this to be a significant part of our revenues. Let’s see how it goes, it’s very early to talk numbers. We will have four freighter aircraft through the course of this year and depending upon the demand we can add another 5-6 aircraft next year. Our cargo revenues are a part of our ancillary revenues. We expect cargo to contribute to the growth of our ancillary revenues to 17 per cent of total revenues from the current 12-13 per cent.
Does India have satisfactory infrastructure for cargo operations?
Air cargo is a significant part of the logistics networks of countries around the world and for some reason India hasn’t paid adequate attention to air cargo. It is also important to pay attention to air cargo at airports in the country. If you look at major airports around the world — Hong Kong, Dubai, Singapore — significant portions of those airports are dedicated to air cargo and India has not done that so far.
There are slot constraints at major Indian airports.
How do you expect growing cargo operations to be accommodated?
Around the world, cargo slots are always treated separately from passenger slots. Much as the great deal of importance that is given to carrying people from one place to another, there needs to be a great deal of importance given to goods and cargo. Airports such as Dubai and Hong Kong with slot constraints have also faced the same problems and they allocate a certain number of slots for cargo operations. Also, it helps that several of the cargo aircraft fly in the middle of night and therefore it’s easier to get slots for cargo aircraft. But special attention needs to be paid to transport of goods through aircraft.