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‘Big turnaround’ on SpiceJet flight plan

Aims to become ‘strong No 2’, get foreign investors, cut costs.

New Delhi |
Updated: September 7, 2014 11:48:01 am
SpiceJet will be the biggest turnaround story so far: Sanjiv Kapoor. (Reuters) SpiceJet will be the biggest turnaround story so far: Sanjiv Kapoor. (Reuters)

“SpiceJet will be the biggest turnaround story so far,” so claims company chief operating officer Sanjiv Kapoor. To effect the turnaround, SpiceJet is working on a two-pronged restructuring process, wherein the promoters — who recently infused around R300 crore into the airline — are looking at ways to induct a foreign investor, either strategic or financial; while the management focuses on increasing revenue and cutting costs.

In an interview with FE, Kapoor dismissed all comparison with the now grounded Kingfisher Airlines, while saying, “We want to be a strong number two,” when asked where does the airline see itself if it manages to come out of the woods, as competition has intensified with more airlines entering the market.

As for the components of the turnaround plan, which has led to such optimism on Kapoor’s part, he clarified that the plan is not based on the wish of all carriers that state taxes on jet fuel be reduced. For SpiceJet, the fuel cost is around 50% of its revenues, while for the industry it is around 40%.

“We need to stop bleeding by making more money, as well as reduce costs by around 7-8%,” he said. Per unit revenue has been on the rise — during April-June quarter it was up 9.5% year-on-year — and the company expects it to rise by another 5% by the October-December quarter.
“Our revenue growth is going fine, but cost side takes time. So far we have managed to reduce costs by 3-3.5% and would need another six months to meet our targeted levels,” he said.

The company will not do routine replacement hiring following natural attrition, besides returning up to four Boeing 737 aircraft to save on interest costs. The company’s wage bill is currently around 10-12% of its revenue. Kapoor said the headcount, which was around 5,600 earlier, has come down to 5,300. The target is 4,800. However, there would be no mass lay-offs.

The airline has already returned four Boeing 737 aircraft to lessors in the April-June quarter. While there will be no changes in its fleet of 15 Bombardier Q400s, the B737 fleet will be about 36 by the year end.

“We will retire 10-14 year old aircraft — about four Boeing 737s are in that category — and later get new aircraft,” Kapoor said.

As part of a new network rollout to cut loss-making routes, the Chennai-based carrier discontinued 26 routes and seven stations and reduced capacity on 14 routes in FY14. In some of these routes, like Bangkok, it has since started new flights. On fuel expenses, SpiceJet is reducing costs by lowering fuel burn of aircraft, making its pilots fly more efficiently and going more to airports offering lower state taxes on fuel uplift.
“Last year, we spent about R3,000 crore on fuel and are hoping to save R50 crore this year. If we were paying fuel costs like with Singapore Airlines pays at home and Emirates in Dubai, we would have been profitable last year,” Kapoor said.

Kapoor’s optimism notwithstanding, the carrier has an uphill task. In FY14 its losses stood at R1,003 crore, a five-fold jump over the previous fiscal. During the April-June period of the current fiscal, losses were at R124 crore, leading auditors to raise concerns. As on June 30, the company’s total liabilities exceeded its total assets by R1,145.6 crore, the airline’s auditor, SR Batliboi and Associates said. “These conditions… indicate the existence of a material uncertainty that may cast doubt about the company’s ability to continue as a going concern,” it added. SpiceJet’s total liability stood R3,954 crore as on March 31.

Though the promoters, the Kalanithi Maran family, have recently pumped in around R300 crore by way of subscribing to warrants, analysts said the company needs at least R1,200 crore to take care of balance sheet.

Kapoor does not dismiss the reality, but refuses to talk about the fund infusion by pointing out that the promoters are very much interested in running the company and have infused funds as and when required. He also does not want to talk about the possibilities of roping in a foreign investor, either strategic or financial, as these are matters for the board to decide. His concern is the profit and loss account and he’s focused on fixing it.

As an operations man, he shows the positive side: during April-June, performance improved on several parameters boosted by schemes like discount offers on limited seats — load factor was thus up 2.4%, passenger yield rose 4.8% and revenue per available seat kilometre increased 9.4%. Starting June, SpiceJet beat Air India to become the second-largest carrier behind Indigo — market share in June and July stood at 19.0% and 20.9%. The load factor in July was the highest in the industry at 79.4%.

Roudra Bhattacharya | The Financial Express

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