Travel agents lend SpiceJet Rs 100 crore for working capital

The practice of raising deposits from travel agents is common overseas,however,in India it is not in vogue.

SpiceJet CEO Neil Mills,while confirming the sum raised from agents,said it was minuscule when compared to the company’s total revenues.

“Our recent results saw an annual turnover of Rs 5,500 crore and the airline is currently selling approximately Rs 25 crore per day. So an amount of Rs 100 crore is a few days’ collections,” Mills said in an emailed response.

GoAir had raised money through this route around two-and-a-half years ago when losses were high. Kingfisher Airlines too,resorted to the step during its last days of operations.

Unlike full-service carriers,which pay commission to agents,low cost carriers (LCCs) collect advance deposits from agents and release seat inventory worth that amount.

They are paid 1 per cent deposit incentive and productivity commission of 1-3 per cent,if the sales target is met.

An official working with a travel agency confirmed that his firm had deposited the money with SpiceJet. “The more the money deposited with the airline,higher is the discount and the incentive. Hence,we have given money to the airline,” said a travel agency official,without sharing details of the sum deposited.

An industry insider said that the money given by travel agents is much more than the inventory required,which in effect is credit to airlines. “Airlines do this,when they require money and cannot borrow from other sources like financial institutions.”

Mills added that SpiceJet also provide a deposit incentive,in line with what other Indian LCCs do,which is a substitute for the interest earned had it been deposited in a bank account instead.