The country’s second-largest budget carrier, Gurgaon-based SpiceJet Ltd, which celebrates its second anniversary in the Indian skies on Tuesday, will nearly double its passenger capacity and fleet size by the end of this financial year.
The airline has been able to capture a market share of 6.9% ferrying 22.16 lakh passengers a year. Started in 1994 as ModiLuft Ltd partnering Lufthansa AG , the airline shut operations a few years later after its German partner walked out. It was later taken over by the non-resident Indian Kansagra business family in 2001 and renamed Royal Airways Ltd, only to be relaunched in 2005 as SpiceJet, a low cost carrier, with more investors joining in.
Despite consolidation and mounting industry losses, SpiceJet says it will not deviate from its existing low-cost model of flying more frequencies on the same routes rather than expanding to smaller stations.
Ajay Singh, a director with the airline, says the airline will maintain a fleet with planes from a single manufacturer — Boeing & Co. in this case—to save on operating costs and not foray into cargo or aircraft maintenance repair services.
“That’s by design. Its not explosive growth but controllable growth. A more rapid growth than this could have impacted (our) operations and created an issue for the brand. In LCCs (low-cost carriers) around the world, people have experimented and optimized, so there is no point in reinventing the wheel,” Singh said in an interview.
In January, SpiceJet raised $70 million (Rs287 crore) selling shares to the Tata group, Goldman Sachs and BNP Paribas following which the airline placed orders for 10 Boeing 737 aircraft costing $700 million at list prices, which are to be delivered starting 2008.
Ten Boeing planes ordered earlier will join its current fleet of 11, increasing the seat capacity to from 15,000 a day today to about 27,000 by March 2007.
The country’s largest low-cost carrier, Deccan Aviation Ltd-owned Air Deccan with 43 aircraft offers 27,500 seats a day. Singh said the new aircraft will add more flights between the 14 cities that SpiceJet flies to today as also add new routes.
The airline hopes to tide over losses worth Rs45 crore last year and expects to break even this financial year by cutting costs. “When you use airport infrastructure for plying one flight, the costs are high. The moment you add a second flight there your unit cost at the airport becomes halved,” Singh said, adding that the cost cutting by way of fuel optimization, including by rescheduling cargo weight and the speed at which the aircraft fly, has seen its spending on fuel shrink by 15-20%.
Compared with other major carriers such as Jet Airways (India) Ltd, Kingfisher Airlines Ltd among peers, SpiceJet has been adding capacity at a slower pace which, analysts said, makes it less prone to major losses. “They will only accelerate growth when they are confident that they can minimize the losses,” said an international aviation analyst, who did not wish to be named because he does not track SpiceJet as a stock. “It’s a sensible thing, because this industry can chew up capital so fast, and it doesn’t make sense to race out there if you can’t deliver the results.”
With slower growth, however, SpiceJet may risk losing on airport infrastructure like parking slots at India’s busy and crowded airports, analysts said. Air Deccan, for instance, has bases at eight Indian airports compared with SpiceJet‘s parking slots at five locations.
SpiceJet is also banking on growth from ancillary services to passengers, including car rentals, hotels services and insurance from Tata AIG to cover baggage loss and delays to boost revenues, Singh said.
Shares of SpiceJet closed trading at Rs45.50 each, down Rs1.25 or 2.67% on the Bombay Stock Exchange, whose primary index rose 0.81%.
Mehul Srivastava contributed to this story.