We’re hedging 50% of our fuel; at these prices it makes sense

We’re hedging 50% of our fuel; at these prices it makes sense
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First Published: Mon, Dec 01 2008. 09 55 PM IST

New role: Aggarwal says that in six months people would be excited about working for SpiceJet. Madhu Kapparath / Mint
New role: Aggarwal says that in six months people would be excited about working for SpiceJet. Madhu Kapparath / Mint
Updated: Mon, Dec 01 2008. 09 55 PM IST
New Delhi: From running the world’s second largest part-owned business jets company in the US to leading SpiceJet Ltd, one of India’s low-cost commercial airline services, chief executive Sanjay Aggarwal has taken a leap of faith. Aggarwal—handpicked by billionaire investor Wilbur Ross, who bankrolled the Gurgaon-based airline with $80 million (Rs401 crore) in July—in his first interview after he assumed his new role, talks about how he plans to turnaround the firm to profitability by bringing customer service back into focus, hedging low-priced fuel and tweaking the low-cost model by offering a frequent flier programme. Edited excerpts:
What would be the key elements of your strategy to take the airline forward?
New role: Aggarwal says that in six months people would be excited about working for SpiceJet. Madhu Kapparath / Mint
Sometimes people tend to think low-cost means cheap and I want to make a distinction between cheap and quality. Quality but less expensive, that’s the difference. My recruitment team tells me they are having a difficult time finding the right people because they (potential employees) don’t want to come work for a low-cost carrier. I am, like, what do you mean you are having a difficult time finding the right people? We don’t pay less than anyone else out there; we pay market wages. So, I think we are not selling ourselves well.
In terms of hiring, what do you have that your competitors don’t?
Recently a friend of mine flew with SpiceJet and he was treated like a VIP; he had a wonderful experience. I told my team I want that VIP experience to be repeated 15,000 times a day. You should be excited about every customer, here’s a guy who is writing your pay cheque. The attitude, ‘Ahh...here is another passenger I need to check in,’ it will have to change or heads could roll. I need people who are excited to meet people.
As customers, what difference will we notice if we travel six months from now in SpiceJet?
Excitement. People would be excited about working for SpiceJet; people would be excited about the change, the positive momentum they have seen. In six months, what you will see (is the) excitement building. It would take us a little bit longer because we have 2,300 employees to get through—18 different airports, 200 pilots, 500 flight attendants, 150 gate agents. In my mind, we have three main customer touch points. Your call centres because that’s where the customers call in first to book or the travel agent, the second being the (airport) gates and third being the flight attendants. So, we will be focused on those areas first.
Tell us about operations. Most airlines seem to be benefiting from dropping fuel prices. How’s it been for you?
In our world, fuel is half of our costs. So when it goes up, it hurts more than anyone else, when it goes down it benefits us more than anyone else. But again, we are not counting that it will stay $50 a barrel, we are hedging fuel. I am trying to figure out even with the cost of hedging, how do I deliver a financial plan and make sure we are protected.
I am looking to hedge at least 50% of my fuel, if not more, right now. At these prices it makes sense. And our focus is next 6-12 months in terms of time frame.
Is the earlier hedge price a drag on you as the prices have come down?
It cost us money. With the fuel (price) dropping, we took quite a bit of hit on the cost but we booked it all in the previous quarter and the previous month. So it’s all behind us. From now on, its a clean slate.
You trimmed some flights in the past few months like most other airlines. Do you see some of those coming back?
Actually, just before I started, the board had made a decision to take three airplanes out of our fleet of 18 (with the 19th coming in December). The plan was to return three planes to the lessors but just on Friday I did get the board approval to keep those planes because we are going to take a more aggressive approach and to gaining market share. As a matter of fact, we will be adding more flights in the next few weeks. We are adding a new destination. And our flights in the next three-four weeks will go up by 15-20%.
We want to cash in on the opportunity as the other carriers have pulled back capacity. Next year, we do not have any delivery planned right now. But we will assess the market. There are right now plenty of airplanes in the marketplace. Our next delivery is February 2010...but getting airplane wouldn’t be an issue.
At current oil prices and existing scenario, do you see a break-even?
If the oil stays where it is, we could book November to be a break-even month and we could make a little bit of money in December. But one or two months don’t create a trend line.
Is there some substantial change you want to make in the low-cost model that you have right now?
I think the model works right now. There might be little tweaks that we need to create... (such as) passenger loyalty. You will see a loyalty programme which is like a frequent flier type of (programme) where people get rewarded for staying with us. So, we will look to building loyalty with the customer. I would say (it would be in place) within the next two months if not sooner.
With government pushing for cheaper airfares, what about price reductions?
We did not budge the last time because there is no room for us to cut prices quite yet because the ATF (aviation turbine fuel) price is lagging. Because what we get from oil companies lags the market price. If oil continues (to remain cool) we could look into some kind of price reduction in the near future. There might be a reduction on the ATF side (surcharges). Because that’s where the government has been trying to push.
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First Published: Mon, Dec 01 2008. 09 55 PM IST