New Delhi: The current terms and conditions to buy Air India has discouraged some prospective buyers from showing interest and if they can be tweaked, the state-owned carrier will witness wider interest, SpiceJet Ltd’s chairman and managing director Ajay Singh said in an interview.
Air India, however, is too big for SpiceJet to buy, he said. In an interview, Singh spoke about maintaining yields and costs at the airline, inducting more than 200 aircraft, threat from rising oil prices, and acquiring wide-bodied aircraft. Edited excerpts:
SpiceJet has bucked the trend of high costs and low yields in the industry...
Yields have pretty much held up for SpiceJet (and not fallen). The idea is to keep increasing both passenger and ancillary revenues. Ancillary revenue is extremely important for us. So, there will be renewed focus on ancillary revenues. I also expect that the industry, as costs have gone up due to oil price hike and rupee depreciation, would work to increase yields. Second, there needs to be a push to reduce taxation. As oil prices fell, the benefits were not really passed on to customers and industry as taxation was increased. Therefore, steps should be taken by the state governments to reduce taxation (on oil) and bring fuel prices on a par with international markets. Some states like Telangana have reduced tax on ATF (aviation turbine fuel). Such reduction will increasingly see a shift in traffic to those states where ATF costs are low. So, several states with high tax on ATF will have to relook at the tax on ATF.
And at SpiceJet, how will costs come down?
From SpiceJet perspective, the new aircraft that comes in—the Boeing 737 Max (aircraft) will lower cost as these aircraft are 15% more fuel efficient. So from August 2018 to December 2019, we will see a large number of Max deliveries being made. Therefore, proportionally we would have inducted large number of Max airplanes, which will bring us a saving in oil consumption, engineering costs are expected to come down. Therefore the cost structure should come down for SpiceJet going ahead.
Why LCCs, including SpiceJet, haven’t been able to serve on long-haul international routes?
The low-cost airlines are focused on 3-4 hour distance routes. For long haul, much more bigger and expensive aircraft are required.
Lot more fuel is spent on these routes and fixed costs become higher. So you have to find a model (that works for you) since India is a price sensitive market. People haven’t been able to decode yet, how do you fly a wide-bodied aircraft at low cost. All of us are having these dialogues with manufacturers if there is a way to fly wide-bodied aircraft with lower costs which is sustainable.
What are your expansion plans?
We are adding over 200 aircraft. Our focus at the moment is to make sure that these aircraft are completely deployed. At the same time, we are exploring wide-bodied aircraft—if there is a model where we can make money.
Aviation industry is closely related to oil price. Last couple of years on the recovery of oil prices, airlines have done well. Do you expect this recovery to be delayed with high oil prices?
So far, we have been able to pass on the increase in oil costs to passengers. And the market has taken that well. We are flying with load factor exceeding 90% at high yields. We don’t know the answer if this will be passable to passengers if suppose oil hits $100 a barrel. We have to plan for a time when oil is not at $50-60 per barrel, which is why the new aircraft fleet—fuel consumption is less, more efficient in terms of engineering. There are a bunch of actions we will announce shortly. We are doing things which will protect us from further rise in oil prices.
You have not shown interest in Air India?
SpiceJet is too small to bid for Air India. It doesn’t make sense for us to buy Air India. Air India is a great brand, but it is not for us.
Will changing the terms make a difference in getting more suitors?
I am sure more interest will come in if the debt burden is reduced, more freedom to the buyer, then it would be more attractive to the buyer.
Will you look at diluting stake at some point to meet your capital requirements?
I am not looking to bring in a partner. We are always looking at code share opportunities. But, I am not looking to dilute my equity to raise money. I don’t need to do this. I am making enough money. My aircraft purchase is fully funded. Also, we will get cash from sale and lease back.