BackHow SpiceJet turned the corner: 5 quick questions
SpiceJet's CEO Sanjiv Kapoor admitted that though the airline is profitable, it's not comfortable with its current position
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Mumbai: SpiceJet Ltd, India’s second-largest low fare airline, reported a second straight profitable quarter and managed to increase its seat occupancy, in what is being seen by the airline management as a turnaround for the cash-strapped airline.
SpiceJet reported a net profit of ₹ 71.84 crore for the first quarter ended 30 June compared with a loss of ₹ 124.10 crore in the year-ago period. The airline swung to profit in the preceding March quarter after six quarters of making losses.
In an interview with Mint, SpiceJet’s chief operating officer Sanjiv Kapoor talked about where the airline is headed. He admitted that though the airline is profitable, it’s not comfortable with its current position. The airline briefly grounded its fleet on 17 December owing to financial issues and witnessed change of ownership recently.
What is it that you did differently?
We worked our assets harder, worked to fill our aircraft even more than last year through demand stimulation, increased focus on ancillary revenues, and kept relentless focus on costs. And very importantly, we kept the faith. With the change of ownership and return of the co-founder and the funding that came with the change of ownership, we calmed our creditors and repaired many relationships that got frayed during our troubled times. This allowed us to focus more strongly on our core business.
How did you hold the unit revenue line to last year levels despite reduction in average fares and fleet?
We did this by making up for the reduction in average industry fares by filling the aircraft even more. We did this by stimulating demand in a manner which added incremental revenue and held our revenue per available seat kilometre (RASK) to the same levels as last year (which, in turn, was 10-13% higher than the RASK in the previous year). We kept innovating in the ancillary products space and gained good momentum there.
How did you manage to control costs?
Some contracts were improved and staff productivity was improved. ATF (aviation turbine fuel) cost reductions, of course, played a big part. We relentlessly cut non-value adding costs in all parts of the company. But despite all this, there is a lot more that we need to do to bring down structural costs, including some long-term contract costs, and we will be working on this in the coming quarters.
Why is on-time performance (OTP) an issue even with a smaller fleet?
OTP was impacted by three factors: Firstly, wet lease aircraft and crew from the previous lessor, who required more time for aircraft turnarounds than our schedule. Secondly, disproportionate number of our Mumbai flights at the most congested periods. Thirdly, very high aircraft and crew utilization that reduced buffer for delays. Each delay has a domino effect. We have fixed all three now, though Mumbai delays remain a challenge. And if you add to this the fact that we flew the fullest planes in the industry, that too put pressure on turn times. But the worst is behind us, for example, today we had an OTP of 90%.
Are these numbers sustainable?
We certainly intend that they be sustainable. We do not think for a moment that the job is done, we believe the climb has resumed, and we will continue to relentlessly focus on maximizing unit revenues and reducing costs. We look forward to the new aviation policy that is in the works to bring some welcome structural cost reduction to the industry.
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