'Aviation policy has potential to unlock huge untapped market'

From the verge of collapse in 2014-end, SpiceJet flew back to safety in one year. Original promoter Ajay Singh, who bought back the airline and steered it out of crisis, responded to Deccan Herald’s Shemin Joy.

In 2014-end, SpiceJet was in a very difficult situation. However, the turn-around in the last one year has been phenomenal. How did you achieve it?

When I took control, it was made clear to me that nobody wanted SpiceJet to die. The people who work for SpiceJet were naturally passionate about it, but it was the consumer who really wanted to see the airline survive. Oil has certainly been of great assistance to the entire turnaround story. It gave us considerable breathing space and helped us achieve results a year earlier than our earlier estimates.

Importantly, on the operational front, we stuck to the fundamentals of operating a low cost carrier – increase asset utilisation, maximise productivity, reduce complications, focus on revenues (Passenger and ancillary) leading into reductions in cost and maximisation of revenues. We brought some of the most outlier costs under control. We curtailed our network and flew only to those routes, which were profitable. We followed the very fundamental proposition of a low cost model – fewer stations and higher frequency to those stations. As part of our cost rationalization strategy, we also amended some of our aircraft contracts and laid considerable focus to ensure all the flights were on time, thereby ensuring optimum utilization of our existing fleet.

Generating ancillary revenues and effectively stimulating the market contributed towards achieving  were clear highlights in the first year of the turnaround process and has provided us with a benchmark for the further years; since the past performance indicators were below competitive benchmarks.
 
2015 saw stabilisation of the airline. What is in store for 2016? What are the opportunities and targets ahead for SpiceJet? What new we can expect from SpiceJet this year?

Steady growth is vital. However reducing costs while sustaining the growth momentum is crucial and that is where our challenge lies. We have improved our financial performance through revenue maximisation and increase in asset utilisation and operational efficiencies. This year we will be concentrating on costs that are structural in nature. We are therefore working on ways to reduce the cost of (aircraft) leasing, engineering and maintenance, among other areas. Apart from fleet expansion, which we are targeting subsequently for the next level of financial growth, regional connectivity will continue to be one of our focus areas as we increase frequency to our existing routes and start some new flights.

Establishing customer confidence, optimising network, revenue enhancement and predictability were clear achievements this year. Having said that these tasks are still work in progress. As I indicated earlier in various interactions, this is a case of a classic turnaround; in that I mean there is a lots to be done – ranging from employee productivity and morale, cost reduction, network optimisation and growth strategy, financial integrity and discipline, asset utilisation, continuous product development, to relationship management with Business Partners, Authorities, Banks, Investors, etc . We will take up each of these areas as we move on.
 
The competition is heating up. More and more airlines are entering the sector. Will it be tough for SpiceJet when the market leader is way ahead?

Today, just two per cent of Indians are flying. This market is poised to grow. In terms of the total number of commercial planes, there are just 400 of them, which is very low compared with China or any other similar developing country. Therefore, there is a lot of space. As we have more infrastructures, there will be space for many more planes. Now, whether there are multiple players who bring the planes or there are fewer players who bring in many planes, there is certainly space for a great deal of growth. I believe that SpiceJet has the ability to scale and sustain its operations by virtue of its experience and brand strength and will not have to worry too much about the market leader.
 
What are your domestic expansion plans? What are your fleet expansion plans? Will you be adding more destinations this?

A combination of lower fuel costs, moderate capacity addition and strong passenger growth will drive growth in the domestic aviation. We recently undertook a major network-cum-fleet expansion plan whereby we added 10 new sectors, 30 new frequencies and 22 connecting flights, thereby increasing the daily schedule to 291 flights from 250. Our current and even our future expansion plans going forward will render special focus on tier II and tier III cities to unlock their tourism potential.

As far as our fleet expansion plans are concerned, we are looking at a considerable size, however it is important that we "put the best foot forward" and ensure aircrafts are purchased in an optimal manner. We have floated an RFQ to both Boeing and Airbus, to which they have responded. We are now in the process of evaluating these offers. From our perspective, we want only a single fleet — either from Airbus or Boeing.

We are talking to both to ensure that we have a constructive relationship with the aircraft manufacturer and that which is the lowest cost both in terms of aircraft price and its running costs.
 
What are your plans for international destinations?

Dubai is one of our key international markets and we will continue to increase our presence there. We launched two new flights at the beginning of the year and will be looking at increasing our footprint across the Middle East markets thereby providing our customers with better and more convenient travel options.
 
How do you evaluate the aviation sector in 2015?

I must admit that the year gone by has fostered the aviation sector to be poised for the next level of growth. Plunging crude-oil prices, a sharper focus by the government, higher disposable incomes, the cost-benefit advantage over the Railways are some of the key factors that have worked in the favour of the industry. However having said that, the stimulation of growth should be done in a profitable and sustainable manner, and for this, we need to constantly work on bringing down costs thereby being  prepared for a time even when the oil prices will not be as benign as they are today.

Also, it has become very clear that a vast majority of the market is going to be low-cost, hence the focus of the current draft policy of enhancing regional connectivity and development of low-cost, no-frills airports is on-target and if realized in full potential will unlock a huge untapped market which we are extremely bullish about.
 
How do you see the demand for scrapping 5/20 Rule? In retrospect, do you think the Rule hindered your growth?

There is a presumption that the abolition of the 5/20 rule is something which is obvious and should be done. We do not agree. We think that any rule that you form now, whether it is the 5/20, the abolition of it or something in between, needs to be well thought out and should serve the larger goal of ensuring that India does become a global aviation hub and that we can create our own international airlines and so on.

Having said that one needs to seriously look at what the 5/20 has brought to the country and whether the abolition of the policy would be fair and create a level playing field between the players who served out the 5/20 and the new guys who come in. So, it needs to be thought through and as long as there is a level playing field, one can abolish it. Every player should be focussed on developing the domestic market first, before venturing out into international operations. We don’t think the 5/20 hindered our growth; in fact we were able to develop a strong domestic network which allows us to command a good share from the international markets through our international operations.
 
The Civil Aviation Policy is likely to be unveiled soon. What are your expectations?

India has a historic opportunity of being a leading aviation superpower in the world and we must not let go of that opportunity. The policies that we make today need to be designed to make that a reality. The focus of the current draft (new aviation) policy is on regional connectivity, which is one of the high points of the industry and we have been great supporters of the same.

Encouraging maintenance, repair and overhaul (MRO) operations in the country, will help us save cost and create jobs. So, the policy correctly addresses a lot of these issues. It also correctly tries to address the issue of cargo hub within the country. So, there are lots of very good pieces of the new policy.

However the government should stay away from capping fares. This dynamic fare model has worked pretty well so far. The market is growing at 20 percent, it can grow faster as well but capping of fares would act as an impediment to the growth.

Besides these, government must also consider reducing the aviation turbine fuel (ATF) taxation and steps need to be taken to ensure India doesn’t have the most expensive aviation fuel policy. Also the government should looks at ways to encourage our financial institutions to get into asset financing. Whereas on the open sky policy, if required, it needs to be mandatorily reciprocal. (ENDS)