Well be in a different position by the year-end

Written by Roudra Bhattacharya | Updated: Apr 9 2014, 09:02am hrs
With a new management in charge, the countrys third-largest airline SpiceJet is busy scripting a turnaround. But while the management is aggressive, the airline has seen its share of troublesbrand-building activities like a super sale offer at R1 and a dance by crew on board a flight on the occasion of Holi have seen it receive warnings from the aviation regulator. In an interview with FEs Roudra Bhattacharya, Sanjiv Kapoor, SpiceJets new COO and an ex-consultant with Bain & Company, explains how the new strategy of better inventory management and a revamped network has to be aligned as per the business models followed by low-cost carriers (LCCs) globally. Excerpts:

Your super sale offer has created quite a stir in the market

In India, a super sale offer may be termed as a fare war but, in reality, it is standard practiceafter all, it makes no sense to fly empty seats. In fact, its not a price war, its market stimulation. We need to get more people flying in a manner that doesnt dilute your overall unit revenue. On an average, airlines in India are flying 20-30% empty seats, so our strategy is to fly fewer empty seats and generate incremental revenue.

What is your primary focus

We are focused on both revenue and cost management. In revenue management, Indian carriers have been conservative and have not done much, including us. But with the new thinking that has come into SpiceJet, with the world-class experience of LCCs and full-service carriers that we have, we will bring what are the standard revenue and inventory management practices.

Profitability has been elusive. When do you expect to breakeven

It was a tough year for the industry and we are no exception. In how many industries do you see that 70% of your costs are dollar-denominated and this bucket takes a 25% hit due to exchange rates This is brutal. But we have a new management and a plan to turnaround. Airlines are like ocean liners, you cant turn them around instantly. The promoters have been supportive and have told us to do what is required, and then the board is there to oversee. They have pumped up the equity from 38% to 58%. They will give us whatever time is required and we are not talking five years but a much shorter period. Airline turnarounds that I have seen as a consultant with Bain & Company take about a year. I came in November, we started the process in January, and we are hopeful that by the end of this year we will be in a very different position than at the start of the year. We are seeing positive trends in terms of revenues, on time performance and customer feedback, employee morale and service delivery.

How do you plan to protect margins

You have to fence or segment your customers. The most profitable customers are the corporates who are less price-sensitive and tend to book during the last few days. You dont want to dilute that yield, so all our super sales are for minimum 30 days or more. This is meant for a customer who would normally travel by train, because some of our super sale fares for long-haul are comparable to AC two-tier rates. Often you hear that when Air Asia comes they will bring affordable pricing and stimulate the market. There is a lot of positive anticipation of their coming, which we respect. But when we do the same thing, we are told that we are destroying the fares or hurting each otherwe are doing the same thing they want to do. This is done by every well-managed airline in the world, so why wait for them

What other sources of revenue will you look at

Ancillary sources of revenue are a good opportunity for LCCs. But some of the traditional revenue sources that work in other parts of the worldlike Ryanair charges 75 pounds to print tickets at the airportdont work here. Even charging R100 for this is difficult. The Indian market is now willing to pay for food as long as its well-priced and of decent quality. So we will pursue that and retail on board. But we wont go after bad profits, i.e. annoying customers by charging them for what they dont feel they should be charged forsay, a customer is late by a minute and misses the flight and has to buy a ticket for the next flight at last minute rates. We need to navigate away from such cases.

All LCCs, even Ryanair, are moving upmarket. Because you do realise that you need the yields of corporate customers or less bottom-price-fisher customers in order to growespecially in India where costs are so high. So, in May, we are starting a product called SpiceMax where the first five rows, plus the emergency seats, have extra legroom across our entire Boeing fleet.

What has been the strategy behind revamping the network

Beginning March 30, we have introduced a revamped network for our 57 aircraft. There will be a number of changes to frequency and timings. At the end of the day, the network is the strategy of the airline, the fundamental foundation. On international routes, we have announced that we will fly Hong Kong from Kolkata in the second half of the year. We will soon fly Guangzhou from Kolkata. In an LCC model, if the flight is over four hours, it is difficult to make the numbers work. So we have rejigged the network so that we have no over four-hour flights. We are getting back to financially-viable routes.

Star Alliance is looking for a second partner in India among LCCs. Are you interested Will launching a frequent flyer programme help

Most LCCs dont have a frequent flyer programme because there is a cost attached to it. But LCCs are moving towards a hybrid model, so we will look at that. We are testing a corporate frequent flyer programme where if you book under corporate fare, for every six flights you get a free ticket, and two for every 10.

I cant think of too many examples of LCCs joining a global alliance. But we are not dogmatic; we will assess the value of such an initiative that will take us away from the LCC territory and, if it makes sense, we will pursue it.

What is the next step in the interline agreement with Tiger Airways

We are in talks with them to expand on the other end. Right now, our aircraft feed into Hyderabad, and then they fly aheadwe can add more airports like Chennai. In the next phase, we are looking at them to carry our passengers from Singapore and beyond. Right now, its us selling, feeding them and sharing the revenues, and now we will start the Singapore point of sale to feed us. The model has worked well so far. Its structured in a manner where empty seats are being sold. We are interested in this model, and will explore other possibilities. There are some constraints, like we need the same systems to talk to each other, but we are working through those issues.