ATF prices, taxes are a matter of great concern

Written by Shaheen Mansuri | Updated: Feb 5 2011, 05:17am hrs
Neil Raymond Mills, CEO of SpiceJet, who took over the reins of the airline in October last year after the airlines new promoter and media magnate Kalanithi Maran revamped its management team, places a huge thrust on profitability. In an interaction with FEs Shaheen Mansuri, Mills explains that though SpiceJet is the first Indian low-cost carrier to receive permission to fly abroad, it will go slow on adding international routes but instead will focus more on putting smaller cities on its existing network, where it sees greater growth opportunity. Excerpts:

SpiceJet has reported a 14% decline in its net profit for the October-December quarter. What are the factors that dented the carriers bottomline

We have made a profit of Rs 94 crore during the quarter but thats after a tax of Rs 23 crore. We actually made Rs 118 crore, before tax. In comparison to the same quarter last year, it is actually Rs 9 crore more rather than whats being projected as reduction in profits. But we have grown significantly in this quarter, far more than we have grown in the earlier quarters. However, aviation turbine fuel costs have also gone up significantly.

Going forward, will rising ATF cost not put pressure on your operating margins

For the past few weeks, ATF has been increasing 2% each time. Also, we cannot pass on the burden to consumers with immediate effect. However, even if we see a decline in our margins, we can sustain as long as our overall volumes are good. Simultaneously, higher sales tax on ATF is also a major concern for airlines.

Will SpiceJet revise it earlier order for aircraft in the light of your competitor Indigo placing an order for 180 aircraft with European aircraft maker Airbus

We are entering a new phase of growth by starting global operations last year. We have ordered 60 aircraft, which includes 30 from aircraft maker Boeing and 30 from Bombardiers with a fairly aggressive domestic expansion plan in mind. On the domestic side, we will continue to add new cities. We have already got committed plans to add 13 aircraft this year. That is between eight regional and five in the Boeing fleet. We did this before our competitor announced large orders with Airbus. We are readying the airline to sustain growth. Market share is not something we chase as a key performance indicator

Going by the initial passenger numbers in January, there is a visible trend of slower demand growth in the aviation market. Any strategies to counter this situation

During the last three months, we have firmed up our future expansion plans with our fresh aircraft orders and have been preparing the ground for the rapid expansion planned over the next 3 years. In the backdrop of this, we are happy to have posted our highest quarterly load factor of 87.8% during this quarter.

This clearly demonstrates the increasing consumer acceptance of the SpiceJet value-service offering. We are also pleased that the yields in the market remained stable despite an increase of 11% in the market domestic seat capacity.

We remain optimistic about the growth in domestic passenger traffic during the next 12-18 months and expect that the industry will grow in the 14-16% range. SpiceJet will be at the forefront of this growth and will continue to outperform the industry.