Performance sustainable if rupee & fuel cost remain stable: Ajay Singh, Spicejet

The ticket discounting worked well but strategies need to change with time, says Spicejet Chairman Ajay Singh.

Around December last year, SpiceJet was foundering. A spate of flight cancellations and piling-up dues had made operations difficult. Banks were unwilling to lend and oil marketing companies had put the carrier on a cash-and-carry mode, which means no credit for fuel. The airline had lost Rs 1,800 crore in the last three fiscals and the promoters, the Kalanithi Maran family, did not had liquidity to pump in without which the banks were not ready to oblige. On January 15, the airline ownership exchanged hands when the Maran family sold it to Ajay Singh, a former promoter. Though the airline posted profit in the last two quarters, it would be an overstatement to say a turnaround has been achieved. Much of the turnaround is due to the low fuel price and the discount on tickets. With low fleet and frequent discounts, the passenger load factor improved. The chairman of the airline, Ajay Singh, in an interview with  Rhik Kundu accepts the current performance of the airline is sustainable, provided rupee and oil prices remain stable. He also said the ticket discounting worked well but strategies need to change with time. Excerpts:

The turnaround has come much ahead of the anticipated timeframe. The airline posted a profit of Rs 71.8 crore in the June quarter on the back of a fall in fuel price. Is this sustainable?
I agree the turnaround has come much ahead of our expectations and the fall in the oil prices have helped. However, at SpiceJet we are continuously striving to increase revenue and bring down our costs by negotiating with vendors, lessors and other parties. I think the performance of the airline will continue to improve over previous years if the rupee remains stable and oil stays around $60-$65 a barrel.

A major strategy adopted by SpiceJet is to sell tickets on discounts. This helps you fill up the aircraft and achieve high load factor. Is this sustainable since it will eventually affect your bottom line?
In low-cost airline industry, strategies don’t remain constant and have to change according to time and requirement. The strategy of discounting tickets has worked well. However, I can’t say we will follow this strategy going ahead. This could change in future. We will adopt the strategy that makes the most sense to us at that particular point of time.

While taking over the airline from Kalanithi Maran, you had said you will bring in Rs 1,500 crore in the airline.
We brought in Rs 800 crore into the airline. When we were discussing on reviving the airline, the Rs 1,500-crore figure came up as an amount that was needed to pay off the debt and get the airline running. However, we managed to do this with less than that amount. More money will be pumped into the airline in the future as we grow, expand our fleet and services.

SpiceJet has a negative net worth of Rs 1264.52 crore and debt close to Rs 1,400 crore.
Practically all of our debt relates to the purchase of Bombardier aircraft. This is a low-cost debt on which we pay less than 5% interest. We also have one of the lowest debt in the industry. As for the negative net worth, I am expecting this to be wiped out as we continue to report profit in the coming quarters.

There are reports that SpiceJet is in talks with several gulf-based airlines for a strategic partnership.
SpiceJet is doing well financially and has managed to turn around much ahead of the industry expectations, including our own expectations. It is natural that other airlines have shown interest in entering into a strategic partnership with us. We will continue to talk to them and explore opportunities.

You recently said you are looking to induct 100 single aisle aircraft in the fleet and are in talks with Boeing and Airbus.
Yes, we are in talks with both the companies. We haven’t decided as yet. Fleet expansion will help us increase frequency on profitable routes. This is the next step in the financial growth of the airline. We have brought the airline back to profitability and now we will gradually look at growth.

Most no-frills carriers operate a single fleet since maintaining multiple fleet will increase the cost. But, SpiceJet operates both Bombardier and Boeing fleet. Going ahead, will this strategy continue?
Well, I didn’t buy the Bombardier fleet, I inherited it. Yes, in terms of cost, maintaining a single fleet is more cost effective. However, our Bombardier fleet is deployed in areas where it makes no sense to deploy the bigger Boeing aircraft and where monopoly markets exist. So, revenues are high. We are operating this fleet as effectively as we can.

What are your plans for the winter schedule?
We will be adding five aircraft into our fleet and about 40 new flights. We are in discussion with lessors. However, we are yet to decide whether to take Airbus 319/320 or Boeing 737 aircraft. Three of these aircraft will be on wet lease and the remaining two on dry lease. We will increase frequency on our existing routes and start some new flights.

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