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  1. Spicejet: On comeback trail

Spicejet: On comeback trail

The change in guard proves a blessing as Ajay Singh, the new promoter, is piloting the airline’s course in the right direction

By: | Updated: October 19, 2015 1:05 AM
Spicejet

The change in guard at SpiceJet has been a blessing as the new promoter, Ajay Singh, seems to have pushed all the right buttons, piloting the airline’s course correction.

We recently met SpiceJet management to gain insights into the genesis of the recent crisis the airline had to battle, wherein consumer confidence as well as the brand took a severe beating. The change in guard has been a blessing as the new promoter (Ajay Singh) seems to have pushed all the right buttons, piloting the airline’s course correction.

This, further bolstered by favourable market conditions (robust demand, benign ATF prices) led to the once beleaguered SpiceJet clocking profits for two consecutive quarters. While the airline is firmly on course to return to normalcy, management is now sharpening focus on growth.

What went wrong?

Winter (peak season for airlines) 2014 was the coldest ever for SpiceJet as heightened flight cancellations—triggered by serious liquidity constraints—severely eroded consumer confidence, leading to the airline ceding significant ground to competition. Aggressive fare discounting strategy to prop up utilisation and legacy accumulated losses came to haunt the company, rendering recapitalisation imperative even as incremental capital was hard to come by.

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The only option left was to rationalise fleet size by prematurely terminating a few aircraft leases, severely denting operations.

The turnaround: Changing hands for good

In Q4FY15, Ajay Singh, one of the airline’s founder members and reputed for a hands-on approach, took over ownership and control of SpiceJet from the erstwhile promoters. With recapitalisation, the company undertook a few prudent measures—settled outstanding dues, renegotiated contracts, optimised aircraft utilisation and revenue maximisation. These have restored operational reliability and helped regain customer confidence, evident in its gradually making good the lost market share.

Outlook: Focus shifting to growth; ‘NOT RATED’

SpiceJet has managed to discharge a significant portion of its liabilities and pare payables from ~Rs 18 bn to ~Rs 11 bn. Further, conducive macroeconomic milieu has helped the new promoter turn around the airline—reported two consecutive quarters of profits: Rs 225 mn in Q4FY15 and Rs 718 mn in Q1FY16. Though Q2 is a seasonally weak quarter, management is confident of a robust Q3, given the initial pre-booking trend ahead of the peak festive season. With the airline returning to normalcy, management has now shifted focus to growth. The stock is ‘NOT RATED’.

For the upcoming winter schedule, SpiceJet is adding six more aircraft, which will help it operate 291 daily flights from the current 250 flights across the country. With the airline now returning to normalcy, management is now clearly shifting focus to growth.

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