The low-cost airline SpiceJet expects the current year 2017 to be challenging due to high competition and increasing global crude oil prices, its Chairman and Managing Director Ajay Singh said.
“2017 is going to be a challenging year. Fuel prices are inching up and there is competitive intensity in the market,” Ajay Singh said in an interview with CNBC TV18.
Global crude oil prices have been steadily rising since November when the OPEC countries and 11 other major producers decided to cut production in order to support prices. Brent crude futures were trading at $55.63 per barrel on Tuesday, while the US West Texas Intermediate (WTI) crude was at $52.97 per barrel.
Rising crude oil prices hurt airlines, as jet fuel makes up for the single largest part of their operating costs.
Shares of SpiceJet were trading firm at Rs 64.65, up 1.02%, ahead of its fiscal third quarter earnings due later today, where it is expected to report that its yields were under pressure because of the competition in the industry. SpiceJet competes with other low-cost airlines including IndiGo, GoAir and AirAsia, and often with full-service airlines such as Jet Airways, Air India and Vistara.
Ajay Singh said that SpiceJet will continue to do new things to try and improve yields in other ways, and to try and lower the cost. “Hopefully we will have a very good year,” he added.
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While the airlines do not have much control over fuel costs, Ajay Singh said that SpiceJet will cut other costs. “We have to work in a variety of ways to lower costs, which are other than fuel costs,” he said.
Further, the company will also try to raise the revenue and maintain margins, he said. “We have to also try and increase revenues — ancillary revenues, from better yield management and better network management,” Ajay Singh said, adding, “We will continue to try and retain our margins.”
Earlier last month, SpiceJet placed a major order with Boeing to buy up to 205 new 737 MAX jet aircraft for a staggering $22 billion, in a bid to expand its market in South Asian countries and add new destinations.