T here was a time when SpiceJet was on its knees, plagued with cancelled operations, unpaid aviation fuel and airport charges.
Prophecies that it was going down the Kingfisher route were proved wrong when the airline was resurrected by founder Ajay Singh, who started the airline, sold it, and returned in 2015 to buy it back.
Low fuel costs have played a role in the airline’s resurgence but Indian aviation continues to face regulatory bottlenecks, high taxation, and a fledgling infrastructure.
Today, the aviation market is vibrant, with domestic traffic growth in India reported to be the highest in the world. According to aviation analysts CAPA India, the share of LCC capacity in India is 65%, and will go up to 80% in 2018.
SpiceJet announced its eighth successive profitable quarter recently, and the airline has continued to emphasise that it needs to bring down structural, lease and maintenance costs, and prepare for a time when oil prices will be far less benign than they are today. At such a time, the airline will still need to make sure it remains profitable.
"There is room for yield improvement," says Singh, Chairman and Managing Director, SpiceJet. "We are very clear that we won't have a repeat of the Kingfisher experience. There are many options to fund our expansion plans. Right now, the environment globally is in a good state for us to get finances or sell planes to lessors and lease them back. Whatever we do, we will be careful with our finances."
Ancillary revenues are up to 16% from 5% three years ago. However, infrastructure remains a challenge, especially in Mumbai and Delhi on the terminal side. "They shouldn’t become bottlenecks to growth," Singh remarks. The airline has been the first to adopt a trial for e-boarding in Hyderabad and Bangalore, and will do the same in Mumbai, he adds.
In January, SpiceJet announced a commitment for up to 205 Boeing 737s during an event in New Delhi. The deal includes purchase rights for 50 additional aircraft. These could include widebodies should SpiceJet consider long haul budget operations. At present only 20% of the airline’s business comes from international operations.
"There is a future in the long haul [budget] model," asserts Dinesh Keskar Senior Vice President Sales, Asia-Pacific and India at Boeing, adding that "Scoot and Norwegian [Air Shuttle] are doing a great job."
"This historic aircraft order signifies the end of the turnaround phase for SpiceJet and marks the beginning of a growth story. This order will help build an even stronger and more profitable airline. We will be relentless in reducing our costs and identifying new avenues for revenue generation," says Singh. >>
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