Friday, May 12, 2017

SpiceJet expects some regional routes to be profitable from day one: Ajay Singh

SpiceJet, the low-cost airline is the only listed entity to bet on the regional connectivity scheme (RCS).

Ajay Singh, CMD, SpiceJet said as of now there is no reason to believe why the regional flights will not do well.

The Government in March started its Regional Air Connectivity Scheme (RCS) by awarding 128 regional routes to five airlines — Alliance Air, SpiceJet, Turbo Megha, Air Odisha and Air Deccan.

As proposed by the government, under this scheme at least half the seats on every flight will be available for a fare of Rs 2500 per seat per hour of flying.

In an exclusive interview to CNBC-TV18's Shereen Bhan, Singh said the airline has three-year exclusivity on some of the RCS routes, for example, Delhi-Kanpur, Delhi-Jalandar, and all these routes are expected to profitable from day one.

It is a new scheme and a small part of SpiceJet’s overall flights, said Singh, adding that there were limitations on the routes they could bid for in the first round. However, going forward they would bid for other routes too, he said.

Talking about the great potential of this scheme for aviation in India, he said today we have 75 airports operational and with this scheme, another 45 will be operational.

The airline for the past two years have aircrafts that have been significantly cheaper to lease and maintain than earlier, so the average cost of the lease has come down and will go down further in the next one-year, said Singh.

The airline is working on low-cost long-haul flights at sustainable profit margins, said Singh adding that the underlying demand is extremely strong at a certain price.

Speaking of the aviation turbine fuel (ATF) prices, he said there is need to bring them down because the prices are unsustainable in India. “To us it is unsustainable that ATF prices are going to be 50-60 percent higher than most countries around the world,” adding that the country cannot have the most expensive ATF price and expect civil aviation sector to prosper.

Below is the verbatim transcript of the interview.

Q: Let me start by asking you about the big bet, you are the only large listed entity to bet on the regional connectivity scheme (RCS). Interglobe Aviation has very recently after its result said that they will look at getting into the regional space as well, in fact they have put in an order with ATR. How soon can we see the RCS starting to have an impact as far as your earnings are concerned?

A: We will start to fly the RCS routes in June of this year. That will be one route but progressively we will roll them out. You will see that all the routes are functional by about September. So, numbers for that will only come in post that really.

Q: The question mark in the mind of investors, analysts, and the market is that with a price cap of Rs 2,500 are you likely to make any money because it will depend on volumes, it will depend on traffic. Are these likely to be profitable for you?

A: This is a very small part of Spicejet’s business. We will expand it in time, but at this time it is a small part of Spicejet’s business. I think one of the most important part of RCS is that the routes that we are flying to, there is a three-year exclusivity on these routes that Spicejet has. Half the seats are not under any fare cap and we believe that there is great potential in these routes.

For example, Spicejet will be flying from Delhi to Kanpur, that will be a route that Spicejet will have on an exclusive basis now for three years. Kanpur is the industrial hub of UP, there is not a single flight into Kanpur. Spicejet will be flying from Delhi to Jalandhar, the Adampur Airport. Again, very prosperous area without any flight at all. We think that there is no reason why flights like this are not going to do well. We expect that those flights will be profitable from day one.

Q: You believe that they will be profitable from day one?

A: Absolutely.
11/05/17 Money Control