Spicejet's new turnaround plan

Earlier this year, 70-year-old Wilbur L. Ross, Jr., Chairman & CEO of WL Ross & Co, pumped in Rs 421 crore into Spicejet after protracted due diligence and lengthy negotiations. “All airlines in India are burning cash. Our strategy was to put in enough so that SpiceJet could last several years even if oil stayed at $130 per barrel (though we actually believe it will be lower). No other private airline in India has that much staying power,” said Ross. Though a conversion of debt to equity is yet to take place, if done, Ross’ stake would amount to a 31% holding in the company today, making him the single largest shareholder.
Ross’ optimism stems from the way the SpiceJet management is looking at ways and means of pinching pennies. Take, for instance, the 16 single-fleet Boeing 737-800 /900s with the carrier. “With a similar fleet, pilot and maintenance costs go down substantially,” says CFO, Paratha Sarthy Basu.
Add to this the winglets (wingtip device intended to improve fuel efficiency in powered aircraft) on all these aircraft to guide them better and also enable point-to-point service with more city frequency, there are further savings. “We don’t go to 50 cities but focus just on 16 with more flights from each,” says Basu.
Director Ajay Singh couldn’t agree more. “In a low-cost model, you use similar aircraft, have single-class seating and book seats on the internet with quick turnaround time and large utilisation of the aircraft and maximum flights from limited airports,” he says.
SpiceJet has undertaken a huge fuel conservation exercise when ATF prices were seen hovering around the $130-mark . “When we started out, the break-even plan pegged ATF at $30-50 . When it went up to $150, every airline started having trouble,” says Singh.
“We pay suppliers on time and so our costs are 25% lower than our competitors for things other than fuel,” says Basu. The airline has recently started hedging fuel and is the only carrier in India to do so. “We are buying from MCX at the $90-110 range and this would secure our fuel costs going forward,” says Basu.
Both Basu and Samyukth Sridharan, Chief Commercial Officer of the airline, have had stints with Coca-Cola India and bring in a certain FMCG approach to aviation. “LCCs are much like consumer goods, with on-line distribution and fast turnaround time,” says Sridharan.
The bane for many LCCs is the services overhang that often plays havoc with the P&L account. SpiceJet is tackling that by borrowing best practices from international lowcost operators, such as EasyJet and South-West Airlines. This p a i d off, as the airl i n e b u i l t up an 8 6 % on-time reputation and a legion of loyalists with 40% repeat flyers.
10/10/08 Moinak Mitra/Economic Times

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Categories: SpiceJet Oct 2008