‘Marans Made A Bad Call With SpiceJet’

For the second time around, SpiceJet fou­nder Ajay Singh is trying to revive the airline. In 2005, he had resuscitated the then defunct Modiluft into its present avatar. This time, Ajay feels the previous owners—the Maran family of the Sun group, currently being questioned in the Aircel-Maxis telecom case—really went wrong with their strategy. Excerpts from an interview with Arindam Mukherjee:

Where did the Marans go wrong with SpiceJet?

Firstly, the cost structure went wrong. Some of the contracts that were signed imposed a cost which was not sustainable. Second, they deviated from what was essentially a low-cost model by opening up at airports across the country. They went for breadth rather than depth. A low-cost airline needs to have multiple flights to a station rather than opening many stations. Structurally, that was wrong. They also took a second line of planes instead of a single aircraft fleet.

In terms of revenue, they seemed to be going after marketshare. In aviation, marketshare is not particularly sticky. Customers tend to go for cheaper fares. SpiceJet’s attempts at buying marketshare for a period of time ensured that they lost a great deal of money. They never recovered from that. The Marans made a bad business call by getting into SpiceJet. They really didn’t do a fantastic job running it and just couldn’t handle it. It’s a very competitive and hands-on bus­iness. They didn’t know this business as this was not their area of expertise.

So, the deep discounting strategy failed miserably?

Deep discounting as a strategy is good provided it is not reducing your overall yield. If done for a few tickets and early on, it’s a great way to get people on board. If you start doing deep discounts closer to the flight, you dilute your yield and it’s not a wise thing to do.

You had lost aircraft, are you anywhere close to normal operations?

That will take some time but our first task is to ensure that we stabilise the current fleet. Currently, we are flying 17 Boeings and 15 Bombardier Q400s. But we will scale up. Next week we will add three more Boeings and will continue to add through the year.

But what about dues, and creditors?

We have paid off a significant amount of our creditors. We have paid off all our statutory dues, all the banks and entered into a settlement agreement with our lessors to ensure there is no risk to the aircraft that is currently on the ground. With confidence returning, forward cash flows have returned and fund requirements have reduced.

Are you talking to strategic investors or a joint venture partner?

We are continuously approached by a lot of people. But we will first stabilise things here and then look at this. The option remains open.

How is it that budget carriers will make money?

They will have to keep their costs really low. As long as SpiceJet kept its focus on keeping costs low, it was profitable. The larger issue is that the cost of aviation as a whole needs to come down. With half or one per cent of the population actually flying in India, clearly, there is a long way to go. Flying is not for the rich any more, it is no longer a luxury. Looking at that, the government will have to participate in this.

Will the extreme budget mode like Air Asia succeed here?

That depends on market conditions. Typically, budget carriers give a basic service and charge for other services. But how extreme that goes is a cultural thing. We have to see what works here. For a long time, people here thought charging for food was not acceptable, but that is the norm now. It’s a gradual process but, perhaps, we cannot take it to great extremes in India.

What prompted you to get back to SpiceJet a second time?

I feit that there was a great business opportunity, oil prices were low and SpiceJet had a great brand. I also thought I needed to do this for a brand I started. Airline failures are quite visible and bad publicity for the economy. Also, no one wants to see a near-monopoly.