ThecomebackactofSpiceJetfounder

AjaySingh
ByMihirMishra,ETBureau|Feb25,2016,05.47AMIST

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OntheseventeenthdayofDecember2014,a
nearbankruptSpiceJetceasedoperationstill
1600hours.Flightsresumedonlyafteroil
companiesstartedrefuellingaftertheairline
madeapartpaymentonoutstandingdues.
Partpaymentwasoneofthereasonstheairline
tookwingsagain.Theothercrucialreasonfor
SpiceJet'sreturnfromdeathwasthereturnof
originalfounderAjaySingh,whowasseen
About5yearsafterhesoldtheairlinehecofounded,AjaySingh
meetingofficialsattheRajivGandhiBhawan
hadtocomebackasmajorityshareholderandsaveSpiceJet
thebuildingthathoststhecivilaviationministryin fromthebrink.
Delhianhourbeforeflightsresumed.Singh,
whohadcofoundedSpiceJetin2005,hadsolda
ETSPECIAL: Lovevisualaspectofnews?Enjoy
majoritystakeintheairlinetoKalanithiMaranof
thisexclusiveslideshowstreat!
SunTVinSpiceJetforRs750crorein2010.But
whenSpiceJetranintoroughweather,Singh
acquired58percentequityfromMaraninJanuary2015.
ThatneardeathexperienceisnowwellbehindSpiceJet.Ithassinceregisteredprofitsforall
fourensuingquarterswithcumulativeprofitsofRs356crore.
ItsliabilitieshavefallentoRs700crorefromJanuarylastyearitwasaboutRs1,500crore
accordingtoasubmissionmadetotheaviationministrybySpiceJet.
Sharepriceshavesurged178percenttoRs67.40sinceSeptember1,2015."Spicejethasno
debttoday,"saysAjaySingh,whoisnowonceagainitschairmanandmanagingdirector.
"Also,aboutRs300croreoftheRs700croreliabilitiesarerunningliabilities(whichisserviced
timetotime),"headds.
Therevival

TheformaldealbetweenAjaySinghandtheMaranswasinkedinJanuary2015,butSingh
startedtalkingtothegovernmentfromDecember2014itselfafteratentativeagreementwas
signed.Hegotintodaytodayoperationsonlyaftertheformaldealwassigned.
ThefirstthingSinghdidaftertakingovertheairlineagainwastogetthebasicsoftheairline
rightensurethatflightsaretakingoffandinterfaceslikewebsites,countersatairportare
working.Forallthistofunction,hehadtobringbackvendorstoserviceplanesandcustomers
toflythem.
"Thebasicproblemwasoftrust.Customerswerenotbookingticketswithus,lessorswere
takingbackplanes,vendorshadstoppedservices,andthegovernmentwasaftertheairlinefor
clearanceoftaxdues.Passengerswereinconveniencedandemployeesthoughttheyhadno
future.Everythingthatcouldgowronghadgonewrong,"Singhsays.
AllthiswashappeningduringDecember,whenpeopletravelfortheiryearendholidays."The
onlywaytowinbacktrustwastooperateflightsandensurethatpeoplereachtheir
destinations,"hesays.
Delayswereaddressedmorerecently.SpiceJetstartedworkingonontimeperformance(OTP)
fromJanuaryOTPsimprovedfrom49.6percentinJanuaryto75percentinFebruary.It
was74.7percentinJanuary2016.
Posttheoperationalfix,Singhshiftedfocusoncleaningupofthenetworkandvarious
contracts.Singhdeclinedtoshareanydetailsonsavingsfromcontractrenegotiationsbutsaid
itwassubstantial.
"Contractswereinbadshapeandthenetworkwasscatteredallovertheplace.Therewere
destinationswhereaflightwouldgointhemorning,butnothavealatenightoreveningreturn
flight.Thismeantsomeone,whowantstoreturnsamedaywouldnottakeyourflight,"hesays.
Forexample,therewasanearlymorningflightbetweenDelhiandHyderabad,butnolate
eveningreturnflight.
Theearliermanagementhadfocussedonaddingdestinations,driftingawayfromthecorelow
costprincipleofprovidingpointtopointconnectivity,hesays.Ontheforeignfront,therewas
onedailyflighttoSharjah,whichwasdiscontinued.
"PeoplegoingtoSharjahweretravellingtoDubai.WhynotaddonemoreflighttoDubaithan
haveastationinSharjah.Thesestepsdonotappeartobethatbigadealbutitsavesmoney,"

saysSingh.SpiceJetshutfivedomesticdestinationsLucknow,Allahabad,Surat,Belgaum
andHublyand3internationaldestinationsSharjah,SingaporeandGuangzhou.
Thenewmanagementalsofocussedonimprovingancillaryrevenues,whichisnowabout17
percentoftotalrevenuesanincreasefromabout7percentwhenSinghtookover.Italso
planstogetintoecommercecargotoimprovethisfurther.Singhsaystheearliermanagement
wentaftermarketshareandendedupdumpingpremiumseats."Whilediscountofferingsare
partofbrandingstrategy,no'sale'shouldofferseatsforpremiumdaysduringholidaymonths.
Theearliermanagementusedtosellseatsforpremiumholiday/festivaldaysimpacting
revenues,"saysSingh.
AnalyststermSpiceJet'sturnaroundresultstilldate,especiallyQ3results,asremarkableand
creditfallingoilpriceasakeyfactorbehindrevival.
Thecostoffuelconstitutesabout30percentofthetotalcostsofSpiceJetnowahuge
reductionfrombeingover50percentduringthethirdquarterofthe2015fiscal."Massivedrop
infuelcosts,significantcapacitymoderationatindustrylevelinFY16andAjaySingh's
confidenceanddeterminationtosucceedhelped,"saysKapilKaul,CEOsouthAsiaatCAPA
CentreforAviation.
Anindustryinsidersaidthecontributionoffallingoilpricesintheairline'srevival
wasmorethanhalf.Oneofthekeyreasonsbehindtheincreaseinrevenueswas
increaseinutilisationofaircraftthatwaspossibleonlyduetolowerfuelprices.
"TheutilisationofBombardierQ400swereincreasedbyanhourmakingthem
profitable(10.511hourscurrently).Thisincreasedutilisationwasachievedonly
byflyingtheplanesfaster,whichmeansburningmorefuel.Hadtheoilpriceswereat
$100/barrel,themanagementcouldhaveneverbeenabletopushtheplaneharder,"hesaid.
Butindustryinsiderssaytherevivalwouldhavebeendifficultwithoutgovernmentsupport."The
governmenthelpedtheminrestoringoperationsbybuyingtimefromvariousvendorsmaking
themnormaliseoperations.Theyalsohelpedthemwithfasterregulatoryapprovals,"saysan
industryinsider,whodidnotwanttobeidentified.
WhenSpiceJetwantedtoinductplanesonwetleaseafirstinIndiabyanairlinefordomestic
operationsregulatorDirectorateGeneralofCivilAviationawardedtheairlinepermissionsto
inductandflytheplanesinabout4weeks.Innormalcircumstances,thistakesthreetofour
months.Inwetlease,planescomewithpilotsandcabincrewandisatemporaryarrangement

unlikedrylease,whereyougetplanesregisteredundertheairline'snameandforalonger
period.
Aseniorministryofficial,attachedwiththeministryduringtheSpiceJetcrisis,saidtherehave
beeninstancesofcallsbeingmadetotheoilminister'sofficeat1aminthemorningbecause
oilcompaniesrefusedtorefuelSpiceJet'splanes."Itwasaconsciouseffortthattheministry
tooktohelpSpiceJetbecauseanotherairlinebustwouldhaveimpactedflyinginIndiaasfares
wouldhavehittheroof,"saystheofficial.
Thefuture
SpiceJetregistereditshighesteverprofitsofRs238croreduringthethirdquarterofthisfiscal.
ButSinghadmitsalotmorethatneedstobedone."It'sbeenadecentrideandthereisahuge
taskahead,"hesays.
SpiceJetwantstoorderabout150midrangeaircraft(Boeing737sorAirbus320s).Inthe
interim,theairlineisintheprocessofreplacing6wetleaseaircraftbydryleaseandalsoadd
aboutfourmoreplanesinthesummerschedule.Theairlinecurrentlyoperates22Boeingson
dryleaseand2Airbusand4Boeingsonwetlease.Italsohasafleetof13Bombardieraircraft.
Analystsexpecttoseefurtherimprovementsinallkeyareasoperationalcapability,costand
revenuequality."Another23quarterslikeQ3FY16willsignalstrategicanddirectionalshift.
Postconfirmationofthenewfleetorder,anewlongtermbusinessplanwithcleargoalswill
emerge,"saysKaul.Fornow,SinghisverymuchinchargeofSpiceJet'scomebackflight.