"SpiceJet will be the
biggest turnaround story so far,” so claims company chief operating
officer Sanjiv Kapoor. To effect the turnaround, SpiceJet is working on a
two-pronged restructuring process, wherein the promoters — who recently
infused around R300 crore into the airline — are looking at ways to
induct a foreign investor, either strategic or financial; while the
management focuses on increasing revenue and cutting costs.
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In an interview with FE,
Kapoor dismissed all comparison with the now grounded Kingfisher
Airlines, while saying, “We want to be a strong number two,” when asked
where does the airline see itself if it manages to come out of the
woods, as competition has intensified with more airlines entering the
market.
As for the components of
the turnaround plan, which has led to such optimism on Kapoor’s part, he
clarified that the plan is not based on the wish of all carriers that
state taxes on jet fuel be reduced. For SpiceJet, the fuel cost is
around 50% of its revenues, while for the industry it is around 40%.
“We need to stop bleeding
by making more money, as well as reduce costs by around 7-8%,” he said.
Per unit revenue has been on the rise — during April-June quarter it
was up 9.5% year-on-year — and the company expects it to rise by another
5% by the October-December quarter.
“Our revenue growth is
going fine, but cost side takes time. So far we have managed to reduce
costs by 3-3.5% and would need another six months to meet our targeted
levels,” he said.
The company will not do
routine replacement hiring following natural attrition, besides
returning up to four Boeing 737 aircraft to save on interest costs. The
company’s wage bill is currently around 10-12% of its revenue. Kapoor
said the headcount, which was around 5,600 earlier, has come down to
5,300. The target is 4,800. However, there would be no mass lay-offs.
The airline has already
returned four Boeing 737 aircraft to lessors in the April-June quarter.
While there will be no changes in its fleet of 15 Bombardier Q400s, the
B737 fleet will be about 36 by the year end.
“We will retire 10-14
year old aircraft — about four Boeing 737s are in that category — and
later get new aircraft,” Kapoor said.
As part of a new network
rollout to cut loss-making routes, the Chennai-based carrier
discontinued 26 routes and seven stations and reduced capacity on 14
routes in FY14. In some of these routes, like Bangkok, it has since
started new flights. On fuel expenses, SpiceJet is reducing costs by
lowering fuel burn of aircraft, making its pilots fly more efficiently
and going more to airports offering lower state taxes on fuel uplift.
“Last year, we spent
about R3,000 crore on fuel and are hoping to save R50 crore this year.
If we were paying fuel costs like with Singapore Airlines pays at home
and Emirates in Dubai, we would have been profitable last year,” Kapoor
said.
Kapoor’s optimism
notwithstanding, the carrier has an uphill task. In FY14 its losses
stood at R1,003 crore, a five-fold jump over the previous fiscal. During
the April-June period of the current fiscal, losses were at R124 crore,
leading auditors to raise concerns. As on June 30, the company’s total
liabilities exceeded its total assets by R1,145.6 crore, the airline’s
auditor, SR Batliboi and Associates said. “These conditions… indicate
the existence of a material uncertainty that may cast doubt about the
company’s ability to continue as a going concern,” it added. SpiceJet’s
total liability stood R3,954 crore as on March 31.
Though the promoters, the
Kalanithi Maran family, have recently pumped in around R300 crore by
way of subscribing to warrants, analysts said the company needs at least
R1,200 crore to take care of balance sheet.
Kapoor does not dismiss
the reality, but refuses to talk about the fund infusion by pointing out
that the promoters are very much interested in running the company and
have infused funds as and when required. He also does not want to talk
about the possibilities of roping in a foreign investor, either
strategic or financial, as these are matters for the board to decide.
His concern is the profit and loss account and he’s focused on fixing
it.
As an operations man, he
shows the positive side: during April-June, performance improved on
several parameters boosted by schemes like discount offers on limited
seats — load factor was thus up 2.4%, passenger yield rose 4.8% and
revenue per available seat kilometre increased 9.4%. Starting June,
SpiceJet beat Air India to become the second-largest carrier behind
Indigo — market share in June and July stood at 19.0% and 20.9%. The
load factor in July was the highest in the industry at 79.4%.
- Source: http://finance.indiaeveryday.in
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