Starting a new airline from scratch is not an easy task in India.
Fixing one that’s almost reached the brink is even less so.
Ajay Singh, former promoter of SpiceJet and now in control of the Gurgaon-headquartered airline, is grappling with many imponderables -- including oil prices -- and is finding the going anything but smooth.
Consider what he has on his plate.
To start with, he has to convince the lessors who have been threatening to take back their aircraft not to do so -- a total of 11 planes have been under threat of withdrawal owing to previous defaults on payments.
Some lessors have even taken the airline to court and Singh has been, with some success, spending an inordinate amount of time sorting this issue out.
Next, he has to reduce the number of stations and increase frequencies to those that remain.
When Singh took charge, the airline was flying to 39 stations.
That has now been brought down to 31 and by the time the winter schedule kicks in, it should be down to 25.
Frequencies, however, to these stations will be increased; so the overall operations will grow, not shrink.
Stations with single flights such as Indore and Surat have been weeded out.
The aim is to have a minimum of four flights per station eventually.
Third, Singh has the task of getting passengers back.
With this in mind that a series of sales have been launched.
“The idea is to get passengers to sample the product again,” says Singh, arguing sales have now been done with some sanity and are not rask (revenue per available km) dilutive.
In other words, they are not mindlessly selling seats almost free.
A few seats are sold at lower prices and the rest at a rate that makes the flight viable.
However, even as they announce sales to lure fliers, they have been working on fixing the product back to shape.
The passenger wants to get from one place to the other, on time, in a safe, clean plane. Singh’s entire focus is on this.
Because of return of aircraft and cash crunch, the airline’s schedule had become quite erratic.
This is now being worked upon.
Load factors in February and March have slowly but surely crept up as the airline brings some sanity into its operations.
According to Singh, by ensuring the airline did not go under, a larger message has gone out to the public that SpiceJet will behave honourably in a crisis.
That has helped rally back both passengers and vendors.
The third big task before the airline is re-negotiate, re-negotiate and re-negotiate.
So, every contract the airline entered into for the past three to four years is being re-examined with a toothcomb and re-jigged to whatever extent possible.
Contracts for small things such as uniforms for crew -- which differ on weekdays and weekends, a bizarre and expensive innovation by the previous management -- to larger contracts like that with Bombadier are being reviewed.
According to aviation industry sources, the airline, which has a 2014 purchase order for 42 B737 Max, is also seeking to re-negotiate this deal, amounting to $4.4 billion at list price.
“As far as I understand it, the airline will drive the hardest bargain on this one,” says an industry source.
He argues that as SpiceJet is for all practical purposes such as a start-up at present, Boeing will not want Airbus to try and lure one of its few remaining customers in India. The way things have turned out, Boeing has been losing the battle in India to Airbus for a while.
Singh’s biggest challenge lies in finding the right people at the right compensation levels. As things stand, senior management salaries and contracts are out of whack with industry standards and there are exit clauses, which bind the airline to pay even if it terminates the contract in certain cases.
At several positions at the moment, SpiceJet is paying three times the IndiGo salary levels and at least four-five times what it was paying at the same level for the same job before the Kalanithi Maran era. Singh has got back four former employees -- including Saptarshi Bose, who was with IndiGo -- and is working on reducing his monthly salary outgo.
At a macro level, the employee count is 3,900 (down from around 5,000).
But this needs to come down to around 3,600 for a fleet of around 40 aircraft, which is where the airline is aiming to reach.
While all Singh’s plans and intentions sound good on paper, he badly needs one factor to behave itself -- oil prices.
Within weeks of Singh’s taking charge of operations from the Marans, oil prices saw an eight per cent uptick.
That translates to a three per cent increase in overall costs and this single factor -- one largely outside anyone’s control -- can throw several calculations out of gear.
Does he, then, think the airline is out of the woods?
“I need another 12 months to be able to say that, but let me say we are more stable and on a more reasonable footing than at the end of 2014,” says Singh.
Year 2014 is behind them now and 2015 brings hope and, hopefully, some success.
ON SPICEJET’S PLATE
- Promoter Ajay Singh has to convince the lessors, who have been threatening to take back their aircraft, not to do so
- He has to reduce the number of stations and increase frequencies to the stations that remain
- Singh has the task of getting passengers back. It is with this in mind that a series of sales has been launched
- Every contract the airline entered into for the past three to four years is being re-examined and re-jigged to whatever extent possible
