GoAir and SpiceJet: Two flight paths to survival as aviation crisis deepens

The strategies of the second and third-largest private airlines - GoAir and SpiceJet - offer a study in contrast

In football, a team’s success depends on the strategy it adopts — attacking or defensive — based on assessments of its own and the opposing team’s strengths. As Covid-19 deepens its hold on economic activity, SpiceJet and GoAir, the second and third-largest private airlines by market share, are adopting similar strategies.

But no matter what happens, one thing is already clear: The teams need funds urgently to stay in the air. A recent estimate by the Centre for Asia Pacific Aviation (CAPA) says all airlines in India need an infusion of roughly $3 billion to cope with this crisis and, of that, SpiceJet and GoAir need around $550 million in all to reach pre-pandemic levels of operation. 

IndiGo, the industry leader, has already announced plans to raise much-required capital through a qualified institutional placement (QIP) besides going in for a massive cost reduction exercise. Nobody questions the leader’s ability to survive.

It is GoAir and SpiceJet that are giving the sector jitters and nobody is certain which of the players will survive this crisis.

The handling by the chiefs of the two carriers — aggressive in the case of SpiceJet and defensive in the case of GoAir — has been the subject of much debate in the past few weeks.

Industry observers are sceptical of GoAir’s ability to revive itself to pre-pandemic levels (market share in February 2020 was around 10 per cent). This looks hard also because the airline has seen a mass exodus since the end of March including the more recent exit of the airline’s CEO Vinay Dube, who joined after Jet Airways’ failure.

Dube has been replaced by Kaushik Khona, an old hand, but nobody is convinced of either his ability or the founders’ commitment to the business. Moreover, experts and aviation industry sources estimate that for the airline to go back to its pre-pandemic fleet size, it needs a capital infusion of approximately $250 million, to pay off its dues to lessors and vendors and get the fleet back in full working order. The airline currently operates 10-12 aircraft (A320neos) from its total fleet of 43 A320neos and 12 A320ceos. The A320ceos are due to be retired with the more efficient Neos. An email sent to the airline remained unanswered as this went to press.

 

Soon after the lockdown was announced, the airline stopped paying most of its employees and also started asking staff to leave. “Some 70 per cent of the vice presidents have resigned as have large numbers of middle-level management,” said a former staffer. He said 95 per cent of the staff was on leave without pay and those who are currently working have taken pay cuts of between 40 and 70 per cent. Although rehiring should not be a problem since there are very few aviation jobs in Mumbai after Jet’s closure, for now GoAir’s staff is  scattered — people are looking for jobs even outside aviation and many are jobless.

Even when flying restarted in May, GoAir chose to wait and watch. It started a couple of weeks later than rivals with a minimal operation. Many analysts, including a former CEO, think the promoter Jeh Wadia does not have his heart in the operation. “His position is akin to Rahul Gandhi in the Congress,” the former CEO says. He says Nusli Wadia — a far more hard-nosed businessman than his son — is unwilling to let the time, money and effort put into the carrier over the past decade or so go to waste and wants to recover his investment.

The situation with SpiceJet is grim as well. Analysts say the airline needs $300 million of capital infusion to get back to pre-pandemic scales since it had a larger fleet and had been on an aggressive growth path after Jet’s exit, hitting a market share of just over 15 per cent by February 2020. The airline’s dues have been mounting and almost no vendors and suppliers have been paid of late. 

More recently, the Airports Authority of India threatened to put the airline on cash-and-carry mode but subsequently relented. Dues to lessors alone have crossed Rs 1,000-1,200 crore, according to sources. But the airline’s staff situation has been handled far better than GoAir, although salary cuts have been quite deep. Even so, many pilots and senior staffers are convinced of SpiceJet promoter Ajay Singh’s ability to steer the airline through this crisis. In response to questions, the airline said it had emerged as the largest air cargo operator since the pandemic and that its July load factor at 70 per cent was the highest among the industry players.

The doubts about GoAir and the relative confidence in SpiceJet could be a result of key differences in the way the two airlines have handled the crisis.

One, SpiceJet has adopted a very aggressive stance and is looking to earn revenue wherever it can — whether it is transporting people or cargo. It is unclear yet whether its strategy of taking cargo aircraft on wet lease (that is, including crew) pays off or not but there’s no denying that aircraft are currently available at virtually throwaway prices owing to the slump in the global airline business.

Two, industry sources say Singh is far more clued into the policy-making establishment, so much so that the industry now refers to him as “today’s NG”, a reference to once powerful former Jet promoter Naresh Goyal.

Last, nobody questions Singh’s commitment to the airline, a charge often made against his counterpart in GoAir Jeh Wadia.