Going solo

Through ups and dramatic downs, SpiceJet's Ajay Singh is steering his rocky boat all on his own

One man’s loss is another man’s gain. Never has the proverb seemed more apt than in India’s aviation sector of late. A few weeks ago, SpiceJet chief Ajay Singh argued that the sector could go the “telcos way” if fares didn’t recover while IndiGo’s CEO Rono Datta claimed that we were in a “golden age for Indian aviation”.

The truth, as usual, is somewhere in the middle. Oil prices have been low and the rupee stable but there are two other factors impacting yields. One, fares are running lower than those at the same time last year. I asked a couple of aviation industry seniors to do the math and their calculations show that the average Delhi-Mumbai fare needs to rise by around Rs 500-600 on a net basis for any of the low fare airlines to break-even on a flight (assuming 90 per cent load factor). Fares are in fact running a bit lower than even break-even levels. Two, overall traffic has taken a beating with growth in single digits after several years of double-digit growth. Both these factors are reflected in the latest results reported with high quarterly losses.

But analysts and industry observers argue that while the industry may be suffering on account of pricing pressure as a whole, many of SpiceJet’s problems are internal and of its own creation. 

One of the biggest blows —entirely out of its control — to the airline’s plans was the unexpected grounding of 13 of its B737 Max since March 2019. The carrier will be compensated for this by Boeing, a much needed relief for SpiceJet with cash on its books at a paltry Rs 93 crore by end September.

In the mad frenzy to grab Jet’s slots, SpiceJet – like rivals – jumped in too. The airline took on 31 of Jet’s aircraft, all of which had a two-class configuration. However, the gambit proved costly for the carrier in more ways than one. The aircraft are ageing and appear to have been more trouble than they were worth. This led to a spike in maintenance costs in the July-September quarter. Yields played spoilsport and stayed stubbornly low, reflecting the failure to charge a premium on the business class seats on offer. The aircraft will now be reconfigured to an all-economy class, an admission of the gambit having failed. Rising costs and stubborn yields reflected in the cost per available seat kilometre for the airline that rose by 8 per cent year on year, taking it to a record high and much above many rivals. This is despite the salaries bill for the airline being amongst the lowest in the industry.

In the midst of the core business taking a beating, Singh has in October and November been busy with all kinds of new initiatives. He’s announced plans to launch an international hub operation out of Ras-Al-Khaima, 40 minutes from Dubai, where he sees “great potential”. By December, as per the original plans, four to five aircraft are to be based here to operate on six to seven-hour, medium-haul routes. The Gulf seems to be where he’s honing in since November: The airline signed a codeshare agreement with Emirates Airlines and entered into a memorandum of understanding with Gulf Air to widen their partnership as well.

Industry observers argue that Singh, with his plate already full, has been dipping his fingers in several new pies. A business-to-business cargo delivery service was launched in 2016 and is running for select corporate clients. In 2017, he surprised everyone by opening SpiceStyle stores – including one in Gurugram’s Galleria market, one of the more expensive rental spots — to sell designer and other lifestyle products. The Galleria store has since shut shop but two stores in Hyderabad and Delhi are still around. In 2018, the airline announced that it was setting up Spice Star, a training academy for youngsters interested in charting out a career in aviation. Launched in partnership with Amity University in Noida, it acts as a home grown hiring ground for the airline.

What is perhaps the most incredible aspect of the SpiceJet story is how Singh is attempting to pull off everything virtually on his own. When he took charge of the struggling airline in December 2014, the airline was down to around 32 aircraft with 5,400 total employees. Five years later, it has a fleet of 118 aircraft with over 230 on order and over 15,000 employees. He appears to have what many in the sector are terming an invisible “magic wand”, one that is giving jitters to analysts and investors who don’t see any second line of command in the airline whatsoever. Singh remains a single man army — a desi Superman — one everyone is unsure will sink or swim.