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When Neil Mills took charge as the chief executive of SpiceJet in October 2010, three months after Sun TV's Kalanithi Maran acquired the airline, things were going fairly smooth for the company. SpiceJet had posted profit for four consecutive quarters and its financials looked steady.
Among its competitors, Air India was struggling to stay afloat and Kingfisher, which has now shut down, controlled 19 per cent of the market. In the three years since taking over, Mills steered SpiceJet to new heights, sometimes a bit unconventionally. The fleet grew from 25 to 54 aircraft and the number of destinations went up from 22 to 53 with over 350 flights daily. Its market share grew from 13 per cent in October 2010 to 19 per cent now.
Breaking away from convention, Mills took SpiceJet to Tier II markets with turbo prop Bombardier Q400s, and to international destinations such as Kabul and Guangzhou that were not popular with other airlines. Central Asia was next on the airline's plan of things.
From the looks of it, it would seem Mills had no reason to resign. (The SpiceJet spokesperson dismissed it as "market rumour".) But the high growth has come at a cost. The airline's interest cost has ballooned from Rs 16 crore in 2008-09 to Rs 115 crore in 2012-13. In fact, the interest cost grew the highest in the last two years after the Bombardier Q400s were added to its fleet.
Another sore point for SpiceJet has been the steep rise in aircraft maintenance costs. These expenses grew from Rs 298 crore in FY 2011 to Rs 673 crore in FY 2013. In an interview in June, Mills had admitted the costs turned out to be higher than his own expectations as the engines were getting overhauled earlier than expected. He had said the airline would try to recover some cost from the engine manufacturer. Industry sources, however, say SpiceJet failed to conclude crucial maintenance contracts on time and this resulted in escalation of costs. As an industry veteran puts it, "The job of the management in a low-cost airline is to control costs. If you are unable to do it then it's a problem." Mills did not respond to specific queries emailed to him, though industry sources say he resigned because of the lack of operational freedom.
According to media reports, things began to sour between Mills and the Marans after the airline organised the biggest discount sale ever earlier this year. Despite the promotional offer, SpiceJet's load factor between January and May was lower than that of IndiGo and GoAir. Others have speculated that the promoter was unhappy because Mills was unable to reduce losses. SpiceJet ended fiscal 2013 with loss of Rs 191crore. However, an airline source says the resignation had nothing to do with SpiceJet's financial performance. "He was disillusioned with the regulatory control in the country," he says.
Mills has left at a time when Indian low-cost carriers are about to face their toughest challenge-from Tony Fernandes's AirAsia. Fernandes has already made his intentions clear that he will offer rock-bottom fares and will focus on Tier II and III cities. Indian carriers like SpiceJet have the first-mover advantage, but they need to do more. Still others feel AirAsia will draw people from Indian carriers like SpiceJet.
"As AirAsia expands, it will pull talent from other airlines. The concern for IndiGo and SpiceJet should be to prevent the loss of talent," the executive quoted above adds. For SpiceJet that could mean resolving its leadership woes, first and foremost.
