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SpiceJet launched a three day sale with a rupee one basic fare in another attempt to increase its seat occupancy and get additional revenue. But analysts say a series of discount offers launched by the airline in last two months is aimed at paying off its overdues to various stakeholders as well as improve cash flows to reduce the financial stress on its books.
Yet there were many dissapointed customers as by the afternoon the airline's reservation system crashed unable to handle the extra rush of people looking for cheap fares which ranging from rupee one to Rs 1499. Daily the airline sells around 40,000 seats and it did not disclose how many seats it sold on Tuesday. Many consumers who finalised the booking of the ticket and were waiting to make the final payment found the portal declining to process the transaction. However when they tried again the fares had doubled within a short period of time. Not only that for long periods through the day the site did not even open and transactions in sites like makemytrip.com did not fructify.
However SpiceJet said everything was hunky dory. "We received overwhelming response to our Re 1 offer from customers. We worked with our service provider Navitaire to increase server capacity, and also set up separate and additional booking links (APIs) for online agents and travel portals to use to make bookings,'' SpiceJet said. Analysts also pointed out that as a result of server failure airline would lose on high yield current week bookings.
The discount schemes will boost SpiceJet forward sales as typically only about 15-20 percent of seats get filled up thirty days in advance. It will also encourage agents to sell more inventory. Travel period for discount offer is from July 1 to March 28, 2015.
Unlike full service airlines which give credit to agents, low cost airlines collect advance deposits from agents and issue inventory against it. "The discount offers will induce agents to sell more tickets and thereby increase the deposit amount and help airline meet immediate cash requirements. The airline is asking portals to increase the deposit amount," an aviation source said. SpiceJet is also giving the portals Rs 150 for each sector booking additionally above the commission which is linked to ticket price.
SpiceJet had a profitable first quarter but lost over Rs 730 crore in the next two quarters. The airline is facing a cash crunch and airports, suppliers and lessors are stepping up the pressure on the airline to clear pending dues. It includes about Rs 120 crore owed to Airport Authority of India and the airport operator has been threatening to put the airline on a cash and carry basis. Recently, however, the airline did make a part payment to the airport operator but payments to other vendors and lessors too are getting stretched.
According to an industry source, Nomura Babcock & Brown, an aircraft leasing arm of Nomura Holdings, Japan, has decided to recall five Boeing 737s it leased to SpiceJet. "It is a premature termination of lease,'' the source added. In 2006 SpiceJet had signed $ 1.1 billion sale and lease back deal with the Nomura group company. Nomura spokesperson declined comment.
Currently, SpiceJet has a fleet of 56 planes comprising 41 Boeing 737s and 15 Bombardier Q400 turbo year 737 prop planes.The airline would induct five Boeing 737 each till 2017 when the new SpiceJet Max join the fleet.
SpiceJet did not respond to specific queries from this paper. However in a press statement the airline said the discount offer will boost leisure travel.
"We have been at the forefront in the Indian market in stimulating demand by offering discounted fares. These offers have served as a catalyst for travel for many potential flyers willing to plan and book early," said Kaneswaran Avili, Chief Commercial Officer, SpiceJet Ltd, who assumed his role as CCO of SpiceJet today. "These fares will allow families to plan their vacations and weekend trips at fares lower than train fares with joy and freedom, now that the pressure of March school exams is finally over. But they need to move fast as seats are limited".
"Our market stimulation efforts have had a significant positive impact on the entire travel ecosystem at a time when the economy has slowed. We are now happy to start the new financial year and summer schedule with such an attractive offer. We have received overwhelming response to our previous offers and I am confident this sale too will attract many new flyers," added Sanjiv Kapoor, Chief Operating Officer, SpiceJet.
We find sales have been well appreciated by the travel community with 42% travellers taking advantage of the sales by booking at least once whereas 10% people ended up booking through the sale more than once,'' said Rajesh Magow, CEO of MakeMyTrip.
"Usually, airlines fill only 30% of their seats 30 days & more in advance. So stimulating advance purchase through sales like these, works on various grounds. Firstly, it's an opportunity to tap the large leisure segment of customers, which is strategically an important customer segment for airlines. Secondly, it helps airlines to get to predictable loads on their flights, well in advance. This enables airlines to potentially garner higher yields closer to departure,'' said Noel Swain, executive vice president-supplier relations, Cleartrip.
