Nobody wanted SpiceJet to die, says Ajay Singh

Ajay Singh, who co-founded SpiceJet and later exited it, acquired the low-cost carrier recently. He spoke with Manu Kaushik on the rationale of the acquisition, what needs to be fixed, and the way forward for the airline. Excerpts:

Q. Why did you buy SpiceJet?

A. There was a great deal of support for this revival. Nobody seemed to want the airline to die, including the public. For them, if the airline dies, the fares would go up. For one day [when] SpiceJet suspended its services, fares nearly doubled. The government of India wanted to see the airline survive. The failure of an airline is fairly visible to the world. When an airline dies, the whole world gets to know and that is very bad publicity for the economy of any country. If an airline dies, you face a near-monopoly situation, which is not a healthy situation for vendors and partners. Also, it is bad publicity for aircraft manufacturers if an airline that flies their plane collapses.

I saw huge potential. Oil prices were never so low. If oil prices were high, we could not have done it. The oil prices are about 45 per cent of cost. The ATF prices in India have declined by about 30 per cent. So, it translates to 13-15 per cent reduction in overall costs. If you can also work on reducing non-fuel costs by rationalising stations, rationalising people and improving other efficiency parameters, then you can make the airline profitable in a reasonably short period of time.

I know this will be a high-growth government. If there is growth in this country, the civil aviation sector will enormously benefit. If oil prices remain moderate, and [economic] growth happens, this is a fantastic time to be in the aviation sector. It's a business I know. I started this company.

Q. Since the acquisition of SpiceJet, there have been five-six instances of flash sales carried out by the airline. Frequent flash sales was one of the primary reasons that had got SpiceJet into trouble. What's the reason you are still doing flash sales?

A. The issue is that the [flash] sales, as long as they are not dilutive of RASK (revenue per available seat kilometre), are fine. These are seats that the airline determines would otherwise remain unsold. It would not be more than four-five per cent of total seats. Also, [flash] sales are an interesting way of stimulating demand. There was a special case here. Due to suspension of service, SpiceJet had become a little unreliable. The perception was that SpiceJet was unreliable. People had stopped to think of flying on SpiceJet. By having these sales, people who were otherwise sceptical about flying on SpiceJet came back. It allowed people to sample SpiceJet again. It was a means of getting people back in the SpiceJet fold. And that happened brilliantly.

There are few instances of an airline which had suspended services and coming back into the market so strongly. We tried to make sure that we behaved in an honourable fashion through these problems. Once we had clearance from government authorities for change of ownership and control, we quickly infused money into the company. We paid all our statutory liabilities - service tax and TDS liability. We felt that it is our responsibility.

Second, we ensured that all salaries got paid. Currently, all salaries are paid. Even February salaries are paid on schedule (February 28). We have also cleared all our bank debt. Now, we are left with vendor payments, lessor payments, engineering payments and some airport payments. We are working with them - now that we are able to start paying, let us have a plan on how we will pay you so that everything is transparent.

It is tough to put a timeline now [on the repayment schedule]. It's another Rs 1,000 crore of payments and liabilities. We are hoping that in the next one quarter, the settlements will be arrived at regarding the payment plans.

Q. Leasing companies are now looking to sign long-term contracts with airlines in India. Will that affect you?

A. Airlines used to do six-year leases. When the engine would come for overhaul, which is an expensive process, the aircraft would go back. But it is not a SpiceJet issue. The average age of our Boeing fleet is three-four years. It's a new fleet. We will be adding planes now as the airline stabilises. We already have 55 planes on order with Boeing. We will start receiving delivery of those planes. We will also explore the opportunity of placing additional orders. Firstly, we are adding planes in the [forthcoming] summer and winter schedule. From 2016 onwards, the new planes will start to come.

We have a fleet of 32 planes - 15 Bombardier Q400s and 17 Boeings. We will take it up to 40 this summer. We want to increase it to 46-47 in the winter schedule depending on demand. The expansion is happening on the Boeing fleet.

Q. SpiceJet owns the Bombardiers. Is that an issue? How do you make sure that you ultimately move towards one-type fleet?

A. If you own them, you can sell them. Nothing stops you from selling the planes. We will take a call. We have included them in the summer schedule. We don't want to create a vacuum all of a sudden. If I was there, I would not have bought them. Now that they are there, I have to see how best I can use them so that they are profitable for the company. I think the model that we were following earlier was simpler, leaner and better. Let me see if I can first make money from them. If I sell them, I don't know what price I will get. We will have to consider everything.

Q. How much money have you infused so far? And how much have you invested from your own pocket?

A. These are still confidential issues. The ownership has changed from Marans to myself. I have bought his entire equity in the company. The transfer has happened. The first tranche of around Rs 500 crore has been invested. We are going as per the revival plan submitted to the government. The second tranche is to be invested by March end or beginning April. We are looking at options. There are some equity proposals. There are equity and debt investors. There are some five-six serious investors. Our feeling is that today the stock price is low. We have to take a call on whether we want to infuse equity at this stage or do we need to wait for a while - stabilise the company and then do an equity offering.

We have flights flying on time. We don't have cancellations. We make sure that the employees see that there is future ahead. It is a confidence-building exercise. At the same time, we need to start working hard on reducing cost. A low-cost airline is about low cost. The low-cost model has few airports and you build frequencies into those airports. It's like a shuttle service. Unfortunately, in the past, there were several airports that have been opened that had one-two flights. We are trying to consolidate or rationalise those destinations. We have already reduced some. We have closed Indore and Belgaum.

The second thing is to relook at engineering and aircraft contracts. Some contracts that have been signed are irrational. Thirdly, we have to rationalise the staff. There's a model for this. You should not have more than 90 person per aircraft. In the past, this ballooned to a large number. It has been brought down. In the summer schedule, we will be back to 95-97 people. Some people have been asked to go, some have gone by themselves. As we increase the fleet, they will have first preference because we have already trained them.

Then, we have to start selling on the internet again. Most sales have to be done on the internet to reduce the sales costs.

Q. Your load factor in January was at the fifth position.

A. The February load factor is in the mid-80s [per cent], which is extremely good for a weak month like February. Our on-time performance is going to be one of the best in the industry. I am saying that every flight that is delayed by even five minutes needs to be reported to me with reasons of delay. I am getting regular text messages. When they know that I am looking at each flight - and I call people to find reasons - then everybody tries to be careful. I am asking for reports three times a day. You can see the improvement. Once you see flights follow schedules, you see improvement in bookings. I am hoping to break even in 2016.

Q. How many partners do you have at the moment?

A. We don't have any partners right now. I am the only investor. The equity belongs to me and I am the only person involved. For the subsequent pieces of infusions, there are offers from both equity and debt players. Depending upon how we see the company going forward, we will take a call on which is the best way. We have planned Rs 1,500 crore infusion. The way things are going right now, we may not need Rs 1,500 crore.

Q. How many routes are profitable for you?

A. Roughly 30 per cent routes were not profitable to operate. A large number of those routes have been removed in the revised schedules. If we were doing 320-odd departures a day (when the fleet was at its full strength), now it is about 210 departures a day. The departures will go up to 280 in the summer [schedule].