Yes, things are looking up for low-fare airline SpiceJet, but it's not a turnaround... not yet, says Anjuli Bhargava.
I have been reading news reports of the turnaround of low-fare airline SpiceJet. With the change in management, the airline has managed to bring some semblance of order into its operations.
Destinations have been cut and routes with just a flight or two have been discontinued. Loads have picked up.
It has reported a small profit two quarters in a row.
Credibility in the airline has been restored to an extent. But can one call this a turnaround as yet? I don't think so. Why do I say that?
With oil prices at the lows they currently are, you'd have to be making a huge mess of things not to keep your head above water.
In other words, almost every airline's balance sheet ought to look good at current levels.
If at these levels you are making losses, you should not be in the business to start with.
It has little to do with what the management is or isn't doing.
Two, with low oil prices, fares have been relatively low too (15-20 per cent lower than the same time last year) and this in turn has pushed up demand.
Load factors are high and climbing every month. Planes are pretty full.
Again it has little to do with what the management is or isn't doing.
But on a closer look, some worries remain that indicate that SpiceJet's problems are not over yet.
Its fourth quarter results show that income is down by 50 per cent, capacity on offer is down by 48 per cent and revenue per available seat kilometre (RASK) is down by four per cent.
RASK went down despite the fact that the stage length reduced (RASK needs to go up if stage length goes down to compensate the rise in cost per available seat kilometre).
Fuel costs fell by 33 per cent but non-fuel expenses did not fall as much as they should have. As a result, the fall in the overall cost is not as sharp as it should have been.
The airline's accumulated losses remain high, its liabilities exceed its assets as of now and payments to vendors are still due. Instead of simplifying matters, the airline has complicated its operations.
It now has aircraft with four different configurations to manage - it recently added two A319s with 148 seats to its existing B737-900 with 213 seats, the B737-800 (186 seats) and the Q400s with 72 seats. This rarely works for low-fare airlines the world over.
A senior airline industry executive says he doesn't envy the airline's commercial head as "managing this can be a challenge both operationally and commercially".
Further - whether with a view to raise cash or lure back passengers - the airline has indulged in a sale spree - some of which has backfired rather badly.
A couple of weeks ago, it announced a Rs 1 sale for certain routes. Passengers were asked to book tickets after downloading an app on their phones.
Rarely have I seen a sale attract the ire of passengers and fliers -whether on social media or otherwise.
Why? Primarily because sales such as these are really just gimmicks; not genuine sales.
Fliers are getting savvy and can see through the charade.
Then the airline announced a bidding offer for certain routes and fares.
Again, bidding can work when the gap between the normal fare on offer and the lowest bid price is sharp.
But at current levels - fares in general are much lower than they usually are - the gap is not sharp enough to make any real sense.
Further, with a 90-93 per cent load factor, does the airline really need to sell its inventory that cheap?
This was followed by a monsoon sale two days ago (full page advertisements in the dailies) with the date of departure on offer three days after the sale period, suicidal in airline business where last-minute fares ought to be the highest.
Talent remains a worry. Pilot troubles crop up from time to time and the airline has been trying to increase the notice period for its pilots.
Though it has managed to get rid of some of the people (who were being paid far in excess of the market rate) hired by the earlier owners, the airline's salary bill remains bloated. As far as industry names go, Ajay Singh is the sole pilot in the cockpit.
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