A day on which SpiceJet posts significant quarterly profit showing strong turnaround and delivers Rs. 102 crore in PAT (Profit After Tax) for the third quarter, Neil Mills CEO of SpiceJet talks to Disha Kanwar and Surajeet Das Gupta on its strategy and its unprecedented scheme of selling 1 million tickets at the base price of Rs 1. Excerpts:
What has been the reason of SpiceJet’s improving profits despite high cost environment and falling domestic traffic?
Our strategic plan for last 3 years has been to diversify ourselves and focus more on international and regional operations. Our yield has improved significantly from Rs 3,421 to Rs 4,412 in last one year. A higher growth of international traffic of around 80% helped us a lot and similar growth regionally has helped us contribute to the bottom-line. As fares had gone up, we had to compromise with load factors domestically. Though we had around 75% passenger load factor in this quarter which is less than 5% versus last year, our yields per passenger have gone up by 29% (YoY). Last year yields were artificially lower because of under pricing but this year, we have at least been able to recover costs. Your fuel cost as a proportion fell to 45% of the total revenue in the current quarter as against 50% in the comparable quarter for the previous year. Please explain. This has been largely because of our increasing proportion of business coming from international and regional operations. The fuel cost is artificially high domestically as it is being driven by the local taxes. However, with the ATF (Aviation Turbine Fuel) having no taxes for international operations and low average fuel cost for regional operations, the fuel cost has fallen to 45% of the total revenue in this quarter. Meanwhile, SpiceJet came up with an unprecedented scheme of selling of 10 lakh tickets at Rs 2,013.
Please explain to us the logic behind this. There were primarily two reasons of selling 10 lakh tickets at Rs 2,013. Firstly, selling marginal tickets which were difficult to sell in this quarter as the load factors is around 70-75% and also try and create some sort of interest from the consumers to fly and have more interest in airlines and particularly in Spicejet. We are pretty sure that 7 lakh tickets that we sold will not only be good for Spicejet but also for the consumers as well. What has been your assessment with this scheme if SpiceJet was able to add new set of flyers or was it just the poaching the already existing customers of other airlines? It would not be a poaching exercise at all. It was done tactically. Most of the people who booked these tickets had no plans to travel or no plans to travel by air. These people booked tickets now as we were actually cheaper than 2-AC rail tickets. That generated lot of interest among the people for airlines and especially SpiceJet. How do you react to the government’s stern stance against SpiceJet’s scheme? Their logic is that this predatory pricing would lead to suicidal pricing by other airlines which will eventually be disastrous for the airline industry. We think that this was the right thing for SpiceJet to do from commercial aspect. If DGCA is unhappy about what we did, it would be probably better to speak to DGCA than us. However, this was a short term practical promotion done on the same lines as low cost carriers all over the world. About the suicidal pricing, I agree it is not good for anyone. But I do not agree that short term promotion would cause that.