Doing our best to turn around SpiceJet, Kalanithi Maran

Cost cutting and focus on short duration flights in international circuit is SpiceJet's latest strategy

Loss-ridden low-cost air carrier SpiceJet is expecting to turn around operations by cutting costs and restructuring its network, schedules and long-term contracts. Company officials said to generate more revenue, SpiceJet would focus on short-duration flights on international routes.

Addressing shareholders at the company’s annual general meeting here on Wednesday, promoter Kalanithi Maran said, “We are giving our best to turn around the company.” On the sidelines of the meeting, Chief Operating Officer Sanjiv Kapoor said, “We have to work on reducing cost and increasing revenue, and the company is working on this.” He added unit revenue had increased 9-10 per cent year-on-year, though costs had risen at a faster pace due to the exchange rate, fuel costs, etc.

ROUTE PLAN

• Sweet-spots: Routes that are profitable. These are often the short-haul flights on international routes that return to base from an international destination the same day
• 9-10% Y-o-y rise in unit revenue of the company
• 18-24 months Average time taken by airlines globally to emerge from losses and record profits

Globally, any airline took 18-24 months to emerge from losses and record profits, he said, adding in some cases it took 12 months, though these were rare. “Let’s wait and see how long it will take for us. We are only 9-10 months into the turnaround exercise…Revenue trends are positive; costs aren’t increasing and should start coming down gradually. Hopefully, we will start seeing that soon. We are working towards increasing revenue by reconfiguring aircraft, network, schedules, etc…these will lead to visible turnaround.”

Earlier, the airline had said it was in the process of consolidation, adding it wouldn’t add capacity in 2014-15. After cutting capacity in the June quarter, the airline plans to leave it unchanged through the next two years. Chief Financial Officer S L Narayanan said through the past few quarters, the sector was facing lot of uncertainty. Compared to competitors such as Air India and Jet Airways, SpiceJet was reporting reduced losses, which showed consolation, he said.

Kapoor said the airline would focus more on “sweet-spot”, or profitable routes by operating short-haul flights on international routes. Sweet spots, for Boeing, were 1.5-3 hour flights, he said, adding the idea was for a flight to return to base from an international destination the same day. This would reduce high fuel costs, he said. “If the flight is too short, the airline cannot make up the cost, especially on a jet. The longer you fly, the cost is amortised. In theory, the longer you fly, the unit cost becomes lower. The problem happens when the unit revenue starts falling.”

When shareholders sought to know whether the company was considering bringing an investor or a partner, especially a foreign airline, Narayanan said an AGM wasn’t a forum where “classified” information could be shared, adding any decision would be in the interests of the company and shareholders.