Fuel cost, driven by taxes, is artificially high: Neil Mills

Interview with CEO, SpiceJet

On a day when SpiceJet showed a strong turnround with a Rs 102 crore quarterly profit after tax, Neil Mills, chief executive, spoke to Disha Kanwar & Surajeet Das Gupta on its strategy and the unprecedented scheme of selling a million tickets at a base price of Rs 1. Edited excerpts:

What’s the reason for your improving profits, despite a high cost environment and falling domestic traffic?
Our strategic plan for three 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 the last one year. A higher growth of international traffic at around 80 per cent helped a lot and similar growth regionally helped contribute to the bottom line.

As fares had gone up, we had to compromise with load factors domestically. We had 75 per cent passenger load factor in this quarter, five per cent less than last year but our yields per passenger have gone up 29 per cent, year on year. Last year, the yields were artificially lower because of underpricing but this year we have at least been able to recover costs.

Your fuel cost fell to 45% of total revenue this quarter against 50% in the comparable quarter last year.
This has been because of our increasing proportion of business from global and regional operations. The fuel cost is artificially high, driven by local taxes.

With aviation turbine fuel having no taxes for international operations and low average fuel cost for regional operations, the cost fell to 45 per cent of total revenue.

Meanwhile, you came up with an unprecedented scheme of selling 10 lakh tickets at Rs 2,013. What was the logic?
There were primarily two reasons. First, selling marginal tickets, difficult to sell in this quarter as the load factors are 70-75 per cent, and also try and create some interest from consumers to fly and have more interest in airlines, and particularly in SpiceJet. We are pretty sure that the 700,000 tickets we sold will not only be good for SpiceJet but also for consumers.

With this scheme, were you able to add a new set of flyers or was it just poaching of customers from other airlines?
It would not be a poaching exercise at all. It was done tactically. Most of those who booked these tickets had no plan to travel or no plan to travel by air. These people booked the tickets as we were actually cheaper than II-AC rail tickets. That generated lot of interest 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 industry.
We think this was the right thing for SpiceJet to do from a commercial aspect. If DGCA (the sector regulator) 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 over the world. I agree suicidal pricing is not good for anyone. But I do not agree that short-term promotion would cause that.