Had I not taken Spicejet, it would have been another Kingfisher: Ajay Singh

In a Q&A, Spicejet's CEO says while demand for flying is strong, rising crude could play spoilsport

Low-cost airline Spicejet growing as it sees more Indians flying, but is concerned that the only thing that would hinder this would be airport infrastructure across cities. In a Q&A with Business Standard, Ajay Singh, CEO of Spicejet, tells Raghu Krishnan and Apurva Venkat while the underlying demand for flying in India is very strong, there could be a dip if crude prices impact airfares. Edited excerpts:

Everyone is talking about airfares going up due to fuel prices...

Of course, if the input price goes up, airfares will go up as well. But they are still in the affordable range. The sector is growing at about 25 per cent a year. The underlying demand is very, very strong. We find that for many destinations, airfares are now cheaper than many AC train fares.We have also seen that for shorter stops, they are also cheaper than taxis. When fuel prices come down, fares also come down. Despite all this airlines being profitable. Spicejet has now been profitable for eight to ten years now. Of course, when oil prices harden it becomes tougher -- fares go up and demand falls a little. But we feel that as long as oil prices remain in the $50-60 band, it should be fine. This is because the underlying demand will be very strong. When prices go above $70, then fares go up to a level where demand gets impacted.

Did you see any impact of demonetisation?

Yes certainly, there was a slackening of demand especially in international travel. Because some of that is discretionary travel and people put off discretionary travel. Now, things are normalising. They are still not completely normal, but they are improving. I think in another month or two, things should be completely normal.

Your competitor Indigo has a huge fleet. How are you competing with them on that front?

We are doing the best that we can as a airline. We started off from a completely different place. The airline had almost shut down in 2014. Since then, we have tried to improve our operations, reduce costs, increase our revenues, and differentiate our products in various way. We have been reasonably successful, and have now had 22 months growth of PLF in excess of 92 per cent, and eight quarters of profit.Those guys are of course large and so on, but we are working as efficiently as we possibly can. We are also trying to create a differentiated product such as premium economy seats under the Spice Max brand, offering 30 seats with much more legroom and priority check-in and bags first etc. We have a loyalty programme now. You will see many products that we will do over this year, and which will serve to distinguish our product from others.

But would that affect the cost with all these products?

These are all products that are paid for by consumers who want to try them and, in fact, they are additional sources of income.

How much would they contribute to revenue?

Two years back that number was little under six per cent. Now, we are at around 16 per cent, so it has gone up a lot in the last two years and we hope to take it beyond 20 per cent over the next 12 months.

You have ordered for Boeing planes. Once they come in, will you also be expanding your routes?

We are already expanding. We have already been taking planes on lease and expanding our routes. We have been doing that for the last two years, we have nearly doubled our network in two years and we will continue to do that but in a profitable manner. We are not chasing market share. We are trying to make sure whatever we fly, we fly profitably.

What is the biggest challenge for this year?

We have to see how fuel price behaves. Also, if there is a huge amount of capacity addition, that will be a issue. Thirdly, airport infrastructure — key airports such as Mumbai are completely choked, so that is going to be a challenge. There is no alternate to it, but this something we all need to work on, because if the market is growing 25 per cent a year, we still have only two to three per cent of our population which is flying. Underlying demand is there, so we need to create good infrastructure if the growth has to continue. It is not only Mumbai, that is the worst, even other metros there is a challenge like Bengaluru, Chennai, Delhi all of these are a challenge.

We've seen in the past, airlines come up during a political regime and then shut down. East West, Kingfisher, Air Deccan, one of the things people often say is you are close to BJP and that is one reason you are thriving...

You are talking of Kingfisher and Air Deccan. Ultimately an airline can swim or sink based on its business model. You have to make money on your own and ensure that customers are flying. Is a customer going to fly on an airline because we are affiliated to a political party? Obviously not. People will fly if there is a good product and the airlines will survive if they make money. What really can any government do? SpiceJet was going down, there was a lot of moral support because they did not want to see another Kingfisher happen. But were they able to do anything specifically? Absolutely not. In fact after I took over SpiceJet, we were like another Kingfisher, all the money that had to be paid to the banks and all would never have been paid. Today, we have paid everyone -- all the airports have been, all the oil companies have been paid, banks have been paid, all taxes owed to government have been paid. I think it was great that the company survived and people did not lose their jobs and everyone got paid and so many customers are flying on it.

How will you sustain it the long term, irrespective of the political affiliation?

Political affiliation has nothing to do with it. I started SpiceJet when there was the UPA government. They supported us or did not support us as much as anybody else. We are first working for our country, it's not about any political party or whatever it is. Businesses have to survive in a business environment and in a relationship with their customers. I think, for the future as well, the mantra remains the same. You have to bring cost down, you have to try and increase revenue, you have to try and have the most efficient network, you have to try and increase your auxilliary revenue. You have to be profitable, and keep at it despite the many challenges. Remember that we are the highest-cost aviation economy in the world. The level of taxes that we have in this country is the highest in the world. Despite that you have to try and survive.