SpiceJet’s chief operating officer Sanjiv Kapoor Thursday said his company was on the path to recovery after a steep drop in market share because of the financial crisis few months back.
From a peak of 21 percent in July last year, SpiceJet’s market share is now down to 10-10.5 percent.
"Our flights are going very full now. I mean it has been consistently in the mid-80s as the high season now approaches," Kapoor said in an interview to CNBC-TV18, adding that he expected the load factor to increase in the coming days.
Kapoor said the flights were on time, bookings were strong, and the company was expanding its fleet size now that it had adequate funds.
"We just added three short-term lease aircraft to our fleet earlier this week," Kapoor said.
The company was number two ‘on time’ in February and expects to repeat that performance in March as well.
He said original promoter Ajay Singh’s return has boosted employee morale, and that too is contributing to the turnaround in operations.
Below is the transcript of Sanjiv Kapoor’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: What would your own view be of what is happening in the sector as whole? Are things improving at all on the ground? Is passenger traffic picking up?
A: The sector certainly is seeing better times now then it was seeing in recent years both on the revenue side and on the cost side. On the cost side the biggest benefit that has come our way is the reduction in fuel prices. While we are still about 40-50 percent higher than global fuel prices, I am talking about aviation fuel it is still a 30 percent reduction of what we had reached last year. So 30 percent when fuel makes above most 50 percent of our expenses is a lot so that is a very welcomed relief.
On the revenue side, on the passenger growth side I would attribute about half the growth that we have seen in India. India has you know has been the fastest growing market in the last couple of quarters in the world. About half that growth is attributed to the general economy picking up. There is a rule of thumb that airline traffic growth at about 1.5 times the rate of gross domestic product (GDP) growth. So if GDP is growing at 6-7 percent, airline traffic would grow at about 10 or 11 percent.
In India we have seen we have seen growth rates of 18-20 percent and the balance of the growth rate the other half is driven primarily by what we refer to has a SpiceJet effect. We started last year stimulating the market and refusing to fly empty seats, refusing to fly half empty aircraft around especially in low season. We centrally taught the market that there is a better way to run the revenue side of the business which is do some more sophisticated revenue management, make sure that you don’t cannibalise the higher air traffic which happens to closer to date of travel (Not Sure). However, dispose off what might be excess inventory, earlier on at a rate which at least meets or exceeds the marginal cost.
Other airlines have caught on to that and when we in the last year in the July to September our low season when we achieved growth in the 80’s and other were in the 60’s or 70’s I think the message went out loud and clear that there is a better way to do this. So this year in the low season which has just ended, every airline has been in the low to mid 80’s. So there is fundamental paradigm shift in how we do business.
Sonia: But you have lost quite a bit of market share in the last 3-6 months. Of course because of the issues that are well documented. So, since Ajay Singh has come on board, how much have things improved for SpiceJet and from this sub-10 percent market share that you are currently at, what could the road look like going ahead?
A: You are absolutely right. At a peak last year in July, we had 21 percent market share and the market leader at that time was 29 percent. We are now down to about 10-10 and a half percent and that is because of the crisis we hit in the last quarter of last year where we had to return aircraft. And obviously when you have to return aircraft, your capacity falls and then your share falls. Our flights are going very full now. I mean it has been consistently in the mid-80s as the high season now approaches we are entering it, we are in the shoulder season. We expect the loads to grow even further. After Ajay has returned to SpiceJet there has been a very positive sentiment. Not only is the fact that he is one of the founders of the airline and one of the original promoters coming back to the airline; that makes for a very compelling story and is very morale-boosting for the troops as well, for the frontline and for all of us staff. There has been a significant improvement in the sentiment of the market, bookings are very strong, our operations are very strong. We are number two on time in February and we expect to be in the top two or three in the last month when the results come out. Our flights are going on time. Our flights are very full. We are adding back more flights. We just added three short-term lease aircraft to our fleet earlier this week. We are now flying about 230 flights a day. So, things are looking up. We just need to continue to do what we are doing and with the funding coming in with Ajay coming in, the outlook is very positive.
Latha: It would be another quarter of EBITDA loss, the Q-IV when it comes?
A: We cannot comment on for our projections being a publicly listed company but let us wait and see. All of our key metrics are improving so we have to wait and see.
Latha: I am asking you because your strategy of discounted tickets while it might increase the capacity of the aircrafts as well as your market share it comes at a price and it is coming at a time when you have what Rs 4,500 crore of debt. So at a quarterly level are you at least getting enough money to fund your running expenses?
A: Absolutely, as an ongoing business even last year we had sufficient internal generation of cash to fund the ongoing business. It is legacy losses, the Rs 1,400 crore or so over the last 2-3 fiscals which required external funding. As far as the market stimulation and the discounting strategy it is actually revenue positive. We would not be doing this if it was hurting the bottomline. I mean there is a common conception out there that discounting equals more losses. Well, stupid discounting, silly discounting equals more losses. However, when you do it intelligently, when your unit revenues grow 10-11-12 percent which is what we had seen with our unit revenues last year it is very positive for the bottomline. That has what helped us reduce our losses year-on-year (YoY), last year by above 50-60 percent. It was largely revenue driven.
Latha: One of the debilitating things that hit you in the height of the crisis last year was that advance bookings were, you were told to stop advance bookings altogether. Now, that is lifeline for airline companies. What is the situation now? Have you now reverted to the pre-crisis level of advance booking or is there still a little bit of distance to go in terms of a passenger confidence?
A: Very much so, we are completely back to normal levels of advance bookings. In fact the bookings are very strong. The restrictions on advance bookings was lifted in January this year. It hurt us a lot of course when that restriction was put in place. As you said, it is a lifeline of any airline that advance booking revenue flow. But things are completely back to normal in terms of advance bookings and booking curves are looking very strong so we are very encouraged by that.
Latha: So, on a year-on-year level what kind of revenue growth could you notch up last quarter, the January-March quarter? And what are you looking at in the April-June quarter?
A: We are a much smaller airline than we were year-on-year. We had 42 Boeings and 15 Q400s same quarter last year and now we have 20 Boeings flying which is less than half and the same 15 Q400s. So on an absolute basis of course our revenues will be down, but on a unit basis we hope to see some stability improvement. But again I cannot go into specific details but the signs are encouraging.
SpiceJet stock price On April 17, 2015, at 09:26 hrs SpiceJet was quoting at Rs 21.35, up Rs 0.10, or 0.47 percent.
The 52-week high of the share was Rs 25.70 and the 52-week low was Rs 11.10.
The latest book value of the company is Rs -16.49 per share. At current value, the price-to-book value of the company was -1.29.
- MoneyControl
From a peak of 21 percent in July last year, SpiceJet’s market share is now down to 10-10.5 percent.
"Our flights are going very full now. I mean it has been consistently in the mid-80s as the high season now approaches," Kapoor said in an interview to CNBC-TV18, adding that he expected the load factor to increase in the coming days.
Kapoor said the flights were on time, bookings were strong, and the company was expanding its fleet size now that it had adequate funds.
"We just added three short-term lease aircraft to our fleet earlier this week," Kapoor said.
The company was number two ‘on time’ in February and expects to repeat that performance in March as well.
He said original promoter Ajay Singh’s return has boosted employee morale, and that too is contributing to the turnaround in operations.
Below is the transcript of Sanjiv Kapoor’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: What would your own view be of what is happening in the sector as whole? Are things improving at all on the ground? Is passenger traffic picking up?
A: The sector certainly is seeing better times now then it was seeing in recent years both on the revenue side and on the cost side. On the cost side the biggest benefit that has come our way is the reduction in fuel prices. While we are still about 40-50 percent higher than global fuel prices, I am talking about aviation fuel it is still a 30 percent reduction of what we had reached last year. So 30 percent when fuel makes above most 50 percent of our expenses is a lot so that is a very welcomed relief.
On the revenue side, on the passenger growth side I would attribute about half the growth that we have seen in India. India has you know has been the fastest growing market in the last couple of quarters in the world. About half that growth is attributed to the general economy picking up. There is a rule of thumb that airline traffic growth at about 1.5 times the rate of gross domestic product (GDP) growth. So if GDP is growing at 6-7 percent, airline traffic would grow at about 10 or 11 percent.
In India we have seen we have seen growth rates of 18-20 percent and the balance of the growth rate the other half is driven primarily by what we refer to has a SpiceJet effect. We started last year stimulating the market and refusing to fly empty seats, refusing to fly half empty aircraft around especially in low season. We centrally taught the market that there is a better way to run the revenue side of the business which is do some more sophisticated revenue management, make sure that you don’t cannibalise the higher air traffic which happens to closer to date of travel (Not Sure). However, dispose off what might be excess inventory, earlier on at a rate which at least meets or exceeds the marginal cost.
Other airlines have caught on to that and when we in the last year in the July to September our low season when we achieved growth in the 80’s and other were in the 60’s or 70’s I think the message went out loud and clear that there is a better way to do this. So this year in the low season which has just ended, every airline has been in the low to mid 80’s. So there is fundamental paradigm shift in how we do business.
Sonia: But you have lost quite a bit of market share in the last 3-6 months. Of course because of the issues that are well documented. So, since Ajay Singh has come on board, how much have things improved for SpiceJet and from this sub-10 percent market share that you are currently at, what could the road look like going ahead?
A: You are absolutely right. At a peak last year in July, we had 21 percent market share and the market leader at that time was 29 percent. We are now down to about 10-10 and a half percent and that is because of the crisis we hit in the last quarter of last year where we had to return aircraft. And obviously when you have to return aircraft, your capacity falls and then your share falls. Our flights are going very full now. I mean it has been consistently in the mid-80s as the high season now approaches we are entering it, we are in the shoulder season. We expect the loads to grow even further. After Ajay has returned to SpiceJet there has been a very positive sentiment. Not only is the fact that he is one of the founders of the airline and one of the original promoters coming back to the airline; that makes for a very compelling story and is very morale-boosting for the troops as well, for the frontline and for all of us staff. There has been a significant improvement in the sentiment of the market, bookings are very strong, our operations are very strong. We are number two on time in February and we expect to be in the top two or three in the last month when the results come out. Our flights are going on time. Our flights are very full. We are adding back more flights. We just added three short-term lease aircraft to our fleet earlier this week. We are now flying about 230 flights a day. So, things are looking up. We just need to continue to do what we are doing and with the funding coming in with Ajay coming in, the outlook is very positive.
Latha: It would be another quarter of EBITDA loss, the Q-IV when it comes?
A: We cannot comment on for our projections being a publicly listed company but let us wait and see. All of our key metrics are improving so we have to wait and see.
Latha: I am asking you because your strategy of discounted tickets while it might increase the capacity of the aircrafts as well as your market share it comes at a price and it is coming at a time when you have what Rs 4,500 crore of debt. So at a quarterly level are you at least getting enough money to fund your running expenses?
A: Absolutely, as an ongoing business even last year we had sufficient internal generation of cash to fund the ongoing business. It is legacy losses, the Rs 1,400 crore or so over the last 2-3 fiscals which required external funding. As far as the market stimulation and the discounting strategy it is actually revenue positive. We would not be doing this if it was hurting the bottomline. I mean there is a common conception out there that discounting equals more losses. Well, stupid discounting, silly discounting equals more losses. However, when you do it intelligently, when your unit revenues grow 10-11-12 percent which is what we had seen with our unit revenues last year it is very positive for the bottomline. That has what helped us reduce our losses year-on-year (YoY), last year by above 50-60 percent. It was largely revenue driven.
Latha: One of the debilitating things that hit you in the height of the crisis last year was that advance bookings were, you were told to stop advance bookings altogether. Now, that is lifeline for airline companies. What is the situation now? Have you now reverted to the pre-crisis level of advance booking or is there still a little bit of distance to go in terms of a passenger confidence?
A: Very much so, we are completely back to normal levels of advance bookings. In fact the bookings are very strong. The restrictions on advance bookings was lifted in January this year. It hurt us a lot of course when that restriction was put in place. As you said, it is a lifeline of any airline that advance booking revenue flow. But things are completely back to normal in terms of advance bookings and booking curves are looking very strong so we are very encouraged by that.
Latha: So, on a year-on-year level what kind of revenue growth could you notch up last quarter, the January-March quarter? And what are you looking at in the April-June quarter?
A: We are a much smaller airline than we were year-on-year. We had 42 Boeings and 15 Q400s same quarter last year and now we have 20 Boeings flying which is less than half and the same 15 Q400s. So on an absolute basis of course our revenues will be down, but on a unit basis we hope to see some stability improvement. But again I cannot go into specific details but the signs are encouraging.
SpiceJet stock price On April 17, 2015, at 09:26 hrs SpiceJet was quoting at Rs 21.35, up Rs 0.10, or 0.47 percent.
The 52-week high of the share was Rs 25.70 and the 52-week low was Rs 11.10.
The latest book value of the company is Rs -16.49 per share. At current value, the price-to-book value of the company was -1.29.
- MoneyControl
