SpiceJet was bleeding and was on the verge of collapse after it recorded a loss of $44.2 million in the last three months of 2014. The budget airline was forced to slash the size of its fleet, and terminate contracts to stay operational.
Barely a few months later, the airline is preparing to make a deal with Boeing Co. and Airbus Group to acquire about 100 new narrow body jets! The deal is worth 11 billion dollars! The new airliners will have more legroom, better food and more hospitable.
This change in fortunes was made possible only after co-founder Ajay Singh stepped in with a rescue package. Also, drop in oil prices in the last six months will likely propel SpiceJet to prosperity.
SpiceJet operates less than 20 Boeing narrow-body jets and iIts market value has suffered terrible blows, falling to 12 percent in June.
Now look at IndiGo, the main rival to SpiceJet. It is profitable and India’s largest air carrier. It has kept fares low and affordable by placing huge orders for a single type of plane through the sale and leaseback model. It has been reported that Kiran Koteshwar, SpiceJet’s chief financial officer, is following the same business model for a turnaround.
I was a disgruntled SpiceJet flyer up until last year and the beginning of 2015. Because of its financial crisis, flights were delayed and cancelled regularly. On October 30, 2014, we were at the Kempegowda International Airport in Bengaluru, scheduled to board early morning flight to Chennai. To our shock, the SpiceJet counter was deserted. We were informed that they were on strike for non-payment of dues. Losses incurred crippled the financial fabric of the airline and it was plummeting to its fate. Only the timely intervention of chairman Ajay Singh prevented SpiceJet from perishing.
Looking to resurrect itself, SpiceJet first lowered the ticket prices, then began launching periodic sales.The business is slowly rebuilding and the spice is back. SpiceJet’s selling of tickets at attractive prices has made air travel more inclusive. Low-income individuals are traveling more by air than train. In fact, at times, the ticket prices are lower than railway tickets. It is nothing short of revolutionary. The joy of flying is not only experienced by the privileged class today, the thrill is open and affordable to the underprivileged class as well.
There is an area called Jumbo Point near the Indira Gandhi International Airport. Adjacent to the highway, NH 24, the Point becomes crowded in the evening by lower-middle class people eager to catch a glimpse of an airplane taking off. People even climb trees for better vantage point. For such people, travelling by air has been an unthinkable prospect. Simply watching a plane take off from a distance is the closest they could get to an airplane. The situation is fast changing.
Interstingly, it is the turn of the railways to cut the ticket prices as most of the regular train travelers are shifting towards air travel because of affordability. Competition is always good for people, it keeps prices under control.