How SpiceJet is succeeding during the Indian airline meltdown: An interview with Sanjay Aggarwal, CEO – Part 1

SpiceJet has been quietly adjusting to the global meltdown in the airline industry and focussing on its profitability. With gentle yet deliberate steps it has built back its financial strength, and is now poised to benefit from the consolidation wave sweeping the industry. Something, its full service counterparts like Air India, Jet Airways and Kingfisher Airlines are struggling to achieve.

Bangalore Aviation was the only weblog invited to a face-to-face interaction with Sanjay Aggarwal, CEO, SpiceJet, recently. This is the first of a two part article.

Current fleet and operations
SpiceJet is operating 115 daily flights with a fleet of 19 Next Generation Boeing 737s. 14 737-800s and five 737-900ERs (extended range).

SpiceJet names all its aircraft after various spices and herbs. This Boeing 737-900 Next Generation is called Oregano.

14 aircraft are leased from Babcock and Brown, four from GECAS, and one from ILFS.

SpiceJet has 150 Indian pilots, and 50 expatriates (equivalent to 35 full time).

At present the fleet strength is completely utilised and further route expansion has been ruled out till new aircraft are inducted which will commence from February 2010. Between 2010 and 2012 SpiceJet will induct 12 Boeing 737-800s into its fleet, at the rate of four aircraft every year. The balance three delivery slots have been sold.

With revealing specifics, Sanjay Aggarwal informed me that SpiceJet’s break-even passenger load factor was in the upper “60s” (65 to 69 per cent). SpiceJet is achieving load factors in the upper 70s to low 80s currently.

Market share has increased to 11.8 per cent in January, 2009. Overall low cost carriers (LCCs) had a 49 per cent market share and full service carriers (FSCs) had 51 per cent. Over the coming days, as economic woes continue, he expects this number to reverse as more passengers look for better value propositions.

SpiceJet at Bangalore
He also feels that Bangalore is over-serviced in terms of capacity, and given SpiceJet’s current fleet constraints, the airline will not be adding any new flights to Bangalore in the near future. SpiceJet is planning to re-introduce the non-stop Bangalore Jaipur flight which is currently a one stop.

Low fares Yo-Yo
I quizzed Sanjay about the recent fare fluctuations, especially the low fares in January followed by the steep increases in February. He informed me that SpiceJet was offering an average fare of Rs. 2,300 during January, which was increased to an average of Rs. 4,000 in February.

In January most airlines had taken this deliberate step of a fare decrease, to ascertain if the market could be stimulated by low fares. The low fares were never intended to be permanent since airlines would need load factors greater than an impossible 100 per cent to break even. Despite the ultra-low fares, the airlines managed only a rather poor ten percent increase in load factors. This was the primary determinant in the fare raise. As a low fare airline, SpiceJet will always keep tweaking its fare to offer value propositions to its passengers, he added.

Indian low cost carriers (LCCs) cannot follow the traditional European and US LCC models. Indian LCCs are hampered by a lack of secondary airports which results in them having to pay the same astronomical airport fees as full service carriers, and suffer the same congestion and (in)efficiencies at airports. Unlike a RyanAir or EasyJet or JetBlue, SpiceJet and other Indian LCCs like IndiGo achieve only 12.5 hours a day. This is still higher than the 10.5 hours a day full service carriers like Air India, Jet Airways and Kingfisher Airlines achieve.

Innovative cost reduction
To overcome these inherent limitations of the Indian market, SpiceJet is resorting to innovative methods of cost cutting.

One example is the music SpiceJet plays during the embarkation, taxiing, and dis-embarkation process. Normally airlines pay professional musicians Rs. 2~5 million ($40K~$100K) to compose the music.

SpiceJet went the in-sourcing route rather than out-sourcing, and discovered Moin Wasil, their airport services manager at New Delhi, was also a proficient musician. Using his Roland Fantom XA workstation, with a state of the art software, Moin and his team of musicians put together a refreshing fusion of Indian notes and global tunes which is played on-board all SpiceJet flights.

Watch him compose the music

And his inspiration?

“The music was inspired by SpiceJet – its dynamic growth, vibrancy, warmth and elegance. The fusion resembles SpiceJet – Indian but with International standards. The warmth in the music comes from its employees who are motivated, helpful and caring. The freshness comes from our eagerness to do things better and do them differently. I hope my music brings forth the caring, warm culture of the organization.”

Hear the music.

Focus on additional marketsCurrently SpiceJet passenger mix is about 40 per cent business fliers, and 60 per cent leisure. The global slowdown in air travel has impacted leisure segment, and has made SpiceJet accelerate its increasing focus on business passengers. In parallel, the airline is also on track in increasing its load factors from an average 100 passengers per flight, to 140. Reaching out to business travellers, SpiceJet now offers services which it hopes will appeal to them.

• SpiceJet has introduced hot coffee or tea with cookies service for Rs 20.
• Business travellers can collect their boarding passes for a same-day return flight.
• Introduction of a corporate travel program with key account managers and other flexibilities (which normally means ability to change ticketed flight dates and times without surcharges).

While airlines in the US are charging for each check-in piece of baggage, SpiceJet is going the opposite way to woo customers by extending the free “two piece baggage” concept to international connecting passengers. SpiceJet is also taking a cue from Air Asia X and is actively finalising pre-ordered (and obviously pre-paid) sandwich and snacks. This eliminates wastage of food and jet fuel which rather surprisingly, costs as much as Rs. 1,000 ($20) per meal. “Word of mouth” advertisingAll these steps fit in to SpiceJet’s model of focussing on offering a superior value proposition, not just a low fare, to its passengers which will increase their reputation and help them not spend on advertising, instead relying on word of mouth referrals. SpiceJet revenue share

CargoWith a capacity of 300 tonnes per day, SpiceJet has also targeted a doubling of cargo revenue to five per cent of total revenue. A recent partnership with IBS Software to implement their iCargoLite cargo management system highlights SpiceJet’s resolve. However, Sanjay Aggarwal was adamant that SpiceJet would not let cargo growth affect its passenger experience. SpiceJet would focus only on those cargo that permitted the airline to maintain its quick aircraft turn around policy. Visit Bangalore Aviation tomorrow for Part 2 of this story. International operations, financials, and the future.