This post briefly compares SpiceJet and IndiGo, and talks of SpiceJet’s financial performance and cost breakup, the Q400 woes, the airline’s route and fleet expansion between end Q2 12 and end Q2 13, the new COO, and also: graphically showing the ATF price trend in India.
SpiceJet, which commenced operations in 2005, is unique. It’s a low cost carrier that flies to 55 destinations (45 Domestic and 10 International), has a dual fleet of 55 airplanes : Boeing 737NG (Boeing 737-800 and Boeing 737-900s), and the turboprop Q400: The only operator of the type in Middle East, South and South East Asia. The 737s have a good market resale value, while Q400s are not in demand. Its 737 fleet has ovens on board, some of its airplanes could be cleaner, and its ground vehicles could be parked better. All its Q400s are fully owned, and the airline is gradually moving away from 737 ownership to leased airplanes. It has mulled a narrow body jet fleet switch to Airbus A320NEOs, and is presently without a CEO since Neil Mills left the airline and went to Philippine Airlines. Spicejet posted the worst ever Q2 loss, ending September 2013, of INR 559 Crores (INR 5.59 Billion), and reported a reported a loss of INR191 Crore during 2012-13 (INR 1.91 Billion). Since the Jan of 2013, till September end 2013, the airline has flown on domestic(international) routes 8.6Million(0.7Million) passengers on 82,569(6,216) flights, and has experienced its best load factor of 81%(78%) in the month of May(June), and 68%(69%), its worst in the month of September(July). Over this 9 month period, the airline had an average load factor of 74.7% (74.2%).
IndiGo, which commenced operations in 2006, is very unique. It’s a low cost carrier that flies to 35 destinations (30 Domestic and 5 International), has a single fleet of 71 airplanes : Airbus A320 airplanes only (not even A319s and A321s): The only operator of a single type and single variant fleet in the country. The A320s have the highest market resale value. Its airplanes have no ovens on board, all its airplanes are clean, and its ground vehicles parked in an organised manner. All its airplanes are leased through a profitable sale-leaseback practice. As part of natural fleet expansion, it has ordered Airbus A320NEOs, and is presently with the same, apparently satisfied CEO since 2008: Aditya Ghosh. Indigo reported a profit of INR 787 Crore (INR 7.87 Billion) during 2012-2013. 2012-2013 was its 5th consecutive year of profits. Since the Jan of 2013, till September end 2013, the airline has flown on domestic(international) routes 13.2 Million (1.1 Million) passengers on 103,439 flights, and has experienced its best load factor of 90%(88.9%) in the month of May(Jan), and 70.3%(73.3%), its worst, in the month of September. Over this 9 month period, the airline had an average load factor of 80%(82.8%).
And yes, SpiceJet is publicly listed, and IndiGo isn’t.
The financial quarter ending September was very challenging for SpiceJet, as for other airlines. Statistically, the months of July, August and September witness a lower domestic demand. Adding to its troubles was the weak rupee, rising fuel prices, increased maintenance costs due to “bunching up of engines sent for shop visits", the start up costs associated with two new destinations: Muscat and Bangkok, and, as per airline insiders, an operationally troublesome Q400 that lead to a recent cancellation of many flights in October. The aircraft, according to one captain, isn’t probably suited for Indian conditions, but “maintenance could do better". Few maintenance personnel feel internal issues in the airline management are partly responsible for the Q400s maintenance and operational reliability that “can actually be better". Some in the airline believe that the Q400s are “wretched aircraft". In the December of 2010, Bombardier announced that SpiceJet had placed a firm order for 15 Q400s, with an option for another 15. Exercising the option for the other 15 hasn’t yet happened, and very likely, won’t.
Operational costs in the airline have understandably increased, with SpiceJet’s addition of almost 22 new routes, and addition of 8 Boeing 737-800s and 3 Q400s to its fleet, between October 2012 and September end, 2013. Despite this, and the increased fuel prices, fuel costs haven’t increased much. Maintenance, and depreciation and amortisation expenses have been the most significant increases compared to the same period last year, which has had the effect of reducing the fuel cost’s share in the airline’s expenses.
SpiceJet stated, “In order to improve its competitive position, the management is putting in place a strategic plan to refine the network, enhance revenues, rationalize costs and further improve reliability to deliver better value to customers."
Question is, are the dual fleet and aggressive route expansion helping the airline? Or is something more needed?
On November 1st, Sanjiv Kapoor joined the SpiceJet as the Chief Operating Officer. Sanjiv started his airline experience with Northwest in 1996, where his role spanned across corporate finance, business planning, procurement and operations. He later joined a world renowned consulting firm, leading their business that caters to airline consultancy. He’s been an advisor to a Bangladeshi airline, as well. How Mr. Sanjiv helps transform the airline is to be seen. But that also depends on how much the airline allows him to implement changes.
Truth be told, unless the top management steps out onto the apron and spends days with operations, many decisions may be based what may not be reflective of ground reality. And it’s on the ground, that most issues are seen, as felt by many of the airline’s staff.
Quoting Firstpost Business’ Sindhu Bhattacharya, with regards to plain survival, “…one or two months of better performance alone may not be enough for SpiceJet to survive — it needs funding and needs them urgently."