SpiceJet in Q(2) – Great Performance in Testing Times.

SpiceJet737_KKKey Points:

  1. SpiceJet’s massive market stimulation efforts leads to India’s highest domestic load factors in recent history.
  2. Higher load factors are strong indicators that the airline has been able to realise a higher revenue per available seat kilometer (RASK, unit of revenue measure) in a statistically low season. Average Q2 load factor at 82.5% – 8% higher than average domestic.
  3. Airline has innovated on many fronts to attract passengers (brand image, network & service differentiation), retain passengers (brand loyalty measures), and fly more passengers (stimulation through scientific inventory management and pricing), all three leading to higher revenue.
  4. In just a matter of 9 months (January – September), SpiceJet has positively transformed at the service, revenue – passenger and revenue-ancillary levels. The fastest and only such turnaround in Indian airline history.
  5. Costs driven lower, but both costs and revenue adversely impacted by lack of funds, due to flight cancellations, flight mergers, and inability to negotiate better contractual terms across all service providers including maintenance.
  6. If SpiceJet’s cost per available seat kilometer (CASK, unit of cost measure) was as low as either IndiGo’s or Go Air’s, airline would have financially been the best performing low cost airline today, based on revenue – size ratio.
  7. Airline’s CASK is between INR 4.1 to 4.2, while peak season RASK is estimated at around INR 3.7 – 4.0. Low season RASK at around INR 3.3 – 3.4.
  8. SpiceJet’s turnaround is visible in performance indicators. However, lack of funds threaten the possibility of SpiceJet reporting a profit in Q3 FY’15. True turnaround possible only with further infusion of funds into the airline.

SpiceJet’s Q2 performance has been exemplary. The airline, throughout Q2 FY2014-15, had the highest domestic load factors, and the average domestic load factor across the months of July, August and September stood at an impressive 82.5%, leading the average Indian airline industry’s load factor for Q2 by a solid 8%. This remarkable performance has had multiple positive effects for the airline. SpiceJet has been able to fill seats and fly fuller airplanes, with each passenger contributing to the revenue, by way of either a low priced discounted ticket (early bookings) or a last minute high cost ticket. Various measures by the airline to boost ancillary revenue have also fructified, as a combination of both high load factors and an aggressive approach towards ancillary revenue sources. In short, revenues at the airline, especially in a low season such as Q2, are looking good.

Revenue is only one component. Profitability – dependent on the second component, costs – is the difference between the two. Costs in the airline are high, largely due to the airline’s lack of funds. As was mentioned in the airline’s Q1 press release, the airline continues to incur costs related to ‘additional interest and funding costs driven by unprecedented carry-forward losses from the previous fiscal’. To raise money costs money.

A study triggered by SpiceJet’s very significant flight delays at Bangalore on 30th October 2014, due to issues internal to their Ground Service Agent – Globe Ground India, revealed some interesting, and perhaps startling facts about the airline. Lack of funds in the airline is affecting the contractual relationships between the airline and its service providers. With significant dues pending to some service agents, the airline is able to neither negotiate better contracts nor switch service providers. This handicap is leading, either directly or indirectly, to increase in costs.

Cancellation Rate 5 private established airlinesFurther study reveals flight cancellations at the airline are on the rise- higher than the two other noteworthy LCCs – a fact supported by DGCA data. In July, the airline had a 0.36% cancellation rate, which rose to 0.6% in August and 0.95% in September. Sources reveal that the inability of the airline to pull out aircraft from maintenance, due to funding issues, is leading to cancellations which is costing the airline revenue. To overcome the problems associated with the lack of planned aircraft, SpiceJet has also been merging / combining certain flights within its network, and this further leads to a loss of revenue. Healthy low cost carriers Go Air and IndiGo have a lower cancellation rate.

In this piece, we review how SpiceJet has performed in Q2 FY’15. We show through graphs the white magic that the men (and women) driving the New SpiceJet have performed, in the midst of dark times at the airline. Had there not been a funding issue (which has increased costs while also lowered revenue), SpiceJet could possibly have, through its unbelievable market stimulation and innovative ways of generating revenue – posted either a very small profit, or a mild loss in the Q2 of FY’15. SpiceJet has once before been profitable in Q2, in the last five years – the Q2 of FY2010-11.

However, in spirit and performance, SpiceJet is the true AirAsia in India. Not quite surprising considering that two of the key set of people driving the airline today were formerly with AirAsia.

 The Acts leading to the Results

Products and Actions

The table on the left (click to expand) lists all that SpiceJet has done since January 2014. The white rows are sale drives that have stimulated demand. The grey rows are changes in the airline that have made the airline more appealing. The light orange/pink rows are those that are designed to trap (keep) the passenger. The yellow rows are those that directly contribute to increased ancillary revenue.

Since January 2014, SpiceJet has had 28 discounted airfare sale drives. That averages to about 2.8 a month.The Flying Engineer can document at-least 47 actions taken by the team at SpiceJet since January 2014 – a massive number only possible by a team that has experience, planning and execution skills – in other words the depth of management – to execute a quick turn around.

1. To drive down costs, the airline rationalised its network and trimmed its fleet size to 32-33 Boeing 737s (From 42 earlier) and 15 Q400s, of which one 737 and one Q400 are almost always not available due to maintenance. This resulted in older 737s being returned, including those aircraft that were contractually not the right terms for the airline. Non-standard aircraft (High Gross Weight v/s Non-High Gross Weight variants, Dual v/s Single FMC variants, ETOPS v/s non-ETOPS aircraft) were returned, resulting in a higher degree of standardization across the fleet. Ideally, a single fleet would have been preferred (like Go or IndiGo), but the Q400s allow the airline to penetrate and tap Tier II and Tier III markets that cannot be served by other airlines. This gives SpiceJet either a monopoly or a duopoly on certain routes, allowing it to realise the highest yields on such routes.

2. The airline’s damaged brand was fixed, with a cabin refresh program that included training of cabin and ground staff on the customer service front. SpiceJet places one of the highest emphasis in the airline industry, today, on customer service & warmth. Aircraft cleaning has become  more efficient, and a dedicated wash hangar at Chennai allows the airline to keep its aircraft cleaner than before. In flight music helped bring back an appeal long lost.

3. In-flight menu attractiveness was boosted through partnership with TajSATS and Café Coffee Day (CCD) for new food and beverage menu. Service attractiveness was boosted through improved network and frequencies, larger legroom SPiceMAX seats, priority check-in, Bags-out-first, Internet banking fee waiver, and SpiceFlex bundle.

4. To regain customer confidence in SpiceJet, the airline had to make them experience the changes, not hear or read about those. The airline went on, and still is on, one of the most aggressive (yet sensible) sales campaigns in Indian history. With heavily discounted ticket prices (as compared to last minute buys) for advanced booking, SpiceJet has managed to pull in passengers to try the ‘new’ SpiceJet, converting many skeptics and forming new loyalists. The airline has pulled in the largest number of passengers given its size (in terms of capacity), allowing people to consider SpiceJet as a worthy air travel option.

The market stimulation – sales drives.

Kanesh&SanjivThe frequency and intensity of these sales drives picked up after Kaneswaran (Kanesh) Avili – Chief Commercial Officer, SpiceJet – and Fares- VP and Head of Revenue Management, SpiceJet- joined the airline on April 1st, 2014.

Kanesh (Seen standing in the image behind seated SpiceJet COO Sanjiv Kapoor)  comes with a strong airline background – he was an integral and key member of the team which acquired AirAsia from the Malaysian government and transformed it into the leading Asian LCC it is today. His experience with three other airlines – including LCC Tiger Airways, which SpiceJet has an interline agreement with, meant that he joined SpiceJet – another LCC- knowing exactly what to do.

Along with Kanesh, Fares Azeem Kilpady joined SpiceJet as VP and Head of Revenue Management, after serving as the Head of Revenue Management and Pricing at AirAsia X- the long haul arm of LCC AirAsia.

A press release issued by the airline on March 4th, 2014 – even before the duo joined SpiceJet – quotes Sanjiv Kapoor, Chief Operating Officer (COO) of SpiceJet as saying, “These promotions have been launched by an expert team that is well-versed in LCC revenue and capacity management“, making one wonder if the commercial, ex-AirAsia duo had a hand in promotions as far back as January.

The flash or discount sales at SpiceJet were interesting in that these were not blind and desperate attempts to sell seats. The procedure that has been adopted, as clarified by Sanjiv and Kanesh many times on various platforms, is scientific. SpiceJet, having been in operation since the last nine years, has sufficient data to help predict seasonal demands, on a route basis. This allows the airline to determine those many seats which have the highest probability of flying empty, on a flight by flight basis.

Those seats, carefully determined, are sold at too-good-to-be-true rates. The interesting implementation here – unknown to most – is that the discounted fares more often than not are actually slightly higher than the cost incurred in servicing the extra passenger (passengers occupying seats that would have flown empty). The result? the airline stands to make money.

Example: Bangalore- Delhi

The Bangalore-Delhi sector is the airline’s longest sector. An aircraft burns more fuel when it is heavier. Carrying an extra passenger on the Bangalore-Delhi sector will result in the highest incremental fuel burn cost for the airline. We attempt to determine the fuel cost involved in carrying this passenger.

A Boeing 737-800W flying this 1000NM mile trip, almost fully loaded with a landing weight of close to 63,000kg, will consume around 6kg of extra fuel for every additional 100kgs. 100kgs is the industry-wide assumed weight of a passenger, including baggage. 6Kg of fuel (ATF) occupies a volume of 7.5 litres. Each litre costs, on average, INR 74, costing INR 555 for 7.5 litres.

BLR_DEL Re1 Fare

The Flying Engineer purchased a Bangalore-Delhi ticket when SpiceJet’s infamous Re 1 fare sale was conducted on April 1st, for travel on October 6th. The fare, including fuel surcharge, was charged at INR 799, taxes and fees extra. This amounted to INR 244 more than the fuel cost, including the cute fee. Assuming the CUTE fee amounts to INR 50 – 100, then the airline stands to make between 144 – 194 (average ~170) per passenger, assuming that costs other than the fuel costs are subsidized through the tickets of other regular fare passengers. In reality, the other costs involved in servicing one extra passenger are almost nil.

Making money

Most of the offers, except for maybe the actual Re 1/- fare, have allowed the airline to make money. Considering the airline flies almost 40,000 passengers a day, giving away 1,000 seats a day – or 2.5% – for promo isn’t asking for much (we expect this number to be much higher). On other sectors, where the fuel burn penalty is lower, the airline stands to make more than the INR 170 derived above. INR 170, for 1,000 tickets per day, over a year amounts to INR 6.12Cr profit.

Almost all the other sales have higher margins than the computed INR 170, which means the airline has only stood to gain a lot, lot more.

Disproving skepticism

Many ‘experts’ were of the opinion that by offering discount fares, those who were to have anyways travelled would have picked up the tickets, robbing the airline of the chance to have made more money through a regular ticket sale. This would have been the case had load factors remained unchanged after these discounted sales. But the fact that the airline has carried more passengers – a mix of discounted fare travellers and regular fare passengers – shows that the market has actually been stimulated.

Quarterly P&L SpiceJet vs domestic market

Kanesh’s strategy has paid off. After all, it is a proven LCC strategy that he has implemented. in Q2 FY 2014-15, SpiceJet’s average load factor has touched a 15 quarter high of 82.5% (See the graph above). In the same quarter, SpiceJet’s load factors were consistently the highest in the industry, touching 85.9% in September. Compared to Q2 FY’14, the average load factor is 14.1% higher. In Q2 FY’15, the airline added capacity compared to the same period last year, and flew fuller airplanes – only meaning that the airline carried more passengers than what it would have, due to the Kanesh driven & Fares implemented sales which brought not only more passengers, but higher revenue as well.

It must also be noted that the discounted sales in no way affected the other seats which were sold at regular fares and in compliance with the fare bucket system. The airline has, in fact, not sold the cheapest tickets as the date of travel has approached. Its fares have been, and still are, slightly higher than the competition, allowing the airline to maximise both its yields and RASK.

This achievement makes Q2’15 the highest load factor Q2 in the entire history of SpiceJet.

The last time SpiceJet’s average quarter load factor was as high-or higher- was in Q1 FY’11 & Q3 FY’11. In both these quarters, the airline recorded net profits of INR 55Cr and 94Cr respectively. In Q1 FY13, the average load factors touched 80.7%, leading to a net profit of INR 56Cr. These quarters, however, are peak seasons, when demand already exists, unlike the low-demand seen in Q2.

What the team at SpiceJet has done is to make a low-demand season work in SpiceJet’s favour, echoing AirAsia’s philosophy: ‘Seasons are only what you make them to be’.

RASK & CASK at SpiceJet

Had SpiceJet not been burdened with a cash crunch problem, or had the investors and shareholders pumped in money, they may have seen a SpiceJet making either a very small profit or a very soft loss in Q2. Based on published Q1 figures, the airline’s CASK today stands at between INR 4.1 to 4.2, while the RASK is estimated at around INR 3.7 – 4.0 in the peak season. Non-peak season RASK is evidently lesser (due to the demand-supply driven regular fares), estimated at around INR 3.3-3.4 considering the success of the commercial team.

Beyond RASK & CASK – Cash Flows, Predictability, Playability and Profitability.

Due to the sales, most of which are for travel periods between two months to a year from the date of booking, the airline’s advance bookings have significantly gone up, with two effects. One, the airline is able to secure cash flows necessary to keep the airline afloat in the light of the cash crunch. This is a laudable effort where the airline is staying afloat – with much effort – rather than sinking.

Second, with advanced bookings, the airline can play about with revenue management much better. Fares Kilpady’s work is visible. With sufficient seats already pre-sold, the airline has a greater confidence to play about with pricing, which is why SpiceJet’s fares are higher closer to the date of travel, higher than that of the competitors. It seems like a gamble the airline has taken – of expecting a last minute traveller – who wants to fly SpiceJet – to pay higher. Whether it works or not, the airline has already sold enough seats to make the numbers work for the flight, but these high fare sales can make a big difference to the RASK.

Since most ticket sales are far out in the future, the airline witnesses many ticket cancellations. Many people, optimistic while buying the discounted tickets, also discount the fact that their personal or professional schedule is unpredictable. Closer to the date of travel, many find it impossible to fly, leading to either ticket cancellations (with no refund), or no-shows that allow the airline to profit.

Rippling effect of Market Stimulation

What Kanesh and his team have done is to figure ways to drive up ancillary revenues. In the true spirit of a LCC, SpiceJet introduced products, and services that have fed off the increased passengers to bring in more revenue. Other schemes, such as the ‘On-time-guarantee’ voucher (which cannot be redeemed for cash) – are designed to trap (retain) a passenger, giving a passenger a reason to fly SpiceJet once again.

Warmth in service and clean airplanes are to please passengers. But to make money off them, SpiceJet introduced Hot meals, SpiceFlex, SpiceMAX, and ‘Bag Out First’ service. Sales from the hot meals seem to be picking up, contributing to the airline’s revenues. The price of the meals have also been shot up along with the bundling of a juice and a yoghurt or brownie, to INR 350 from INR 250. Previously, pre-booking a meal allowed passengers to realise up to a 25% discount. Now, price of meals has gone up while the pre-book discount has been lowered to 10%.

Every INR 10 hike in meal related ancillary profits results in an annual profit of INR 14.6 lakhs, for every 1% (400 per day) passengers that travel on SpiceJet. With more passengers flying SpiceJet, the apparent rising popularity of the hot meals, and the higher pricing, the airline is expecting to eventually make a good revenue from the in flight meal sales.

SpiceMAX comparison

SpiceMAX vs Non SpiceMAX22 of the 33 Boeing 737s in SpiceJet’s fleet have the first five rows (30 seats) rearranged to allow for a generous 35 inches of legroom, offering business class pitch-comfort (but not business class width comfort), for an extra amount charge of INR 800 (See the seat pitch comparison photo on top, and the aircraft layout and seat costs in the image on the left). The other window and aisle seats up to the emergency exit row are charged at INR 300 per seat, and the emergency exit seats are charged at INR 500 per seat. This allows the airline to realise up to INR 39,600 additional revenue from seat selection, on every SpiceMAX converted Boeing 737-800. Assuming six flights a day, this translates to INR 8.6Cr revenue potential per 737-800 SpiceMAX aircraft, per year. SpiceMAX was introduced only on August 7th, and is slowly picking up. SpiceMAX also ensures priority check in for passengers at select airports.

Network changes, better OTP, and service have allowed the airline to regain the confidence of corporate travellers. The airline can however still do a lot better in attracting corporates, who are high yield, guaranteed volume customers. However, the highest yields are realised form passengers booking tickets within the last seven days of travel (D7-D0), including the day of travel (D0). To capture these last minute, high yield travellers, most of whom are from the SME sector, SpiceJet has launched a tool and portal for SME travellers which guarantees them savings. This is one strategy to capture high yield passengers and infuse brand loyalty. SMEs generate a higher revenue than corporates due to last minute bookings. SpiceFlex, a service that is charged above the airfare for a bundled set of services – which include waiver of ticket change fee, hot meal, and preferred seat allocation- is targeted at corporates and SMEs – business travellers in need of travel date and time flexibility. SME travellers and corporates also prefer to opt for SpiceMAX as it allows for affordable comfort.

Passengers who need their bags out first are charged INR 300 for the two bags and 600 for 4 bags.

Besides passengers related ancillary revenue, SpiceJet’s sign up with cargo partner DELEX gives the airline a guaranteed minimum revenue, and a revenue share beyond the minimum cargo weight. This aggression on the cargo front has seen cargo rise by as high as 23.6% per ASK in the April of 1HFY15, when compared with the same month in FY14. (See next section).

While direct passenger revenue accounts for the highest percentage of revenue, commercial innovations and decisions to rope in additional revenue have been working in the favour of the airline, today bringing in an estimated 10% of the airline’s revenues, with scope for growth.

Performance Indicators and Comparisons.

Cost and Revenue IndicatorsThe graph above allows a direct comparison between SpiceJet’s performance in the months of Q1 and Q2 FY’15, in relation to the same period last year. The graph is based on both domestic and international data for SpiceJet, as published by the DGCA.

ASK, or the available seat kilometers, are an indicator (not a measure) of cost. The ASK is got by multiplying the number of available seats per flight into the kilometers flown by the aircraft for that flight. The sum of all such products across all flights gives the ASK.

For the months of April, May and June (Q1), SpiceJet’s fleet experienced a contraction, resulting in lesser capacity compared to the previous year. This also meant less variable costs. In the months of July, August and September (Q2), the airline increased its aircraft utilisation, leading to a higher capacity over last year.

With the exception of the month of August, the passengers (PAX) flown, per ASK, has constantly been increasing, year-on-year (YoY). Passengers are a source of revenue, and hence Pax over ASK is a good indicator of revenue. The performance in September has been exceptional, largely through the stimulation of the market by the carefully planned market stimulation drives executed by Kanesh and his team.

Cargo has also been consistently better than the previous year. Cargo per ASK is again an indicator of a part of ancillary revenue. The partnership with DELEX has paid off.

The lower flight hours per departure, compared to last year. means that on average, every flight is now shorter. The airline has given up long, unprofitable international routes.

It is only in the month of August that the passenger and cargo growth per ASK, YoY, has been lesser than the capacity increase.

Despite the higher passenger load factors in Q2, the very fact that it is a low season prevents the airline from charging high fares, due to a demand – supply mismatch. As such, the yields in Q2 have got diluted, but the higher number of passengers flown has had a positive impact on the RASK – which is lower than Q1, but much higher than Q2 of the previous financial year.

Performance comparison with IndiGo (6E) and GoAir (G8) – Domestic

6E and G8 vs SG


The only region where IndiGo outperforms SpiceJet is in the market share. The market share of IndiGo is evidently higher on account of having about 530 flights (almost 50% more than SpiceJet’s) a day and a fleet of more than 80 aircraft – double SpiceJet’s.

On the load factor front, IndiGo trails SpiceJet. (Market share and load factors are differences in percentages as reported by the DGCA)

IndiGo carries lesser passengers than SpiceJet, for every ASK. If the average yields of SpiceJet and IndiGo were the same, SpiceJet would have a higher RASK. However, IndiGo’s lower CASK – Cost per available seat kilometer, a measure of cost, is lower, allowing IndiGo to stay profitable even with a lower RASK.

IndiGo also flies lesser freight (cargo + mail) than SpiceJet. This again indicates a lower ancillary RASK compared to SpiceJet.

Based on the performance indicators, had SpiceJet operated with IndiGo’s CASK, it would have easily outperformed IndiGo on a per ASK basis in Q2.

Go Air

Go Air, the only other profitable LCC, has a lower market share (it flies just 19 aircraft), has carried lesser passengers per ASK and has consistently flown less full airplanes (Market share and load factors are differences in percentages as reported by the DGCA). However possibly because of it being part of the same group that owns Bombay Dyeing and Britannia Industries, the airline may be used by the group to transport its own cargo, leading to the best cargo per ASK in India – a very strong indicator of ancillary revenue.

Again, had SpiceJet’s CASK been as low as Go Air’s, the airline may have outperformed Go Air, based on the performance indicators.

Average aircraft utilisation at SpiceJet, although increasing, still lags those of IndiGo and Go Air, partly on account of the fact that SpiceJet, unlike the other two, also flies the Q400, which flies short sectors and hence negatively impacts aircraft utilisation figures.


SpiceJet was driven into a surgery room by Sanjiv Kapoor, who then called in surgeons such as Kanesh and Fares Kilpady to operate upon the airline. Despite the airline’s poor financial situation, the commercial team, in a record time, has manged to both fly more passengers and result in significant cash flows through advance sales. Both have positively impacted revenue per ASK (RASK)- the reliable measure of revenue against costs per ASK (CASK).


The slide above, as released in SpiceJet’s Q1 FY’15’s report to the BSE, shows how the airline performed bad in the Q3 of last financial year. Q3 is historically the strongest quarter for SpiceJet. SpiceJet’s performance changed fortunes in January, when the RASK started rising on a YoY basis, and has consistently been higher ever since, despite increased market capacity and competition.

The best-LCC practices that have been implemented by the commercial team at SpiceJet, are showing results in a record short period, but are being eclipsed by the serious cash crunch situation that SpiceJet is in. The cash crunch is not only keeping costs high, but is also preventing revenue from increasing through numerous flight cancellations, visible on a daily basis.

SpiceJet holds the promise of reporting a profit in Q3 FY 2014-15, but only if the shareholders act quickly and infuse some more capital into the airline. The previous infusion of 300 Crores does not take the airline far – the airline needs far more than that.

A wonderful success story, proved in numbers and scripted by SpiceJet may go to waste if not for timely capital infusion into the strong performing (in terms of indicators) yet financially-sick airline.

1 thought on “SpiceJet in Q(2) – Great Performance in Testing Times.”

  1. The article makes sense, except in places where it is comparing Indigo and Spicejet. It doesn’t make sense to say,
    ‘had Spicejet got the same CASK as Indigo, Spicejet would have been profitable”. Indigo and GoAir have a lower CASK for a reason, which cannot be replicated easily by Spicejet. If Spicejet tries to replicate that, they may just go down further. Also, the incremental revenue brought in by Q400 is completely offset by the higher maintenance cost per seat of Q400.
    A good analysis of Spicejet indeed, but a poor comparison with Indigo for sure.

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