The newly appointed COO of SpiceJet, Sanjiv Kapoor, looks at the spate of discount sales that the airline has had in the past few months as a way of stimulating the market. In an informal chat with the media, Kapoor explained the rationale behind the sales. Edited excerpts:
How do you explain the sudden spurt in SpiceJet’s promotional schemes from January this year?
I joined in November and it took me a couple of months to figure out what was going on. I figured out that we do not do market stimulation. We depend on a relatively gently sloping pricing structure.
The best practice for a low-cost carrier is to change the slope of the curve so that towards the date of travel the fares are higher, and to use schemes or promotions to stimulate the market by having limited inventory offered at very attractive fares.
What we saw was that people were also buying at slightly higher fares.
Which is what has started happening because the flyers may not get the lowest fares but they say even the next higher fare is not bad. Or they may get the lowest fare in one direction but the normal fare in the other direction. These are standard tactics.
What kind of increase are you seeing in passenger numbers and average revenue?
The month most impacted by the market stimulation was March.
The year-on-year unit revenue growth was the highest in that month. To us, this suggests that it certainly worked for us.
How do you react to views that this is being done to suck out the market and make it more difficult for AirAsia?
I do not think it has been done to suck out AirAsia’s market. Frankly speaking, if they come, they will also be doing this.
So, we might as well learn how to do it ourselves.
What kind of market stimulation have you seen?
We have seen a fair amount. I cannot go into specifics. We have seen an increase in our monthly entry loads because we are selling more in advance.
What impact has this had in terms of revenue per passenger?
Obviously the average fare that we are selling is lower than what we would sell in a non-sale period, so the yield of the sale will be lower.
So are you disrupting the market?
No, the inventory which we put is low. Essentially, we are trying to get people to make spontaneous decisions by making it a two-to-three day sale, and to either travel more frequently than they would have or make a spontaneous trip that they may not have.
Basically, this is to fill seats that would otherwise have gone vacant.
With the entry of AirAsia India, will you be having more such sales?
Not really. These kinds of sales happen all over the world by low-cost carriers all the time. Look at AirAsia in Malaysia or Thailand. Every week this is a normal thing for them.
But here, every time we do it, it makes news and people start counting. We wish there was a way to do our normal pricing without the media reporting it.
Competitors say that you need cash to pay your bills?
Now, here is an interesting thing. Every business needs cash to pay its bills. If we are raising cash to pay our bills, is it not better to sell your product to raise cash than not pay your bills?
But don’t you disrupt the market in that fashion?
No. We would disrupt the market if this was revenue negative. My sense is that initially people, including our competitors, may have thought that this is destabilising us.
But, I think at least some of them realise that there is a method to the madness.
Method?
You have to inventory manage it, you have to fence the capacity. If the figure of our selling 1.5 per cent of inventory gets leaked out, and it is going to dilute the entire market, then what can I say?
So, you feel it is not diluting the market…
Not at all. It is selling seats that would have otherwise gone vacant.
By stimulating the market, we want to discount only far out travel and want to improve yields.
We are signalling that to the market.