In an industry struggling with rising costs and stiff competition, low-cost airline SpiceJet has pared its losses to Rs 191 crore for fiscal 2013 from Rs 605.8 crore in the previous fiscal. Chief Executive Officer Neil Mills explains to Business Line some of the reasons for the losses coming down and what the future looks like.
Excerpts from the interview:
What are the steps SpiceJet is taking to ensure that the weakness of the Indian Rupee does not impact the airline in the next year?
Our financial position this year has improved significantly. Last year, our losses were over Rs 600 crore, this year they are less than Rs 200 crore. It is not positive yet, we agree, but it is significantly better than what it was last year. From a rupee perspective the fares have increased, which has helped offset some of the increase in rupee costs.
The more important thing that we should be focusing on is the increased cost base in India. If you look at that particularly from the point of view of fuel, we pay about 40 per cent more than what is paid in competing countries.
Last year fuel was 56 per cent of your operating cost. What is it going to be in 2013?
It has stabilised now at about 50 per cent, which is significantly higher than carriers in other countries. Our fares are not comparatively lower because of the high costs that we have had in airports in the last 12 months. Our fuel is 40 per cent more expensive than Dubai and Singapore. As India now exports 30 per cent of the ATF (aviation turbine fuel) that it produces, there is every chance that the fuel that we buy in Singapore is actually made in India.
How much of this increased cost have you been able to pass on to passengers?
The increase in fares is 23 per cent for the year.
Is that for the entire fiscal?
Yes. So that has helped offset the cost burden, which is why the performance has improved. But we have also changed the route mix; we have more and more international routes coming up over the next 12 months. The route mix will continue to change.
What will be the proportion of international and domestic flights?
The number of flights is not the way to measure it – this gets distorted because a lot of international flights are longer than domestic ones. The best way to look at it is from a revenue perspective. About 20 per cent of the airline revenue will come from international operations within 12 months. Currently, it is 11 per cent.
Will the 9 per cent increase in revenues from international be enough to keep fares at current levels in the domestic market?
Yes, I believe so. The fares in the domestic market are obviously a lot higher than we would like.
But that just reflects the underline cost base. If the costs continue to be so high, I really do not have much freedom to make the fares lower than they currently are.
In the latest figures what has come from operating revenues and how much from ancillary revenues?
We had limited flexibility in ancillary revenues. So we had limited ancillary revenue opportunities.
The largest two of these were cargo and food on board. Cargo has grown to 5 per cent of total revenue, which is significant.
But the unbundling rules came in only towards the end of the financial year. So we will have to see in the next 12 months where we go with that.
What are the airline’s plans for importing fuel directly?
Importing fuel is an important part of the future. But from a regulatory point of view it has taken a lot longer to get approval than what we could have possibly expected.
Have you gone through with it? Have you started importing?
No. We are just about to start the imports. We have the final regulatory approval to do it. We will announce it when we have the first order actually finalised.
How much of your total ATF uplift will be through imports?
That will depend on how successful the first shipment is. We are going into an unknown regulatory environment. It has taken a lot longer to get to even this point. It will actually be too brave to say what proportion will be imported.
Passenger numbers you expect to carry?
Last year, we carried just under 13 million passengers. We should grow that number by about 25 per cent.
How much of this will be from international operations and how much from domestic operations?
A majority of the growth will be international.
What about tier-II and tier-III cities contributing to the bottomline?
Regional business has also grown significantly over the last year-and-a-half. It is moving towards 20 per cent of the total revenue from about 15-16 per cent; 18 months ago that business did not exist.
Is it making money?
It is certainly delivering according to the business plan. We do not talk too much about which parts make money and which do not. We are not disappointed with the results; that is for sure.
Plans for aircraft induction?
In the next calendar year, we will induct eight Boeing 737s.
No plans for induction of any Q 400?
Not at this point in time. The significant increase we saw in airport costs has certainly made us re-look at the plans for inducting (Bombardier’s) Q 400.
When do you expect to return to profit?
We prefer not to give guidance. But you can see how much we have improved from last year’s results – over Rs 400 crore better. We will continue to improve significantly in the future.
The Centre for Asia Pacific Aviation has said that airlines’ financial position will weaken further and increase pressure significantly for the fiscal. It has also said that results are likely to impact plans to raise capital. Your comments…
I do not agree at all. In a challenging environment you will get results which are not quite what you expect. But I do not believe that the current results will impact our ability to raise capital.
How much were you planning to raise?
We have not said we were planning to raise capital at all.