Cash-strapped budget airline SpiceJet’s desperate SOS to the government for financial assistance is being seen as the culmination of a series of disastrous moves.
Industry experts and company sources said Monday’s appeal was long seen as coming, in view of a number of events over the last one-and-a-half years that have brought the airline to where it is now.
SpiceJet, launched in 2005, was bought by media baron Kalanithi Maran in 2010. “The airline had a professional management in place but after Maran took over things started getting messy. A number of top executives left or were nudged into leaving as the new promoters thought they were too expensive,” said a former senior employee of SpiceJet.
“The board members, who understood the business and asked the right questions, were replaced by family members,” he said. After this, things just spiralled out of control.
SpiceJet COO Sanjiv Kapoor did not respond to calls from HT.
“Professionals who understand the business, though they may be highly paid, are necessary,” said another ex-employee.Another operational mistake the airline committed, sources said, was flying to too many destinations with a fleet of 57 planes. "The business strategy for any airline and more importantly for budget carriers is simple: maximise operations on limited routes, which wasn’t the case here," said a source.
In a bid to connect smaller regional stations, SpiceJet decided to buy Bombardier Q400 aircraft. “The Q400 is a very expensive aircraft... since plane utilisation wasn’t up to the mark, ATRs (propeller planes) would have been a better choice,” said another source.
As the situation worsened, the promoter’s started tightening the purse strings.
“In a bid to raise working capital, the airline started frequently coming up with flash sales. It was their desperation to raise working capital as they waited for an investor,” said an expert. SpiceJet has announced over 25 sales this year.
“Without significant and immediate promoter funding, I see no future. Promoter’s inability to fund closes the case,” said Kapil Kaul, South Asia chief executive officer of aviation consultancy firm CAPA. “I expect things to deteriorate further and see a massive rush for refund claims.”