SpiceJet's turbulence is far from over
The airline industry, the world over, is prone to spectacular booms and busts. That India is no exception is borne out by what has been happening to SpiceJet, a once-promising budget carrier that is now struggling to take off.comment Updated: Dec 18, 2014 20:57 IST
The airline industry, the world over, is prone to spectacular booms and busts. That India is no exception is borne out by what has been happening to SpiceJet, a once-promising budget carrier that is now struggling to take off.
Images of a harrowing time thousands of passengers faced in airports across the country on Wednesday as SpiceJet — refused fuel by oil companies on credit — grounded many of its flights. Having burnt their fingers with Kingfisher Airlines (KFA), oil companies refused to heed an aviation ministry request to give SpiceJet a 15-day credit line. The budget carrier, which is on a cash-and-carry basis with oil firms, could resume operations only after making payments for the day.
Like KFA, which has been grounded since October 2012, the SpiceJet management knew very well what was coming but continued to sell tickets, for as far as October next year, in a bid to raise working capital. The company, reminiscent of KFA in many ways, owes money to banks, airports, lessors, tax authorities, suppliers and oil companies.
It has failed to get an investor on board for over a year now and it remains to be seen if the helping hand extended by the government would be of any succour. Banks are battling mounting bad loans, and oil companies in India are calling in their credit lines with airlines.
This may not be good news for the Indian flyer. Spot fares have doubled in the last two weeks as passengers made a desperate dash for a limited number of seats in other airlines during peak holiday season. Compared to December last year, spot fares were 40-60% more expensive on Wednesday while the jump in comparison to June was 40-75%.
Price apart, competition in the Indian skies has vastly improved the flying experience and any contrarian move holds out the prospect of lower service quality. SpiceJet has been losing money for the last five consecutive quarters and had itself decided to pare its operations — cutting its daily flights progressively since October.
What, however, is a matter of concern is that the lack of a well-regulated fallback option for passengers and employees when airlines ground because of poor business planning. Two years ago, employees and passengers faced a similar plight when the KFA was grounded. The focus should now shift to these classes of stakeholders, rather than only on the investing community.
Also, it may not be the wisest move by the government, fighting bigger fires, to offer a taxpayers’ money-funded lifeline to the aviation industry.