Back to the basics: How Ajay Singh piloted SpiceJet turnaround
Ajay Singh’s focus on basics took SpiceJet to Rs 1 crore of profit per day in 2015, from a loss of Rs 2.8 crore per day in the previous year.business Updated: Feb 22, 2016 15:21 IST
In the first week of August last year, Ajay Singh, chairman and managing director, SpiceJet, got a call from Kalanithi Maran — the airline’s former promoter — whose stake he had bought when the carrier was on the verge of shutting down operations.
The previous week, SpiceJet had posted a net profit of Rs 71.85 crore for the April-June quarter — its second consecutive profitable quarter under the new promoter.
Maran, sources said, congratulated Singh for turning around the airline, which till a few months back was cancelling thousands of flights, defaulting on payments to oil firms, airports, vendors and lessors.
Maran had one question for Singh: “Where did we go wrong?”
“The same management that you have, had told me that there is no chance of this company making money in the next 2-3 years,” the Chennai-based media baron is learnt to have told Singh.
Singh’s reply was simple. “We are just trying to get back to the basics,” he told Maran.
‘Basics’ has been Singh’s prime focus since his return to the helm at SpiceJet in January last year. The airline made a Rs 356.54-crore profit in 2015 — nearly Rs 1 crore-a-day.
But the story was different when Singh took charge. SpiceJet had recorded Rs 1,031 crore in losses in 2014 — around Rs 2.82 crore-a-day.
“SpiceJet had cancelled a large number of flights. Passengers had lost confidence. Vendors hadn’t been paid for months and lessors had repossessed a large number of planes. There was a perception that SpiceJet was dead and gone and the first thing that we needed to do was to reverse that,” Singh recalls.
“From a customer’s perspective, one of the things that we needed to do was to say to people that book tickets in advance, because we will fly, and we will make sure that your flights will not get cancelled. For that we had to get capacity, and we got planes on wet lease.”
As soon as the airline started to get money, it began paying back partners and vendors.
It was not an easy job, and Singh has been performing the dual role of a promoter and CEO ever since his comeback.
“The situation was so bad that I had little option but to get involved in the day-to-day management of the company,” says Singh.
He has also decided not to take any remuneration till the time the company turns profitable. An expected move, considering that one of the first things he did after his return was to get rid of a number top executives drawing massively high salaries -- a move that helped the airline reduce its wage bill by around Rs 20 crore.
Even rivals are impressed. “The airline focused on the critical elements of a true low-cost carrier (LCC), constantly managing costs down, utilising assets well and managing cash flows positively,” says Mittu Chandilya, managing director and CEO of rival AirAsia India.
Before Singh took over, SpiceJet was not following the low-cost model. It was flying fewer flights to a large number of stations, and on some routes, there were no return flights the same day.
“Around 70% of the network has been rejigged. We have dropped five stations including two international -- Sharjah and Kathmandu. Over the course of this one year, we have dramatically improved our revenues and reduced costs,” Singh says.
The results are evident.
The airline reported a net profit of Rs 238.40 crore for the quarter ended December 2015 — the highest ever in its history. Revenues rose 11.3% year-on-year to Rs 1,459.95 crore and total expenses fell 21.8% to Rs 1,211 crore. Ancillary revenue increased to 16% from 6%. The airline is flying load factors (in common parlance, the number of passengers carried) in excess of 90% for the last eight months.
“SpiceJet was headed the Kingfisher way till Singh came. He has scripted one of the most memorable turnaround stories in Indian aviation,” says Subhash Goyal, chairman, STIC Travels.
Of course, the drop in fuel prices helped. “Oil prices have been a blessing in disguise. When we started the expectation was that we will have to infuse Rs 1,500 crore. The fact that oil price came down has given more breathing space to enable a faster recovery,” reveals Singh, who has invested Rs 850 crore in the airline till date.
Analysts see consolidation as the way forward. “SpiceJet should consider forging links with a big Arab airline like Emirates or Qatar Airways. A pact with Oman Air or Royal Jordanian would also be a tremendous move,” says Saj Ahmad, chief analyst at StrategicAero Research.
Once basic housekeeping is addressed, Singh plans to focus on bigger issues. “We need to get the aircraft order right so that the procurement price of the aircraft for the next 10 years is set at an appropriate level,” he sums up.