The Hindu Business Line : ‘We have an aggressive growth strategy’

It has been just about three months since Mr Sanjay Aggarwal took over as the Chief Executive Officer of the Delhi-based low-cost airline, SpiceJet, but he has clear goals, including charting out an aggressive growth strategy. In an interaction with Business Line two weeks ago, Mr Aggarwal outlined the airline’s plans.

Excerpts from the interview:

You came on board post the Ross investment. What are the changes brought about since then?

There have been a few changes. First, SpiceJet was cutting capacity in a major way; we were down from 19 aircraft to 15 flying. We decided to keep those aircraft and to add one more. Besides, we have gone from flying 98 flights a day to 117. So we have had an aggressive growth strategy from that point on.

I very much believe in the low-cost airline model, I believe that this is the right model for India. Indians are very value-oriented customers. And given that it is a country of 1.2 billion and the middle class is about 300 million, there are about 350 aircraft in the country. We are just scratching the surface.

I believe that the 20-30 per cent growth rates that we saw over the past few years will continue for the next decade or so. Let us do the math – the population is 300 million and there are 350 aircraft and you know the number of people travelling by train. As incomes continue to increase, people want a better quality of life. They do not want to spend two days travelling to a vacation destination or visiting family. They would rather spend Rs 2,000-3,000 more and save two days travelling.

Whether you call it my optimism or wish, I truly believe that aviation in India will see good growth rates for several years to come and in that growth the LCC model will see a disproportionate share. Right now the full service and low-cost airlines have about a 50:50 share. My outlook is that this will shift in favour of LCC in the coming years.

What kind of time-frame are you talking about?

I am talking about mid- to long-term, say 5-10 years. I am not talking about the next 12-18 months, which will be tough. I do not see the economy turning around, I do not see the kind of fares that were seen to stay for a foreseeable period of time. The reason being that these were unsustainable fares.

What is the outlook for the company?

Our outlook for the next 15 months, Q4 and the next fiscal year is optimistic. We think we will be in the black. There are a lot of presumptions which go into this. If oil goes to $150 a barrel, all bets are off. If oil stays at the current level, or goes up by 30 per cent or so, we are good.

The other big variable is currency — if this goes in the opposite direction which it has in the last several months. Right now, about 80 per cent of our costs are tied to the US dollar. All our lease payments, engineering costs on parts and maintenance and fuel are tied to the dollar. As the currency fluctuates and gets worse by say 20 per cent, our base cost goes up by 16 per cent, which is 80 per cent of the cost base.

People tend not to think of what currency does to Spice. We do not do any international business. It is a challenge but then aviation is not for faint of heart.

There has been some talk about the airline defaulting on payments and some lessors wanting their aircraft back?

We are current on all our lease payments. We went to Babcock (an international aircraft leasing firm) and said we needed to return three aircraft and could it find a home for them. Babcock found a home. But then I came to SpiceJet and did some financial analysis and felt that we should keep those aircraft. But let me make it clear that there is no lease payment backlog with any of our lessors, oil companies or airport authority. None.

When it comes to the vendors we are of course trying to preserve cash. We are making payments to the vendors on a schedule; instead of writing a big cheque we are writing smaller cheques more frequently. It is no different from any other business.

There has also been talk about the company having a small amount of cash to keep it running?

We have a strong cash position. I cannot comment on how much cash we have in the bank. What I can say is that we probably have more cash in the bank than some of our biggest competitors. We have a strong balance sheet. We are in a good cash position and are not looking for capital investment.

But some of the original shareholders want to exit…?

Can I answer this generically? They have not discussed their plans with me. Any business and any shareholder, if offered the right price, will consider it. Everything is up for sale. Gillette sold to P&G. Any shareholder will exit at some price point.

If someone came to Wilbur Ross and said, here is $1 billion give me SpiceJet, do you think he is going to say “No, no I love SpiceJet.” It does not work that way.

So everyone has a price point at which they would exit. I do not know what the price point for those who want to exit is. It is the same case with Istithmar (the Dubai Government investment arm) and Wilbur Ross.

What is the airline’s opinion about the Government move to allow foreign airlines to pick up stake in domestic airlines?

I cannot talk about this because Spice is not looking at that aspect right now. We are not looking at capital.

If someone came and said here are a few million dollars and we want a 10-20 per cent stake we are not interested.

But if there is a strategic partnership where a foreign carrier looks at an Indian carrier and says it brings synergies to the network and offers better choices for travellers, we will have a conversation about that.

There is a difference between us reaching out and saying we need cash so we are willing to sell a piece of our company versus saying we would consider it if it expands our footprint and offers our customers better options.