On December 16th 2014 SpiceJet, an Indian low-cost carrier, suspended all flights after a late-night meeting at which its bosses had debated shutting it down permanently. The nine-year-old airline was struggling with $300m of debt. Suppliers were refusing to refuel its planes unless they were paid upfront. Most of the 5,000 staff had not been paid their latest monthly salaries. SpiceJet had been cancelling so many flights that the government had banned it from taking bookings more than a month in advance, cutting its cashflow. SpiceJet seemed to be flying the same route as Kingfisher Airlines, an Indian carrier which went out of business in 2012.
A year after SpiceJet’s near-death experience, things could hardly look more different. It is filling 93% of available seats and cancelling only 0.13% of scheduled flights each month. It has had three consecutive quarters of profits, having lost money in the previous five quarters. It has some way to go before it regains the 20% domestic market share it had in 2013; but with a share of 11% in the first ten months of 2015 it is the country’s fourth-largest airline. SpiceJet’s shares are now worth around six times what they had fallen to on the day after the temporary shutdown.
In part, the airline’s revival is down to good fortune. The domestic price of aviation fuel has fallen by about a third over the past two years. Demand has perked up: Indian airlines carried a fifth more passengers in 2015 than in 2014. As a result, others are doing well, too. The market leader, IndiGo, raised $459m in an initial public offering in October, valuing it at $5.7 billion. Jet Airways is recovering after stumbling for the previous two years. A new local affiliate of AirAsia, a Malaysian budget carrier, is finding its wings. Even state-owned, chronically loss-making Air India may turn a profit in its current fiscal year.
But SpiceJet’s renaissance is not just due to luck. The scene was set for its 2014 crisis four years earlier, when one of its founders, Ajay Singh, quit and Kalanithi Maran, a media tycoon, took over as its controlling shareholder. Mr Maran did not demonstrate much understanding of the aviation business, says Dhiraj Mathur of PwC, a consulting firm. After the grounding of its fleet a year ago, Mr Maran decided to sell his 58% stake to Mr Singh, who embarked on a drastic turnaround. He started by negotiating with aircraft-leasing firms for better terms and with lenders for fresh finance, and by injecting equity capital of his own. He cut jobs—and managers’ pay—and scrapped unprofitable routes.
Then came a slew of efficiency measures which added up to big improvements in the performance of the carrier’s fleet. Pilots of its Bombardier Q400 turboprops, which serve second-tier cities, were told to step on the gas to shave a few minutes off each flight, making it possible to squeeze in one extra trip each day. The steel brakes on the wheels of its Boeing 737s were replaced with lighter carbon brakes, cutting fuel consumption. The number of in-flight magazines on each aircraft was reduced, and attendants began serving meals in cardboard boxes instead of on plastic trays—again, trimming the aircraft’s weight and cutting fuel burn.
More attention was paid to filling each plane’s tanks with just enough fuel, with a suitable safety margin, but no more. Pilots now lower their planes’ landing gear 7-8km from touchdown, instead of 14km as before; and on the ground they often now taxi on just one engine. Stocks of spare parts were improved at the carrier’s main bases, to get planes back in the air faster. SpiceJet’s aircraft spend roughly 13 hours a day in the air, whereas for other Indian airlines the figure is just 10-12 hours, says Kiran Koteshwar, the chief financial officer. On the revenue side, the airline has boosted its earnings from ancillary services such as on-board meals and seat selection.
That is all very well, say doubters, but the carrier’s recent profits pale into insignificance compared with its earlier run of losses; and its accounts to the end of March, which have just been published, showed its total debt exceeding its assets by about $192m. Mr Singh himself admits that “there’s a long way to go.”
However, the carrier is now able to think about long-term expansion. Mr Singh is in talks with Boeing and Airbus about potential orders for 150 planes over the next ten years or so; and the airline is expected shortly to seek shareholders’ approval to raise $750m of fresh debt to help pay for its fleet expansion. It is also preparing to make Al-Maktoum International Airport in Dubai its first foreign hub. As Amber Dubey of KPMG, an accounting firm, notes: “It has come a long way since that bleak December morning last year.”