SpiceJet Seeks To Ride Out Domestic Slump Through International Expansion
NEW DELHI: Budget carrier SpiceJet's battle to match spiralling costs of operations by raising airfares in the domestic market has made the airline seek growth opportunities through international expansion, where it expects higher returns than the local market.
The focus of the airline over the next few months is to grow its international operations to 20% (from the 11% it witnessed this quarter) by adding more overseas destinations to its network, which would use most of the eight new B-737 aircraft to be delivered to the airline this fiscal.
"Airfares in the domestic market are high enough and won't go higher than this. They are not meeting cost of operations and I would love to charge more. But it is the government which makes consumers pay more as it sees aviation as luxury and not essential infrastructure and doesn't improve the cost environment," SpiceJet CEO Neil Mills told ET.
Compared with the January-March quarter in 2012, airfares have risen by about 20% this year.
"We'll add about six destinations in places like the CIS, the Gulf and South East Asia over the next few months. It is cheaper for us to fly international because of lower taxes and cost-base. It is a struggle to grow metro-metro connectivity as costs are very high. In fact, Delhi-CIS is cheaper than Delhi-Chennai," Mills said.
On Friday, SpiceJet posted a massive loss of 186 crore for the quarter ended March 31, 2013, to the utter dismay of market experts who expected the airline to break even this quarter.
The company's net loss for the same quarter last year was higher at 249 crore and that for the financial year ended March 31, 2013, stood narrowed down at 191 crore compared with that of 606 crore in the prior year.
"The Indian passenger has sent a message that she is not ready to pay for operating cost plus profit plus taxes. Since operating cost and ATF taxes will only increase (taxes are linked to landed price of oil in rupees), the only thing left to take a hit is the airlines' profit," says Amber Dubey, Partner and Head-Aviation at KPMG.
The 31% increase in revenues in Q4 at 1,456 crore, on account of passenger yields rising by 8% along with SpiceJet's aircraft occupancy increasing by two percentage points to 76% as compared to the same period last year could not translate into visible financial gains.
"Our fuel costs are 40% higher than say RyanAir's. In addition to over 20% state levies on jet fuel, another 15% tax component can't be explained. When we buy fuel in Singapore it is 40% cheaper than in India. Interestingly, a lot of domestically manufactured jet fuel lands up at Singapore, where it is cheaper," Mills said.
It is for the same reason that airlines operating in India cannot escape high overheads and thus the impending launch of Malaysian budget airline AirAsia in India with its hub in the South, just like SpiceJet has, doesn't worry the Kalanithi Maran-owned airline too much.
The focus of the airline over the next few months is to grow its international operations to 20% (from the 11% it witnessed this quarter) by adding more overseas destinations to its network, which would use most of the eight new B-737 aircraft to be delivered to the airline this fiscal.
"Airfares in the domestic market are high enough and won't go higher than this. They are not meeting cost of operations and I would love to charge more. But it is the government which makes consumers pay more as it sees aviation as luxury and not essential infrastructure and doesn't improve the cost environment," SpiceJet CEO Neil Mills told ET.
Compared with the January-March quarter in 2012, airfares have risen by about 20% this year.
"We'll add about six destinations in places like the CIS, the Gulf and South East Asia over the next few months. It is cheaper for us to fly international because of lower taxes and cost-base. It is a struggle to grow metro-metro connectivity as costs are very high. In fact, Delhi-CIS is cheaper than Delhi-Chennai," Mills said.
On Friday, SpiceJet posted a massive loss of 186 crore for the quarter ended March 31, 2013, to the utter dismay of market experts who expected the airline to break even this quarter.
The company's net loss for the same quarter last year was higher at 249 crore and that for the financial year ended March 31, 2013, stood narrowed down at 191 crore compared with that of 606 crore in the prior year.
"The Indian passenger has sent a message that she is not ready to pay for operating cost plus profit plus taxes. Since operating cost and ATF taxes will only increase (taxes are linked to landed price of oil in rupees), the only thing left to take a hit is the airlines' profit," says Amber Dubey, Partner and Head-Aviation at KPMG.
The 31% increase in revenues in Q4 at 1,456 crore, on account of passenger yields rising by 8% along with SpiceJet's aircraft occupancy increasing by two percentage points to 76% as compared to the same period last year could not translate into visible financial gains.
"Our fuel costs are 40% higher than say RyanAir's. In addition to over 20% state levies on jet fuel, another 15% tax component can't be explained. When we buy fuel in Singapore it is 40% cheaper than in India. Interestingly, a lot of domestically manufactured jet fuel lands up at Singapore, where it is cheaper," Mills said.
It is for the same reason that airlines operating in India cannot escape high overheads and thus the impending launch of Malaysian budget airline AirAsia in India with its hub in the South, just like SpiceJet has, doesn't worry the Kalanithi Maran-owned airline too much.
Source : The Economic Times
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