Home' Asian Aviation : AVV November 2017 Contents 46 AsianAviation | November 2017
With the International Air Transport Association (IATA) predicting
that Indian aviation will triple in size by 2035 — a projection equiv-
alent to 442 million passengers a year — all options are on the table
for route development. That includes the possibility of launching
low-cost long-haul flights to Europe and Asia, Singh confirms, re-
patriating traffic from foreign airlines that have filled the void left by
Air India, the country ’s dysfunctional flag-carrier.
“As a concept, I think there is potential in this low-cost long-haul
business,” he says, noting that SpiceJet has the right to convert some
of its MAX options into larger widebodies. “About 40 million Indians
travel overseas today. This number could expand significantly if the
fares were to be lowered, because this is a very price-sensitive mar-
ket...If you look at the UK market, I think it would be interesting to
achieve fares of 30,000-35,000 rupees (US$465-540), because that
would really stimulate the market a lot. But
‘can you do that profitably’ is the question.”
Interest in the low-cost long-haul busi-
ness model has ballooned in recent years
thanks to the apparent success of compa-
nies like AirAsia X, Norwegian Air Shuttle
and Iceland’s WOW Air. Prior to this decade,
however, most attempts at budget long-haul
flying were unsuccessful, faltering due to the
high costs of maintaining a widebody fleet
and the disruptive effect of oil price spikes.
Those concerns are now front and centre
of Singh’s mind as he considers whether SpiceJet should take the
“ To make the fares lower and to offer it profitably, you need to
ensure that your costs are significantly lower. And, at the price points
at which these aircraft are today, we find that’s a bit of a challenge,”
he says in reference to the 787 and the Airbus A350, the most tech-
nologically advanced, fuel-efficient models in the widebody market.
“It will greatly help if the manufacturers can bring down the base
cost of the aircraft.”
List prices for the smallest versions of the 787 and A350 are about
US$230 million and US$275 million respectively, though airlines al-
ways negotiate hefty discounts. Asked about the likelihood of Boeing
and Airbus pushing their prices any lower, Singh says they have no
choice if they want the fledgling low-cost long-haul market to take off.
“ The aircraft makers will have to see how much of a market they
will want, and how much potential they see in the market,” he shrugs.
“Sometimes they try and seed the market with lower-cost aircraft, as
has happened in the narrow-body business. So we’ll see.”
Pricing is also a crucial factor in the UDAN scheme, with airlines
submitting quotes for the viability gap funding they deem neces-
sary to commercialise a route. The government then makes a cash
payment to the lowest bidder, as well as offering other incentives
such as tax concessions and airport charge waivers.
SpiceJet took a bold approach in the first round of bidding, re-
questing zero viability gap funding and instead relying solely on
It was rewarded with 11 of the 128 routes allocated by the govern-
ment. Three of the routes had already been launched at the time of
writing: Mumbai to Porbandar and Kandla in Gujarat; and Hydera-
bad to Pondicherry, an enclave in Tamil Nadu. Another three routes
were set to begin in October: Delhi to Adampur in Punjab; Delhi to
Jaisalmer in Rajasthan; and Jaisalmer to Jaipur, also in Rajasthan.
Flights from Delhi to Kanpur in Uttar Pradesh are expected soon,
though no launch date has been set.
In return for providing subsidies, the government requires that 50
percent of seats on these routes are capped at 2,500 rupees (US$39)
for one hour of travel. That lends credibility to Modi’s claim of putting
air travel within reach of ordinary people.
The other four successful UDAN bidders
were Air Odisha (50 routes), Air Deccan (34),
TruJet (18) and Alliance Air (15), the regional
subsidiary of Air India.
With 54 aircraft in his fleet, 200 in his or-
der-book, and everything from single-engine
prop planes to next-generation widebodies
under his purview, it is remarkable to think
that Singh had walked away from the airline
industry earlier this decade.
The entrepreneur sold his stake in SpiceJet
to media baron Kalanithi Maran in 2010, six years after founding
the company. But mismanagement by the new owners sent the
then-profitable airline into four straight years of losses, culminating
in the grounding of the fleet and Singh’s wary decision to buy back
its debt in January 2015.
“It was a rational decision, but I think in some part it was an emo-
tional decision as well, because it was a brand that I have been a part
of, and it was painful to see it collapsing and dying,” Singh recalls.
“It was a brand that I loved. And I thought that the problems that led
to this sharp decline in performance were mostly self-inflicted, and
could be fixed. It was just the inexperience of the previous owners.”
Sure enough, SpiceJet restored profitability in the very same year
that Singh returned as a white knight.
His turnaround hinged on a radical overhaul of the network,
switching tack “to focus on more profitable routes [and] to have
more flights going into the same airport, as opposed to single flights
going into several airports”. Better revenue management and tighter
cost controls were also pursued, notably in the form of dynamic
ticket prices, higher ancillary sales and re-negotiated supplier con-
tracts — all standard practices for low-cost carriers.
The result was that one of India’s best-known airlines was pulled
back from the brink and given a new lease on life. If Singh’s ambi-
tious growth plans are anything to go by, the next few years will be
no less eventful.
About 40 million Indians
travel overseas today. This
number could expand
significantly if the fares
were to be lowered...
AJAY SINGH, SPICEJET
Links Archive AAV October 2017 AAV Dec17 Jan18 Navigation Previous Page Next Page