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It's a crime to fly empty seats, says SpiceJet COO Sanjiv Kapoor

"We fly about 340 flights a day. So you stimulate flights that need support or flights that you think would fly with more empty seats," said Kapoor.

, ET Bureau|
Updated: Aug 19, 2014, 01.52 AM IST
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"The cost of carrying cannot be greater than the revenues we are getting. We wouldn't be doing so many of these if we didn't think they are going to be positive for us."
"The cost of carrying cannot be greater than the revenues we are getting. We wouldn't be doing so many of these if we didn't think they are going to be positive for us."
Sanjiv Kapoor, SpiceJet's COO is a confident man, but he seldom gives way to overconfidence. He is candid but has learnt to be extremely careful when it comes to giving away numbers or a business strategy.

He has to be all that, especially when leading an airline which has been in the news for all the wrong reasons of late--record losses, doubts on tax payments, relationship with plane lessors and heavy discounts on ticket fares which may impact margins.

The bad news has overshadowed its achievements: getting record load factors in June despite cuts in capacity and bringing forth considerable stimulation in air ticket bookings.

In an interview with ET, Kapoor talks about all this and also how he and his senior management lands up on surprise checks while aircraft are being cleaned, whether his past stint with Bangladesh's GMG Airlines which shut down haunts him, how he doesnt bother about leaked emails and why he has stopped bantering with AirAsia India CEO Mittu Chandilya.

SpiceJet's auditors have once again raised doubts on your carrying on as a "going concern". What would you say to that?

The concern is raised if a company's liabilities exceed assets. It is not a new concern, we have had this comment since end-2011. It is a technical comment that reflects the tough environment for the Indian aviation industry. This comment will cease once our re-structuring is complete.

How much time have you given yourself and SpiceJet for a turnaround?

It's not a timeline that you can independently set because there are competitive and micro-economic elements etc. But a typical airline turnaround takes at least twelve months, more typically eighteen to twenty four months. I don't know where that period will fall for us. If you take January as a start we are eight months into it. So let's wait and see.

Let's talk about your ticketing discounts. What thought process goes into deciding that?

Many things. You look at a historical booking curve and see when a flight or route starts filling, what fare buckets get sold and when etc. You then try to use pricing as a tool to change the booking curve in your favour and to change the revenue earned on that flight in your favour. It is done on a flight by flight or route by route or time of day basis. We fly about 340 flights a day. So you stimulate flights that need support or flights that you think would fly with more empty seats.

Our goal is--as many LCC gurus have said--that it is a crime to fly empty seats. So we are trying to minimise that. But obviously we do our math and we try to make sure that we are not making things worse by flying more people. The cost of carrying cannot be greater than the revenues we are getting. We wouldn't be doing so many of these if we didn't think they are going to be positive for us.

So for example, if there's a Rs 999 fare, it doesn't mean our average fare is Rs 999. In fact, the goal is that you increase the average fare or the revenue of the aircraft by selling as many seats as you can at the highest price possible. After you have exhausted that you still may have 30% of your seats left to sell. You sell those at marginal cost which means that it doesn't have to meet the average cost of flying a passenger, but otherwise these seats would go empty.

But the fact is that on the discounted seats, you don't make a profit.

Not true. Because if the cost of carrying--the fuel cost or the handling cost--a passenger is X rupees and if we charge X plus 1, it's great.

But a fare like Rs 1,899 cant be cost plus.

So, I cant tell you the cost of carrying because this is proprietory information, but the very low fares are based on marginal costing and cost of carrying. We take that into account. We do the numbers and we obviously do what we believe is revenue positive for us.

But do you really have an advantage? Your fares are matched within 24 hours or less by others--LCCs and full service carriers. And others have higher capacity. So when I go to the travel portal Makemytrip and look for Mumbai-Delhi flights I see IndiGo giving me 15 options and SpiceJet only 6 at the same price. Why would someone choose IndiGo?

Pricing alone is not the only strategy SpiceJet has got. We are also building our brand. So hopefully over time, the case will not only be that if we have got an IndiGo and SpiceJet flight at the same time, passengers will only fly IndiGo. There may be some who say "I like SpiceJet food" "I like SpiceJet's service, ambience, craziness...Holi dance" We hopefully can differentiate and attract some customers to choose us, all else being equal.

But what about network? Are you changing it from a one-flight-many-routes structure to a high-frequency-less-routes one?

Many LCCs like Ryanair and easyJet have actually one flight a day to many places. That's a model SpiceJet used to have as well. But that also has its disadvantages. So now our network has become deeper than broad. It is not as deep as a full service carrier or an IndiGo definitely. But we reduced the breadth,we have cut some stations.

How many stations/flights have you cut?

We cut about seven stations--domestic and international put together. We had cut about 30 routes before the summer schedule started on March 30.

You have been trying to attract the corporate traveller. But, even in that segment, IndiGo seems to have made a dent.

In that, the big changer for us may be SpiceMax, the new product (seats with more leg room, by paying Rs 500 extra on fare) that we launched recently. That is actually giving a tangible benefit. Until we have hat, it's just about "do you like hot food or not?" "On time performance etc". We believe this is a product that will help is get more corporate travellers.

What about the rumours surrounding your relationship with lessors? We have heard that while you may not have necessarily defaulted on payments your lessors, such as BBAM, got cold feet over your financial situation and requested the planes be given back to them.

No. As part of our network rationalisation, we had decided that we had to reduce our network and hence fleet. We approached lessors with whom we have planes. With BBAM, we had the most number of planes. We asked if they would be interested in taking some back early as we are in restructuring mode. But the idea was raised by us. The return was at our behest.

 
Give us an idea of your maintenance cycle. Is it true that this year seven of your planes are coming up for C-checks (heavy maintenace checks)?

It's almost always true that at any given time, there's one Boeing and one Bombardier Q-400 on C-check. Therefore, going by that average, we should have twelve in a year. So do we have seven more? That's not too far from the one a month average.

One of the allegations on SpiceJet is that you dont keep your aircraft as clean as you should.

All I can say is that I am a neatness freak. Our aircraft were never that dirty. I think most of the Indian airlines do a reasonably good job of cleaning. IndiGo has brand new planes and they do a great job of keeping their aircraft very, very clean. So they have set very high benchmarks. Compared to that the other airlines may seem like they are less clean, but if you compare it to the west, our aircraft are very clean.

Let me tell you what happens. We--I and my senior management--do random spot checks at different bases at night or 1 in the morning, unannounced, and we see what's going on. That has fixed a lot of stuff.
One of the vice presidents went one night to an aircraft in Delhi and told the cleaners: " "Let us clean this together. The deep cleaning took four hours and at the end of it, the plane was almost looking brand new. After that, he wrote down steps that are required to deep clean a plane. It is being put in place at all stations now.

Your on-time performance has shot up but company insiders say that you have tweaked your schedule in such as way that your on ground time is higher, which impacts aircraft utilisation. True?

Our average aircraft utilisation is approaching 13 hours a day for the Boeing 737s, which is best in class. I don't think we have ever touched 13 before.

The ground time we had reduced to 25 minutes on the Boeing and 20 minutes on the Q400s and found that on the busy airports, both were too little, so we added five minutes to each. This was not to improve on time performance but to clean the aircraft more.

What about news you dont have parts to fly planes? That you are cannibalising some planes to feed others? Also, what about the DGCA audit in that regard?

It's laughable to me. Because every plane in our fleet is flying, other than those which are in C-check. So I don't know from where this acquisition or claim or rumour came about.

Also, the DGCA's engineering audits happen routinely across airlines throughout the year. It's only that for this particular engineering audit, the news came out on the same day our news of having number 1 load factor and number 2 market share among the big four carriers came out in the media. It's almost like "put out some bad news on SpiceJet".

Why dont you clarify and say who you think is behind you? Do you think it's competition?

I have no clue. All I can say is that the timing was very unfortunate for us. It may be pure coincidence. I am not here to say whether someone's behind us or whether the media just picked it up by chance or whatever.

Talking about the group, there is this line of thought that Kalanithi Maran's other businesses are in danger of facing regulatory issues and hence he wants to quickly make money out of an exit from SpiceJet while he can? Is it true? Or is SpiceJet ring-fenced from all of this?

I have no comment on that. It's not my place to comment on that. My job is to work on the airline and improve its performance and take it into the right direction. All the sales rumours that have come out naming parties here and there and completely baseless.
The thing I would mention about the board of directors is what I see-which is that the day since I got here, I have been given a completely free hand to hire the right team and to do what the team believes is the right thing to do for the airline. They do not micro-manage or meddle and I am very appreciative of that.

Please explain your top management changes.

There's a belief among management experts that the people who took you to a hole are not the ones that will get you out of it. Which is not to say that everybody who was there was bad. That's not the case. All I am saying is you need fresh blood and fresh ideas. So some amount of management churn at the senior level is natural in a turnaround situation. I think definitely more than half of our department heads have been replaced.

 
Should we expect staff cuts overall?

We don't believe that layoffs or massive headcount reduction is the way to reduce costs. So any attrition that happens is more for efficiency.

For example, If you went to Indian airports say two or three months ago, you would see that behind every ticketing agent, there is a loader helping put a tag on the luggage. You go to a (London) Heathrow airport: every check-in is tagging the bag himself or herself. There's no loader to be seen.

So, we removed the concept totally. So now where eight counters at the Delhi airport would have eight loaders behind the check-in agent, we have two loaders walking the floor, offering assistance wherever needed.

Also earlier, we had eight cleaners get on to the aircraft during the 25-30 minutes it was on the ground to clean it. We have cut that down to three. So our headcount, without any concerted effort from our side, is down about 300 from the peak in the first quarter this year. We have about 5100 employees now.

We miss your Twitter banter with Mittu Chandilya.

I enjoy the banter but I think a friendly remark can be misconstrued and made into something more dramatic etc, so I decided to go easy on that. I think the kind of banter that AirAsia and we engage in isn't common in India. So I dont want to stick out like a sore thumb.

Have you been able to plug the spate of leaked emails from your staff? Also, does it have to do with the fact that you possibly send more emails than all Indian airline CEOs put together?

You know you could plug that in the old days but nowadays there are so many ways to do it. you take a photo of it and send it on Whatsapp, you can't do much. But the one feedback I get from my staff now is 'thank you for keeping us updated. We now believe that we now work with a common purpose. We know what the company is up to" So I have a choice: Do I stop communicating with my staff because I am scared of leaks? Or do I take the risk. I would rather take the risk. Of course, I am more careful of what I write. And in some cases, I write things in the hope that they get leaked, because I am writing the good stuff that the media doesnt want to write about.

The earlier airline you were leading--Bangladesh's GMG--shut down? Does that haunt you?

It doesn't come up unless when the media brings it up. What happened in the previous airline was a couple of things. When I got there we did a basic study of what were our competitive strengths and weaknesses in terms of performance etc. We realised were following a completely wrong business model. We were flying wide-bodied planes to middle east, carrying labour with no cost-advantage whatsoever and certainly no product advantage.

We came up with an alternate business model to be a regional airline with no wide-bodies. But we said the only way we can get where we want to be is by closing down the whole airline.

So the board followed our recommendations and in a phased manner closed it down. All the passengers were taken care of. Then it was up to the promoters to restart it. But my job was done. So I believe I did the right thing by the promoters, shareholders and company which was euthanasia.

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