SpiceJet's flight to profit

On one of the first flights that Sanjay Aggarwal took on SpiceJet, the low-cost airline he heads, he was given a sandwich packed in a flimsy box. Soon, he found that his lap was full of crumbs from the stale bread. "I did not feel like eating it," he recalls.

That experience proved salutary.

It played a part in the airline's efforts to upgrade the food served on board, an exercise that - among several others — contributed to SpiceJet's turnaround in 2009-10, the only listed airline to report a profit for the financial year.

Though the bottom-line is modest (Rs 61.4 crore against a loss of Rs 353.2 crore in the previous year), the airline's numbers are noteworthy for two reasons.

One, barring one quarter, SpiceJet made a profit in every quarter last year (the losses in the July-September quarter were on account of fare cuts in response to similar moves by Jet Airways and Air India which were trying to win back customers after they faced strikes).

And two, other listed airlines saw revenues fall but SpiceJet, in which the politically well-connected media baron Kalanithi Maran recently bought a 37.7 per cent stake from London-based Kansagra family and US stressed-asset specialists Wilbur Ross, saw its top-line grow 29 per cent.

Aviation analysts say SpiceJet's turnaround is principally on account of its low-cost fare structure that gave it an advantage as the aviation industry pulled out of the stall last year, growing 16 per cent to 89.36 million passengers after falling 11.2 per cent in 2008-09 (but growth was nowhere near the high of 23 per cent in 2007-08).

And it is also true that the four low-cost carriers saw their market share rise to 50 per cent from 35 per cent in 2008-09 (unlisted low-cost leader IndiGo is also reported to have made a profit in the just-ended financial year).

But SpiceJet also managed to grow its market share 20 per cent, from 10.3 per cent last year to 12.4 per cent, without adding capacity.

Its flight back to profit was, in fact, as much a result of higher spending as of cutbacks.

Here's what it did.

Image: Sanjay Aggarwal, CEO, Spicejet.

Image courtesy: www.spiceroutemag.com

Text: Kanika Datta, Business Standard.

Also see: Low-cost airlines fly high