1SpiceJet Case Study
SpiceJet, a leading Indian aviation player, was on the verge of shutting shop few years back (2014). With delaying salaries, layoffs, delay in payment of statuary dues – Service Tax, TDS etc- in 2014, SpiceJet was struggling to survive. Here, in the SpiceJet Case Study, we discuss how the the airline ended up becoming the world’s best airline stock in 2017 from the turmoil.
2The Curious Case of SpiceJet – Issues and Problems
- Chennai based Sun Group acquired SpiceJet in 2010. The inconsistent profits were set off with investments by media baron Kalanithi Maran. Maran invested close to Rs 1500 cr in the airine and ended up owning 58% shares.
- The losses in the airline were still overlooked in a hope to loop in an overseas investor.
- SpiceJet was in talks with American private equity investors who could bail the airline out from immense losses. PE investors like TPG Capital, Indigo Partners etc- were keen to invest in the airline. However, when the deal was about to take shape, Dayanithi Maran, brother of the majority stakeholder Kalanithi Maran, was accused of misconduct by the CBI in the famous Aircel-Maxis case. The PE firms therefore backed out from SpiceJet investment.
- With no investors and burgeoning losses, SpiceJet was forced to return planes, cut man power and consequently cancelling flights. This made the airline to default on fuel payments, clearing vendors outstanding and other debt. SpiceJet defaults on salary payment a second time. SpiceJet asks 50 captains in its flight crew to leave in a month.
- DGCA came into action and prevented booking of tickets from more than 30 days and ensured immediate refund to passengers whose flights were cancelled.
- Cash inflows declined, travel agents, who used to deposit advances for bookings and then took refunds, now said no to deposits and on December 15, 2014, the SpiceJet management told the DGCA it was about to suspend operations.
3The Curious Case of SpiceJet – Action and Turnaround
- Kalanithi Maran sold its stake in the airline and a new management led by Ajay Singh came into force. Under the leadership of Ajay Singh, the airline proposed a new turnaround plan to Ministry of Aviation.
- The government had a vital role in bringing SpiceJet back to life. Aviation ministry wrote to AAI and oil companies asking them to allow credit facilities to SpiceJet and also allow the airline to stagger payments to clear its dues. Also, DGCA was asked to lift the 30 day ban on sale of tickets placed on the airline.
- Simultaneously, Singh himself met the oil companies to resume working with SpiceJet on part payment of their dues. The falling oil prices also helped.
- Singh identified that their problems were multiplying was because of ‘loss of trust’. The airline was paying a price of loss of trust amongst it customers, employees, vendors etc-. He identified that the only way to win the trust back was by resuming normal operations back. Therefore, Singh on getting the basics of the airline right – ensure that flights are taking off in time and interfaces like websites, counters at airport are working smoothly. SpiceJet strategically chose the holiday period to rollout the measures so that most of the customers can benefit and gain trust back again in the airline.
- SpiceJet also shut down five domestic and 3 international destinations to optimise their cost.
- Though sale offers continued, but the key dates – holidays, festivals etc- were kept outside the purview of the sale. Earlier, the offers were applicable across all dates hitting the revenues.
4SpiceJet in 2017 – Flying High
- SpiceJet case study tells us what an positive attitude and the right strategic moves can do. Today, the airline’s shares are hovering around Rs 125 each. In June, Bloomberg said it was the world’s best aviation stock this year with a 124% gain.
- SpiceJet is valued at Rs 7,400 crore, up from the Rs 650 crore it was valued at during its darkest hour in 2014. Rival Jet Airways Ltd, with a fleet double that of SpiceJet, is valued at Rs6,200 crore.
- Earlier this year, the airline ordered 100 fuel-efficient Boeing Max aircraft, adding to a previous order of 55 planes which will be delivered over the next decade and bring down its costs by another 5-10%. It also has options to buy 50 more planes taking its order book to 205.
The SpiceJet Case Study is amongst the rarest instances where an airline has revived back from near closure levels. Prior to SpiceJet, many players like Kingfisher Airlines, Paramount Airways and Indus Airlines have already shut shops.