SMALLER THE PLANE, MORE EXPENSIVE A SEAT: SPICEJET CMD AJAY SINGH

As the government rolls out the regional connectivity scheme, Spicejet’s Chairman and Managing Director AJAY SINGH spoke to Anjuli Bhargava on how they chose the routes they have won, why small players in the sector find it hard to survive, and why he thinks the entry of players like Qatar will add to the challenges the industry is facing. Excerpts:

How did you decide on the routes to bid for?

The UDAN scheme, in my view, will help connect a lot of airports that have never been served. A lot of growth is in these Tier-II and Tier-III markets. We call them small towns but in most other countries these would be pretty large aviation markets.

We did a study of some of the cities and chose the ones we felt have commercial potential. We looked at the Delhi-Kanpur train traffic. We tried to do assess how many people fly from Kanpur to Lucknow and then to Delhi. We looked at the town demographics and population. It’s one of the largest industrial towns in UP and has a large population with a high disposable income. Lucknow has dozens of flights every day and Kanpur has none. It doesn’t make sense.

Jalandhar (Delhi-Jalandhar) is a rich town with a fairly large population. Why wouldn’t they fly if there was an option? Kandla port has a lot of commercial activity but no flights. We have identified new routes that we will look at in the next round of bids.

We felt we could make money on these routes even without a viability gap funding. So we bid for these asking for no subsidy and naturally won the bids. We are only taking the other benefits of the scheme. The fact that one gets to fly exclusively helps matters.

We had 17 Bombardiers (Q400, 78-seaters) flying at present and we have taken three more on lease. Of those, two are just for UDAN routes.

Why do you think the other larger players like IndiGo, Go and Jet have stayed away?

IndiGo and Go probably don’t want to add another aircraft to their fleet. Jet seems more focused on international now.

I inherited the Q400s but if I had been running the airline all through, I may not have bought and added the Q400 fleet. But now that I have inherited it, I have to see how best to make money from it. Had I not had the Q400s, I may not have bid, either.

Why… too much effort for small change?

Yes, I suppose that sums it up.

What are the chances of some of the smaller players succeeding in this, given the past record of small players in India’s aviation sector so far?

There is a fundamental issue here; if you don’t have economies of scale, it is very tough to do this business. Your costs are different in running a five-aircraft operation, vis-a-vis a 50-aircraft operation. Lease rentals will be higher, the cost of maintenance — everything adds up. If you send an engine for a C check, what rates can you get for a single plane?

The smaller the plane, the more expensive it is on a per-seat basis. The cost of the pilot, crew — everything remains the same. If you divide that over a lower number of seats, it becomes that much more expensive.

Even if there is no competition — as is the case with UDAN — the cost base has to be right. I was looking at the numbers of some of players that have gone belly up. Their costs are too high. Their per-hour costs are unviable.

What’s your view on FDI in airlines and Qatar Airlines coming in?

Qatar would be bad for the industry. There’s no country in the world that allows 100 per cent foreign direct investment. We — the Federation of Indian Airlines — have taken this up.

The perception here is that there will be a large amount of investment coming in, but in the aviation sector when you allow foreign airlines, it isn’t as if that much investment comes in per se. Planes are leased and they come and operate here. Whatever money comes in is spent on funding losses (this can be seen from the new airlines that have come in like Vistara and Air Asia India). This just depresses fares and yields further. And the industry suffers. In some cases, these foreign airlines can use their state money, and come and depress our fares, affecting our market adversely. Why should we allow that?

Most countries don’t even easily allow you to set up a marketing office, let alone an airline. Nobody allows effective control and ownership to be with a foreign airline like we have.

We need to look after our own airline sector. These airlines are seeking to take India traffic to their hubs and carry it onwards and distribute it further. This means Indian airports will never become hubs. Why are we letting this happen? Why are we perpetuating this?

ON TIER-II AND -III CITIES WE DID A STUDY OF SOME OF THE CITIES AND CHOSE THE ONES WE FELT HAVE COMMERCIAL POTENTIAL