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Editor’s Note: Following our previous CEO interview series in online travel, hospitality, and destinations, as well as our CMO series across verticals, we’ve launched another series, this time focused on the CEOs of leading airlines outside of the United States.
To better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights. Read the rest of the series here.
This is the latest interview in the series.
Less than three years ago, SpiceJet, India’s fourth-largest airline by marketshare, was close to shutting down. It couldn’t pay its bills, and it owed significant money to airplane lessors, fuel companies and caterers. Things got so bad that by December 2014, SpiceJet’s planes didn’t carry food or water for passengers.
Like most other airlines in its predicament, SpiceJet seemed certain to cease flying. It happened in 2012 to Kingfisher Airlines, a promising but poorly run Indian carrier that folded after seven years. The market was there, but Kingfisher couldn’t capitalize on it.
But SpiceJet had a savior in Ajay Singh, an entrepreneur who had helped start SpiceJet in 2005 after acquiring assets from a failing airline called ModiLuft. Singh turned SpiceJet into a small yet profitable low-cost airline business, before selling his stake in 2010.
Later, Singh watched the company languish under controlling owner Kalanithi Maran, a media tycoon, and Singh knew SpiceJet might not last. But he thought he could save it, and in December 2014, with the government’s help, he took it back for a nominal sum, and assumption of the airline’s debt.
Singh cut costs, slashed unprofitable routes, and added better-performing ones. He also got lucky, reviving the airline as global fuel prices fell. By October 2015, Singh was on the cover of Forbes India, and being lauded for turning around the airline.
SpiceJet is now among the world’s more profitable airlines, but while it has about 12 percent of the Indian market, it remains tiny. In a recent investor update, SpiceJet said it carries about 47,500 passengers per day to 46 destinations, all but seven in India. It had about 50 planes, including 18 turboprops.
But Singh has big plans. SpiceJet has committed to adding 175 new Boeing 737 airplanes, with options for 50 more. In June, after SpiceJet announced one order with Boeing, the airline earned recognition from U.S. President Donald Trump, who mentioned the deal during a media appearance with Indian prime minister Narendra Modi.
We spoke with Singh, the airline’s chairman and managing director, earlier this month at the Aviation Festival in London, an annual conference. We asked him why he risked his reputation to buy a failing airline, and about his plans for all those Boeing planes.
Note: This interview has been edited for length and clarity.
Skift: Let’s start with background. You were part of a group that acquired what would become SpiceJet in 2005. Then you sold your stake. Then you reacquired control. What happened?
Ajay Singh: I started the airline in 2005, and, then I sold it in 2010. It was a profitable airline when I sold it in 2010. But then, under the new owners, it fell into difficult times. In 2014, it came extremely close to a shutdown. On 16th of December 2014, the company informed the government of India that they would not be flying from the following day. In fact, they sent also mail to the employees asking them not to return the following day. That was the day on which I took back control of the company.
Skift: SpiceJet was in rough shape. What made you decide to return?
Singh: It was in terrible shape. It had a huge amount of debt to various lenders and banks. A lot of the planes have been repossessed by lessors. Flights had been canceled. Employee morale was extremely low. They were not providing service. There was no food or water on board. Nobody really wanted to do business with SpiceJet, but I thought that there was still great potential in the brand. It was a brand that was well-known and well-recognized in the country.
Civil aviation was still an exciting place to be given that still there was less than 3 percent of Indians flying, and the market was growing at a pretty rapid pace. I thought that a lot of the problems were self-inflicted, and that I had a sense of what could be done to improve things. And, of course, there was an emotional part: Here was a company and a brand that I helped bring into the world, and for it to die would have been a very painful experience for me. Of course, it would have been very bad for Indian aviation because we already had one shutdown in an airline — Kingfisher. It would have been bad for the image of the country as a whole because in our country bankruptcy processes is not a very efficient process, and people eventually don’t end up getting the money they are owed.
Skift: What did you pay? We’ve heard you bought it for essentially nothing.
Singh: I basically bought it for the debt that was owed, which was significant. And, in the last three years, I’ve paid back all that debt. SpiceJet is a zero debt company now. We’ve had 11 profitable quarters.
We’ve done well on pretty much all parameters. Our load factor has been in excess of 92 percent for the last 26 months, and on-time performance has been great. Bloomberg reported a short while back that Spicejet was also the best performing aviation stock in the world.
Skift: When you retook control, what were the first things you did?
Singh: The basic focus was on trying to ensure that we increased revenue by reviewing the network and making sure we were flying profitable routes. We also made sure that we were increasing ancillary revenue, and looked at all the contracts, trying to see which ones we could renegotiate to bring costs down.
Skift: It must help that the Indian market is huge and growing, right?
Singh: Huge. We have 100 million domestic trips, but that means there are about 33 million people flying because a person who flies typically flies three times a year. There’s 33 million discrete passengers and off a population of 1.3 billion, this is under 3 percent of the population that flies. There is great potential.
For international travel, there are only 40 million trips which probably means close to 20 million Indians go overseas. For a population of 1.3 billion, that is not even scratching the surface.
Skift: You’ve hinted you might want to add widebody jets, like the Boeing 787 or Airbus A350, and fly long-haul. What’s the plan?
Singh: Conceptually, it seems to be interesting, because Indians are extremely price sensitive. If you can find a way to lower fares by bringing down costs and retaining profit margins, this is something that should be interesting. We are looking at it, but we think there is some distance to go because we don’t think the numbers stack up as well as we would like them to. We will see what we can do to bring down costs.
Skift: For you, does long-haul mean London or Frankfurt? Or New York?
Singh: We talk more Far East and Europe to start with. But of course, the U.S. is an immense market, and it would be interesting in the longer run.
Skift: What are the problems with long-haul economics?
Singh: Of course we can fill the planes. The first reason is that the wide-body planes are more expensive on a per-seat basis than the narrow-body plane. The second is that when you do short-haul, you can do quick turns and utilize the aircraft a lot more versus a full-service airline. But when you do long-haul, [the gains] you get from high utilization don’t really exist.
You could put a higher number of seats [on widebody jets], and therefore you’d have a lower cost per seat mile. But I think you need more change than that. You need to bring down the cost of the aircraft itself to get started on a strong foot.
Skift: You have only economy class and you pack your planes with as many seats as possible. Do you think someday you might look more like a traditional airline, with perhaps a business class, as the Indian market matures?
Singh: Maybe. We’ll see how the market evolves. The country is growing seven to eight percent, and is expected to grow at that rate for the next decade or so. We think that people will have more disposable income, and therefore, would want to spend that. Indians are typically value conscious, and I would suspect that they would still like an all-economy product to get those fares at a lower threshold. But we are in the consumer business, and we need to respond to what the consumers need.
Skift: You’ve said having only economy class helps you attract “status conscious” travelers. That sound counter-intuitive. How do you mean?
Singh: This is something that we found by interviewing people. People would say to us, ‘When there are two classes in a plane you want to be seen in the business class because that’s how you want the world to see you.’ But, if it’s a single-class plane, it’s easier to just say, ‘Fine, I’ve spent less, but I’m in the same class as everybody else, so it really doesn’t matter.’
We’ve seen a huge shift of consumers from full-service airlines to low-cost airlines. Today, 75 percent of the market is low-cost, and that’s increasing.
Skift: You do have seats with extra legroom. Do status-conscious passengers not need to upgrade into them?
Singh: Not really because that’s no major difference. There’s no class divider. It’s just more leg room.
Skift: Many think you should now save Air India, which is in financial distress. Would you do it?
Singh: I think it’s a very large animal for us to deal with. We are still in a position where we’ve just about recovered from where we were two years ago, and we are building on the orders that we placed. It’s been suggested to us by several people, and we’ll see how things go, but at this time, I feel it’s somewhat large task to concurrently try and do both SpiceJet and Air India.
Skift: Is Air India savable?
Singh: Absolutely. No question about it — if the structure is right. It’s a great brand, and it has great flying rights, and a lot of assets.
Skift: One quirk of the Indian market is your government allows foreign airlines to run domestic carriers. Qatar Airways said earlier this year it wants to deploy about 100 aircraft in India. Does this trend irritate you?
Singh: I think it’s something that doesn’t happen in so many parts of the world, and I think it was largely because Indian carriers were quite weak, and I think the government felt that it was better to get foreign carriers to operate in India. But, that is changing, and I think the thought process now is much more toward building global airlines based in India, and building aviation infrastructure within India. We are in a terrific position to do it. We are strategically placed between Asia and Europe and Asia and Africa, and we have our own domestic traffic, which is really large. We are in place to be a significant player in aviation. We hope that’s the policy direction that the government will take in the future.
Skift: Would you prefer Qatar Airways not be allowed to build an Indian airline?
Singh: I don’t want to comment on that, but yes, I believe we should build our own Qatar and Etihad and Emirates.
Skift: With long-haul travel, is it odd that India’s defacto global hubs are in Doha, Abu Dhabi and Dubai? Between the United States and India, for example, a significant number of travelers connect in Qatar or the United Arab Emirates.
Singh: Yes, it’s odd. It should not have been the case, but it’s really important for India to build its own hubs. I think, going forward, that’s the policy and action the government will take.
Skift: Where should these global hubs be?
Singh: I think they will start by being in places like Delhi and Hyderabad and Bangalore. Mumbai being a constrained airport is a challenge but as the new airport comes up, certainly. We would think that a place like Delhi would make an ideal international hub because it has the space to build a new runway, it has the space to build more terminal capacity, and it’s strategically located within our country.
Skift: For now, you only have slightly more than 50 planes, including turboprops. But you’ve placed firm orders for more than 175 Boeing 737s. Given the size of your market, is that enough?
Singh: It’s what we could swallow. But Southwest has more planes than all of India put together. And China has 10 times the number of planes that we have today. Clearly, that needs to change. India needs more airplanes.
Skift: Who is your biggest competitor? Or does it not matter?
Singh: It doesn’t matter. You know, the market is really large, and I think there’s space for a lot of planes, whichever airline they come from.
Skift: Why is India so far behind other markets?
Singh: I think it’s catching up. The largest orders in the world have been placed by Indian carriers, so it will catch up over the next few years. I think the problem has been the mindset in India. Flying was supposed to be for the rich. It was a socialist country. I think it was just presumed that only the rich flew, and therefore, it was taxed. Taxes on fuel are the highest in the world. Airport taxes are very high. It was really expensive to fly. Until the low-cost market came along, it was not affordable. As government brings down tariffs, you’ll see fares will come down. That stimulates the market.
Skift: Let’s finish with a fun question. You name each plane after an Indian spice. That was probably a fun idea in the beginning. But when you have hundreds of planes, will you run out of spices?
Singh: Oh, we have hundreds of spices.
Singh: Not to worry.