SpiceJet CMD says that many people who were going by train are moving to plane.
New Delhi: Indian low cost carrier SpiceJet signed an MoU (Memorandum of Understanding) with Bahrain-based Gulf Air in the national capital on Wednesday to expand its international portfolio and explore greater “cooperation”, including an interline, code-share agreement, pilot training programmes and cooperation in engineering and maintenance services.
This is the second code-share agreement signed by SpiceJet, the first being with Emirates.
On the sidelines of the MoU agreement signing, Chairman and Managing Director of SpiceJet Ajay Singh spoke to The Sunday Guardian about various issues, including its expansion to the Gulf in Ras al Khaimah. Excerpts:
Q: What is the benefit that SpiceJet is looking at while tying up with Gulf Air?
A: The idea of this agreement with Gulf Air is so that SpiceJet customers will get more options and the benefit of the wider network of Gulf Air. Of course, Gulf Air passengers would also get the benefit of the wide network of SpiceJet within India. It is a win-win situation for both of us. Also, we will be learning a lot from Gulf Air, they have a very long experience and have been flying into India since the 1960s; we as a younger company will learn and benefit from their experience.
Q: SpiceJet is also most likely setting up a new airline in the UAE’s city of Ras al Khaimah. What are the arrangements that you are looking at?
A: The arrangement for SpiceJet in Ras al Khaimah is 49% and 51%. No foreign airline in the world can set up in any other country with 100%; we will have a local partner in Ras al Khaimah. We are talking to the authorities. It is taking some time as there is a significant amount of paper work involved, as it is like with applying for an airline in India. You need to show capability, safety, and a lot of other things.
Q: How many aircraft are you planning to put in Ras al Khaimah? And will it be from your existing fleet or a new order will be placed?
A: We are studying the market and at this time, the first focus is the flight into Ras al Khaimah from India. That flight we are hoping will start soon; hopefully, by beginning of next year, we should be able to start the flight. As far as fleets are concerned, Ras al Khaimah is a very small place; it would not require many aircraft for the time being; we will be using planes from our existing fleets.
Q: Why Ras al Khaimah? Why not anywhere else?
A: Geographically, it is just 40 minutes from Dubai; there are onward possibilities for Eastern Europe. We will look into this. We are setting up a home-based airline there; of course, they are going to incentivise it.
Q: When SpiceJet had placed an order of a huge number of aircraft, the Indian aviation market was growing at a rate of 17%, but now it has come down to 3% . Is this why you are looking for opportunities outside?
A: No, it is not that; as far as the Indian market is concerned, it is going to grow; there is no question about that. The fact that it is growing at 3% or 4% is extremely significant because when a large airlines like Jet Airways goes down and the markets still grows, it shows huge strength in the Indian market. In other places, it takes about 3-4 years to recover. I am certain that the growth will pick up again and I am saying so because a large number of these small towns are getting added to the aviation sector and a lot of people who were going by trains are moving to planes. There will be growth in the market and the planes that we have ordered are obviously not going to be sufficient for our market and certainly, we will need to increase that order stream. But of course we should look for opportunities in our neighbourhood as well. Why should we confine ourselves to India? We should look at the South Asia, the Gulf, these are good markets.
Q: SpiceJet has placed an order of about 200 Boeing 737 Max aircraft, but the Max aircraft are grounded for quite some time now. Does that change anything?
A: No, it does not change anything, but of course some time has been lost. We have been hearing about the return of the Max’s for some time now; it has been the longest grounding of an aircraft ever. What is happening here is that because of the nature of the accident, the regulators are being extremely cautious. This has to be the most inspected aircraft ever. When it flies, it has to be one of the safest aircraft in the world, because of the kind of scrutiny it is going under.
The fix for this was relatively simple, there was a MCAS (Maneuvering Characteristics Augmentation System) which mal-functioned; the fix was to disconnect the MCAS system if there was enough information available that the MCAS system was malfunctioning. If it had been disconnected, there would have been no accident.
But the regulator needs to look into every aspect now and they should. Once there is an accident, they need to be extremely careful and they are being.
Q: Airlines are often complaining about low fares in the market. What do you have to say about that?
A: There is an ultra competition and we have got a very strong player in the market and a lot of the fares are then driven by these strong players. How can somebody who has 50% market share complain about somebody who has 5%? The point is that I think we need to increase the fares, there is no doubt about it; the fares are very low, they need to become rational as though we operate in a high cost environment. The other disturbing trend we have seen recently is about fare inversion, in which fares at the end have come down. It is not persisting, but it has happened and it is actually a dangerous trend for the Indian aviation market. Because if spot fares fall at the end, then people will not buy in advance and the whole propagation is that fares will increase as you near the date of travel falls flat.
Q: Your take on high taxation in the aviation sector as airlines have been regularly complaining about taxation problems in India.
A: The aviation sector operates under heavy regulation and high taxes. We have been demanding that the Airline Turbine Fuel (ATF) to be included in the GST, but I think the Central government understands the issues; they are keen to cooperate to make changes, but it is now a state issue as well because now, it is the GST council where you have to get all the players together. The government will lose about Rs 5000 crore annually and nobody wants to lose this big a revenue. But that is all the money you need to make sure that the aviation sector of India becomes strong and that it is at a level which makes us globally competitive. Today we see the global airlines come to us and say “look your operations are weak, let us do the wide body operations”.
Even for the MRO (Maintenance, Repair and Overhaul), they are not functioning here because India has put 18% GST. Why do you think anybody would repair their aircraft here? You have infrastructure here, you have all the engineers of the world here, you have the market here, you have aircraft here, yet the reason you are not repairing here is because you have to pay 18% GST.
Q: Is SpiceJet looking for wide body operations in the near future?
A: We don’t show interest in wide body because it is a high-risk operations and people take this risk when they are financially strong. We have systematically over the last few decades made our airlines weak and we have allowed foreign airlines to take away our wide body traffic.
Q: Is there any plan for SpiceJet to jointly bid for Air India?
A: No, not at all; we are a very small player in the market.