Why SpiceJet plans to focus more on cargo and ancillary business

With an eye on steady revenue flow, SpiceJet plans to focus more on the cargo and ancillary business in line with many global carriers. Founder and chairman Ajay Singh says the no-frills airline plans to raise its revenues from the ancillary business to 20% of total revenues by FY17 from 16% in the first nine months of this fiscal.

“Increasingly, we are working on our allied businesses like Spice Locations and trying to build a logistics and holiday business as well. We are also trying to build an aviation academy,” Singh told FE. “We have a large base of customers who buy air tickets. We will try to sell them some other services as well like rooms, taxi rides or even an activity in the destination where they intend to fly.

We intend to grow our ancillary revenue in a fairly traditional way and hope to take it to more than 20%,” Singh added.

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The airline, which was on the verge of closure in December 2014, managed a comeback not only on the back of passenger revenues but also on the ancillary business front. In the beginning of 2015, SpiceJet’s revenues from the ancillary business stood at 6%, which subsequently increased to 16% of total revenues at the end of the October-December quarter of the current fiscal.

As a result, the management wants to look for other sources of income in order to maintain growth in coming years.

Singh took over the airline in early 2015 and has invested Rs 850 crore since then, along with investment banking firm JPMorgan Chase. As part of the revival process, the new management repaid the money owed to lessors, airport authorities and travel agents. With improvement in efficiency in operations and capacity, Singh feels that it is possible to reduce the company’s total debt to Rs 400 crore from the current Rs 800 crore.

In order to recover lost ground, SpiceJet also recruited 70-80 pilots and is planning to invest in a pilot training academy.

During the winter schedule, SpiceJet expanded its daily operations to more than 290 flights from 250 flights. The airline also started two new flights to Dubai from Hyderabad and Jaipur.

In the last seven months the airline also reported a passenger load factor of more than 90%, which is higher than all the other airlines operating in India. Its market share also improved to 13% from 9% during the last calendar year.