Debt on the company’s books is likely to nearly halve to around Rs 500 crore from Rs 900 crore over the next 12 months, he said.
During the first quarter Spicejet’s utilisation levels stood at 37 percent much higher than peers. The top line too grew 37 percent. Margin stood at 30 percent even as some of the peers saw their margins plunging.
Speaking to CNBC-TV18 Singh said Spicejet focusses more on growing profitably than running after market share. The strategy is also to focus more on regional connectivity and international routes where yields and profitability is better, he added.
He is confident of maintaining the passenger load factor (PLF) around 92 percent for FY17. However, as the second quarter is seasonally weaker, yields might be under pressure, he noted.
He believes passenger traffic growth of 20 percent is sustainable in the coming quarters.
Below is the transcript of Ajay Singh’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: You have now been delivering profits for six quarters in a row. Tell us from this base of Rs 15-20 crore revenue in Q1, what could you deliver by way of growth by the end of FY17?
A: I do not like to give guidance, but we are extremely pleased that what we have achieved in this quarter is despite competitive intensity. As you know, our capacity grew by about 37 percent which was the largest capacity growth of any of the major carriers. Our revenues also grew by 37 percent which as I said, in the competitive intensity that we faced was an achievement. Whereas our peers have seen fairly dramatic profit declines, SpiceJet’s profit has more than doubled. So, on all those counts, we have done well and we hope that in the following quarters, we can continue to perform well and certainly, achieve the internal targets that we have set for ourselves.
Anuj: Of course, you have fared better than your peers this quarter. Margin at 30 percent against the margin compression that we saw for example, a good 4 percent in case of IndiGo. One reason for that has been your passenger load factor (PLF). That has done quite well. Do you expect that to continue?
A: We are pretty confident that we will maintain the load factors at the level at which they exist today. Every airline has its own strategy and one despite competitive pressures and I am sure you know that fares have in general, gone down in the industry. If you see from our numbers, SpiceJet fares have declined only marginally. They declined by about 2 percent which was more than compensated for in the passenger load load factor which increased by about 2.5 percent. We expect that over the following quarters, the passenger load load factor will remain significantly high. As you also know, in the last 14 months, SpiceJet has achieved a load factor in excess of 92 percent. We hope that that record will continue for the remaining part of the year.
Sonia: Despite all the competitive pricing, SpiceJet held its gross average yields at about Rs 4,400 in Q4. Very similar to what you saw last quarter. But, do you see competition hitting your yields in Q2 or Q3 because your peers yields have already been hit in Q1 itself.
A: Yes, Q2 is a seasonally, a week quarter. So, we will compare our results with how we did in Q2 of last year. We hope that because of the strategies that we have adopted and as you know, the strategy is a little different for all the airlines. SpiceJet focuses a little more on regional connectivity which is somewhat higher yields than connectivity into major towns and so on and so forth. SpiceJet also focuses a little more on international routes where profitability is a little higher. So, we will keep adjusting our strategy to ensure that our growth remains profitable growth. We are not running after market share, but we are trying to ensure that as we grow and as we look for opportunities to grow, this is responsible growth and this is profitable growth and we want to keep that record going over the following three quarters as well.
Anuj: You are planning to add 5-6 aircraft on a wet-lease basis. Can you give us a timeline by when you will add these planes and how will it help your growth and operational efficiencies?
A: At this time, we can only look at it on a quarter by quarter basis because we will keep looking at opportunities. We will not add planes just for the sake of adding planes or just for the sake of market share. We need to make sure that the planes that we add contribute to profitability and for the quarter beginning in October, we are adding six planes to our fleet. Three planes on the regional side and three planes on the narrow body Boeing aircraft. We will look at further opportunities in the quarter as well and we will announce those shortly.
Sonia: What is your view on passenger traffic growth for the next two quarters? In Q1, the industry saw a very healthy tick of 21 percent, but is that trend sustainable and will this growth come at the cost of profitability?
A: The 20 percent growth is certainly sustainable. The important thing however is that we hope that the airline can grow responsibly. It is all very well to get 20 percent growth, but it should be profitable. It should not come at the cost of dilution of yields and fares. So, we are hoping that people, the market is there, the consumers are willing to pay. With the recent increase in train fares, you will see that more people will shift towards air travel. So, we have an opportunity to grow and grow in a profitable and a sustainable manner. So, I do hope that the industry will follow that path.
Anuj: The heartening internal of course, is that your interest costs halved and your debt has fallen to Rs 1,000 crore as of FY16. How much more debt do you plan to reduce over the next 12 months and what are the methods that you are looking to adopt?
A: We expect that the debt will be significantly reduced over the next 12 months. We expect to halve the debt from where we stand today. When I took over this airline in January or February of 2015, the debt level was extremely high. Since then, we have paid all the bank debt, we have paid the airports, all the debt that was owed to airports, we have paid all the oil companies and we have paid all the less odds. So, we have pretty much business as usual debt that remains and we are looking to pare that as well.
Sonia: You said that you are going to halve your debt over the next two years. Could you give me the exact numbers? How much is the debt currently and how much will you bring it down by over 12 months?
A: Currently, debt stands at around Rs 900 crore and we hope that this debt can come down to around Rs 500 crore over the next 12 months.
Anuj: Decline in fuel costs have also boosted your margins to 12.6 percent and EBITDA margin to 30 percent plus. Given that in the current quarter we have seen two aviation turbine fuel (ATF) price cuts, should we expect even better margins in Q2?
A: Q2 of course is a challenging quarter for everybody, so it is difficult to comment and it is also difficult to comment because of competitive behaviour. What I can say is that SpiceJet will do its very best to ensure that we remain pretty top of the pack in terms of margins and in terms of profitability in terms of load factor. And in terms of overall performance within the sector.