Too many hurdles for a smooth flight

The government of India’s efforts to prevent the cash-strapped low-cost carrier SpiceJet from going the Kingfisher way seems either heroic or foolhardy given that the Sun Group, which owns SpiceJet, has told a foreign news agency that it does not have the liquidity to invest the large sums needed by the airline but will give a guarantee for the loan that the government has directed the banks to give them.

The airline has a debt of Rs 2,000 crore, has cancelled nearly 2,000 flights, returned several of its leased aircraft, and there seems to be no white knight on the horizon. The media billionaire promoter Kalanithi Maran has yet to give the government a strong financial plan for strengthening the airline’s finances. It is now living on life-support provided by the government, which lifted the 30-day ticket booking limit imposed on the airline by the Director-General of Civil Aviation that had landed SpiceJet in a further crisis. The airline was using money from advance bookings of tickets at rock-bottom prices to shore up its working capital.

Many commentators at that time had said it was basically a suicidal scheme and amounted to mortgaging the airline’s future. But it repeated this scheme several times and other airlines had to follow. These schemes helped SpiceJet to fill seats in lean seasons. But it obviously didn’t provide financial stability and the promoter had not put in the funds that were required. On Tuesday the government threw the airline another lifeline by asking the already NPA-burdened nationalised banks and financial institutions to lend up to '600 crore if loans were backed by a personal guarantee from Mr Maran.

The story of SpiceJet is one of chaos with frequent changes of promoters and top executives, the result being that there was no long-term vision or marketing strategy. So, apart from finances, SpiceJet will need a vision document and sustainable marketing strategy.

The government may have its own reasons for helping SpiceJet, but if it is genuinely interested in helping the company and the airline industry, it would have to reduce the fuel and fixed charges, a huge burden on all airlines. Whether it is aviation turbine fuel charges, airport landing, take-off, navigation and parking charges, they are the highest in the world and the airline industry has been pleading for rationalisation of these charges for several years. Fuel charges alone account for 45 per cent of the operational costs and fixed charges are almost 30 per cent. It is difficult for any airline to survive and this is why all airlines in India, except one, are loss-making.

Two more airlines are scheduled to take to the Indian skies, namely Vistara and Air Asia. Six more are in the pipeline. It would be interesting to see how they all navigate these airport and fuel-related hurdles.