Touch Base with Indian A&D Industry

Low-cost carrier SpiceJet announced a fresh round of fare cut on Tuesday even as airlines continue to make losses in an adverse econom
ic environment.

The airline announced fares starting with Rs.99 across its network and said the offer will be available for all bookings till March 2009. Earlier Oct 15, SpiceJet slashed fares up to 15 percent on tickets purchased in advance, besides withdrawing congestion charges.

Indian carriers currently charge Rs.150 per ticket as congestion charge against additional flying time owing to traffic at airports.

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Low-cost carrier SpiceJet will receive about USD 65 mn within a week as the second tranche of investment by US private equity firm WL Ross and Co and by Goldman Sachs.

Wilbur Ross had earlier agreed to invest USD 80 mn in the Delhi-based carrier by buying out its foreign currency convertible bonds from Goldman Sachs Group Inc of the US and Istithmar PJSC, a UAE-based investment house. He also managed to get Goldman to invest USD 20 mn in SpiceJet.

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SpiceJet plans to increase the frequency of flights on some routes to enhance connectivity. The daily flights will go up to 120 from the existing 94 in 16 cities by the end of the current calendar year.

The frequency will be doubled on the Delhi, Kolkata, Mumbai, Hyderabad and Chennai routes. SpiceJet chief financial officer Parthasarathi Basu told ET, “We are in the consolidation phase. Our focus remains on increasing frequency to serve the cities better. Additional frequencies will help businessmen and other travellers during this festive season.”

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Another round of consolidation in the domestic skies seems imminent with UB Group chairman Vijay Mallya engaging in talks with two major shareholders of SpiceJet to buy the budget carrier in an all-cash deal.

According to industry sources, Mr Mallya is negotiating with Gulf-based fund Istithmar and the UK-based Bhulo Kansagra family, who together hold 26.33% in the low-cost airline. Acquisition of their stake by Mr Mallya would trigger an open offer for another 20% from other shareholders.

The Kingfisher chief had followed the same strategy to acquire the country’s largest low-cost airline Air Deccan last year. As per the current market price, the 26.33% stake is valued at Rs 158.40 crore. On BSE, SpiceJet shares closed at Rs 25 on Friday, up 7.76% over its previous close.

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Kingfisher Airlines is close to sealing a share-swap deal with Delhi-based, low-cost carrier SpiceJet, sources close to the development said.

The share swap is expected to be in the ratio of 1: 3, where SpiceJet shareholders will get one share of the merged entity for every three SpiceJet shares owned by them.

The deal, if it is finally clinched, will give Kingfisher promoter Vijay Mallya access to a formidable route network, making it the largest aviation player in the country with nearly 40 per cent market share.

Mallya, who is currently in Europe, said he will comment on the matter tomorrow.

The sources said Kingfisher will fly its recently acquired Simplify Deccan on regional routes and SpiceJet on the metro route as a low-cost airline. The deal also makes sense as Spicejet’s Boeing fleet will make it easier for Mallya to fly to the US.

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Unable to sustain the current level of operations under the impact of rising international oil prices and falling revenues, low cost carrier SpiceJet has decided to reduce the number of flights, starting July.

Speaking to the media, SpiceJet CEO, Sidhant Sharma, said the airline would reduce its total take offs and landings from the current 117 to 97, cutting out 20 flights from the airlines schedule.

Amongst the route its plans to cut back on are Ahmedabad-Jaipur and Hyderabad-Ahmedabad. Additionally, it will reduce frequencies on its Bangalore-Hyderabad, Hyderabad-Chennai and Bangalore-Chennai routes, Sharma said.

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Cites high valuations as reason for exit.

Jet Airways has decided to pull out of negotiations to buy a strategic stake in Delhi-based low-cost carrier SpiceJet from its key shareholders owing to differences over valuation.

SpiceJet has a market capitalisation of around Rs 750 crore. But according to sources in Jet Airways, the key shareholders have valued the company at Rs 1,200 crore to Rs 1,320 crore ($300 million to $330 million) and are not ready to sell it below this price.

“In the current market situation it is not possible to go ahead with the deal,” said a Jet Airways source.

SpiceJet is India’s second-largest low-cost carrier (Air Deccan is the largest) with a market share of over 10 per cent.

SpiceJet CEO Siddhant Sharma, however, said, “We are not in talks with anyone currently and there is no deal that is on.” But a SpiceJet shareholder confirmed that talks have been going on. “Talks are on with Jet Airways and Kingfisher Airlines but they are stuck on valuation.

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Low cost airline SpiceJet has hiked its fare following the recent hike in aviation fuel price.
Confirming the hike, a SpiceJet spokesperson told the media on Wednesday: "The hike in our basic fare is Rs.300 for short routes and Rs.550 for long-haul sectors."

While other airlines have increased their fuel surcharges in the wake of the aviation fuel price hike, New Delhi-based SpiceJet has increased the fare as its officials feel it would sound weird to have tickets that cost RS.500-Rs.1,000 and then taxes and surcharge totalling over Rs.3,000.

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Indian low cost carrier, SpiceJet, has announced the launch of domestic cargo operations, which it said will cover eight major cities initially. It said, eventually, it intends to network 18 destinations for freighter operations.

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SpiceJet is planning to raise a total of $100 million for fleet expansion by the end of the current financial year, according to Siddhant Sharma, CEO of the Delhi-based budget carrier.

Sharma’s comments come just a day after the UK-based promoter-director of SpiceJet said he was willing to divest his 12.91 per cent stake in the airline if he got the right valuation.

The airline, however, is yet to decide on the mode of funding. "We have the option of taking the sale and lease back route (only lease margins will have to paid by the airline which are minimal) or we could raise money in the debt-equity ratio of 80:20. We could look for simple equity infusion as well," said Sharma.

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Trading volume sees huge rise since April 14; speculation rife over buyer’s identity.

The SpiceJet counter has seen a surge in trading volumes since mid-April, sparking speculation over the identity of the buyers. Some market players have even gone to the extent of comparing this with similar stock accumulation of Air Deccan stocks just before it was bought by Kingfisher last year.

The accumulation started on March 26, when the stock of SpiceJet, India’s second largest budget airline, fell to Rs 37.90 from its all-time high of Rs 104.80 on January 8. The March 26 level was close to the scrip’s one-year low of Rs 36 on May 9 last year.

The scrip closed at Rs 39.50, down 6.8 per cent, on the Bombay Stock Exchange (BSE) on Friday.

In the 12 trading sessions between March 26 and April 14, over 11.4 million stocks of SpiceJet were traded on the BSE, out of which 6.5 million were delivered. That gave an average of 0.95 million stocks traded and 0.5 million stocks delivered per day in that period.

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Jet Airways thinks there is plenty of operational synergy between its low-cost airline JetLite and SpiceJet.

Speaking to Business Standard, Jet Executive Director Saroj Datta said: "SpiceJet and JetLite are an absolute fit in so far as their business models are concerned."

Commenting on the possibility of another consolidation that is "waiting to happen in the aviation industry", Datta said consolidation is inevitable but the scope is limited. The three smaller airlines — SpiceJet, IndiGo and GoAir — offer limited scope to bigger carriers. But within them, SpiceJet seems to be a better fit.

JetLite has a 7.1 per cent market share and SpiceJet 10.3 per cent.

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Budget carrier SpiceJet on Wednesday announced the launch of SpiceExpress service for delivering tickets at doorsteps.

Tickets purchased through the SpiceJet’s call centre would be delivered at a cost of Rs 110 per passenger within 24 hours of buying the ticket, the airline said in a statement.

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Low-cost carrier SpiceJet, which is considering expanding its operations in the international airspace, has said that it wants to have the Tatas on its board to benefit from the conglomerate’s expertise.

“The coming of the Tatas on our board is one of our wishes… It would be a pleasure to have board level representation by the Tatas,” SpiceJet Executive Chairman Siddhanta Sharma told PTI.

“Their (Tatas) hands may be full though, after bagging Corus, and the likely Jaguar-Land Rover deal,” Sharma said.

Full-year profits
Explaining why SpiceJet would love to have Tatas on its board, he said, “If they put on board someone in any company, it would be an expert in the area and they would bring in good corporate governance. Tatas’ culture is the best culture in the country. They are pioneers in integrity and other areas.”

Towards the end of 2006, Tata Group company Ewart Investment had bought a seven per cent stake in SpiceJet for about $17 million, but the investment did not entitle them to a board seat in the airline.

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As part of its diversification plans, low-cost airline SpiceJet is aggressively looking at cargo business and has already started putting in place the necessary infrastructure.

“We are aggressively going behind cargo business. For that we are developing our own infrastructure at various ports, our own x-ray machines and other set up,” SpiceJet Executive Chairman Siddhanta Sharma told PTI.

He said SpiceJet has already won the bid for India Post courier contracts along with Jet Airways. The airline has been carrying courier for some time and now wants to augment its revenue from the cargo segment.

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SpiceJet has opened bookings for its soon-to-belaunched air services from here to Mumbai, New Delhi and Hyderabad, according to a press release. The operations will be launched from March 30 and there will be a flight daily from here to Mumbai and New Delhi.

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Low-cost carrier SpiceJet is gearing up to fly overseas with possible flights to the Middle East, China and the SAARC region within the next three years.

“If the government relaxes the present rules then we would fly even earlier, otherwise we plan to fly overseas by June 2010,” SpiceJet Executive Chairman Siddhanta Sharma told PTI.

As per the existing rules, a start-up airline has to complete five years of domestic operations to be able to fly abroad.

The airline is primarily looking to fly to those destinations which attract a lot of migrant population from India, such as the Middle East and the SAARC countries besides China, he added.

SpiceJet also plans to deploy a fleet of 10 aircrafts initially for global flights.

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Delhi-based low-cost private carrier SpiceJet hopes to break even at an operational level and post a profit with a turnover of Rs 1,300 crore for the financial year 2007-08, according to the airline’s Chairman and CEO Siddhant Sharma.

The revenues for the airline are expected to be Rs 375 crore with load factor up from 64 per cent (June-August 2007) to 78 per cent for the third quarter (September-December 2007). SpiceJet expects to fly 1.3 million passengers by the end of this financial year.

But Sharma is a little careful about the estimates, when he talks about the rising prices of jet fuel, that have seen an upsurge of about 14 per cent till December last year and then later reduced by 4 per cent.

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The New Year may ring in some good news for budget fliers who have been troubled by constant hikes in fuel surcharge levied by domestic carriers for past few months. Global crude has fallen from its all-time high of $99 to about $90 now and the industry expects a fall in price of aviation turbine fuel (ATF), which may see the fuel surcharge of Rs 1,650 going down proportionately.

What’s more, domestic travellers flying short-haul distances that can be covered in about an hour may pay less surcharge that those flying longer distances.

SpiceJet executive chairman Siddhanta Sharma told TOI: “We expect a decline in ATF prices. If that is over 1.5 %, we will lower the fuel surcharge. We are also looking at differential fuel surcharge — distances covered in less than 75 minutes like Delhi-Jammu/Srinagar, Delhi-Ahmedabad or Mumbai-Goa could have a lower surcharge than those travelling longer sectors.”

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