Neil Mills, CEO of SpiceJet, is happy playing Clark Kent. But in his modestly furnished office in Gurgaon, Mills must change into Superman to fight the evil of wasteful expenses. He tracks employees and their hotel bills in far-off places like Trichi. He clears the airline's payments, not before shooting yellow slips marked'???'. He constantly monitors the airline's on-time performance. He has just redrawn the contract for the airline's in-flight magazines.
Mills is also actively involved in engine management. If he is not taking part in negotiations for engine leases and aircraft purchases, Mills is busy securing long-term strategic deals for water (40,000 mini bottles a day), coffee, soft drinks, food and fruit juice in flights. He has to also oversee cabin crew training.
And balance himself on parapets for photographs, as shutterbugs have demanded of him, he recounts. Mills, a 15-year veteran of the aviation business, is an accountant by profession. But SpiceJet does have a chief financial officer. The low-cost carrier is also not without a senior management team that handles the aforementioned responsibilities. But Mills cannot but reframe the role of a CEO to push things he says will make a difference.
"Is it something I enjoy? Nooooo," says Mills, 40, a South African, smiling broadly behind his glasses. But play he must Superman, given that the six-year-old low-cost carrier is in a state of flux. After two years of profits, SpiceJet reported a loss of `71.96 crore in the first quarter of this fiscal. The second quarter results are due on November 11. "It is not a day I am looking forward to," says Mills.
Turbulent Times
Many in the aviation business share Mills' angst. SpiceJet's listed rivals Jet Airways, along with offshoot JetLite, and Kingfisher Airlines posted a loss of Rs 128.36 crore and Rs 263.54 crore in the first quarter. In the September quarter, analysts expect the carriers to end with total losses of around Rs 750 crore.
Mills is also actively involved in engine management. If he is not taking part in negotiations for engine leases and aircraft purchases, Mills is busy securing long-term strategic deals for water (40,000 mini bottles a day), coffee, soft drinks, food and fruit juice in flights. He has to also oversee cabin crew training.
And balance himself on parapets for photographs, as shutterbugs have demanded of him, he recounts. Mills, a 15-year veteran of the aviation business, is an accountant by profession. But SpiceJet does have a chief financial officer. The low-cost carrier is also not without a senior management team that handles the aforementioned responsibilities. But Mills cannot but reframe the role of a CEO to push things he says will make a difference.
"Is it something I enjoy? Nooooo," says Mills, 40, a South African, smiling broadly behind his glasses. But play he must Superman, given that the six-year-old low-cost carrier is in a state of flux. After two years of profits, SpiceJet reported a loss of `71.96 crore in the first quarter of this fiscal. The second quarter results are due on November 11. "It is not a day I am looking forward to," says Mills.
Turbulent Times
Many in the aviation business share Mills' angst. SpiceJet's listed rivals Jet Airways, along with offshoot JetLite, and Kingfisher Airlines posted a loss of Rs 128.36 crore and Rs 263.54 crore in the first quarter. In the September quarter, analysts expect the carriers to end with total losses of around Rs 750 crore.
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Sharan Lillaney, an analyst with Angel Broking, presages a very bad quarter. "There will be more losses." Airline companies lost Rs 3,500 crore in the six months to end September, according to lobby group Federation of Indian Airlines. The International Air Transport Association says airlines globally gained $18 billion in the 2010 financial year, but Indian carriers lost $400 million.
IATA foresees a profit of $6.9 billion in 2011, but has warned of a 29% fall in industry-wide profits in 2012. It is yet to forecast how the Indian industry will fare, but few will be surprised by heavier losses than last year.
Airline shares have suffered this year because of the downturn. Jet ended Friday at Rs 254.75 on Bombay Stock Exchange, down 68.48 % from a year ago while Kingfisher closed at Rs 23.65, a fall of 70.44% from last year. SpiceJet ended at Rs 24.6, minus 71.87 % from a year earlier.
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"We are very, very, very bearish on aviation," says Jagannadham Thunuguntla, head of research at SMC Global Securities.
India's aviation industry has faced many interruptions in its growth story since it began to accommodate low-cost airlines such as SpiceJet, GoAir and IndiGo along with full-service carriers like Jet, Air India and Kingfisher. There have been intermittent periods of volatility. But the latest crisis is unprecedented in its magnitude, say aviation experts and executives in unison.
The aviation business, says Mills, has veered towards a situation akin to 'The Last Man Standing'. "That is the game we are playing now. It is time to ask who will go bust first."
Litany of Problems If the aviation industry looks bloody and dazed, it is not hard to see why. Airlines are bearing the brunt of spiralling jet fuel prices, which have increased by nearly 45% to 61,115.36 a kilolitre from 42,276 a year ago.
“The industry will have to settle for slower growth in the near term till the fuel increases are fully absorbed,” says Aggarwal.
A weakening rupee — depreciation of nearly 11% against the dollar since January — has precipitated the crisis. The operational expenses of carriers are in disarray as a result because they typically pay for lease or purchase of aircraft, consumables such as fuel abroad and
grease, spares including ship rotables and line replacable units in dollars. Indeed, 70% of airline costs are dollar denominated.
IATA country director for India Amitabh Khosla says the government’s taxation policies have aggravated the problems of carriers. “India’s taxes are excessive, as seen in the state sales tax on jet fuel. Carriers are paying far in excess for jet fuel compared with their counterparts elsewhere. Taxes are also prevalent where there should be none, as in the case of service tax on tickets,” he says.
As a result, jet fuel costs account for 40% of the operating cost of an airline in India compared with 20% elsewhere. “The picture is very gloomy,” says Vijay Nara, an analyst at Fortune Financial Services.
Airlines bosses lament that they have to also contend with red tape. “Getting permission for everything from operating an airplane to Reserve Bank of India approval for money to pay for it is a challenge here,” sighs Mills. “What was crazy about our aircraft funding deal [worth $270 million] with Export Development Canada was that everybody acknowledged it was great — including the Reserve Bank. But approval took almost two months. If it takes two months to get a good deal approved, how much time does a challenging deal take?”
Mills says he wants to diversify into more international routes to take pressure off the domestic market, but is yet to hear from the aviation ministry on the 15 routes that SpiceJet has sought permission.
“The industry will have to settle for slower growth in the near term till the fuel increases are fully absorbed,” says Aggarwal.
A weakening rupee — depreciation of nearly 11% against the dollar since January — has precipitated the crisis. The operational expenses of carriers are in disarray as a result because they typically pay for lease or purchase of aircraft, consumables such as fuel abroad and
grease, spares including ship rotables and line replacable units in dollars. Indeed, 70% of airline costs are dollar denominated.
IATA country director for India Amitabh Khosla says the government’s taxation policies have aggravated the problems of carriers. “India’s taxes are excessive, as seen in the state sales tax on jet fuel. Carriers are paying far in excess for jet fuel compared with their counterparts elsewhere. Taxes are also prevalent where there should be none, as in the case of service tax on tickets,” he says.
As a result, jet fuel costs account for 40% of the operating cost of an airline in India compared with 20% elsewhere. “The picture is very gloomy,” says Vijay Nara, an analyst at Fortune Financial Services.
Airlines bosses lament that they have to also contend with red tape. “Getting permission for everything from operating an airplane to Reserve Bank of India approval for money to pay for it is a challenge here,” sighs Mills. “What was crazy about our aircraft funding deal [worth $270 million] with Export Development Canada was that everybody acknowledged it was great — including the Reserve Bank. But approval took almost two months. If it takes two months to get a good deal approved, how much time does a challenging deal take?”
Mills says he wants to diversify into more international routes to take pressure off the domestic market, but is yet to hear from the aviation ministry on the 15 routes that SpiceJet has sought permission.
source:ET sunday.
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