Mkt share doesn't foot salaries or fuel bills: SpiceJet

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Shaheen Mansuri

Moneycontrol.com

His company's stock is down 57% since he took charge as the chief executive officer in July last year. That is mainly due to soaring crude prices, which have made aviation turbine fuel costlier and hurt the aviation industry in general. But adding to SpiceJet's problems is its promoter Kalanithi Maran being accused of gaining from the 2G telecom license scam when his brother Dayanidhi Maran was telecom minister. Analysts say the company will find it tough to raise funds for its expansion plans, which is crucial in a capital intensive business like aviation. And that is putting pressure on the stock, which closed at Rs 33 on Friday.

But Neil Mills, the boyish-looking and outspoken boss of Spice Jet is defiant.

"Maybe domestically because of what's written in the media, it's (raising funds) become challenging, but overseas we are still seen as a credible company that can deliver," he told moneycontrol.com in an interview last week.

And 40-year old Mills, an experienced pro in the low cost aviation business, is equally dismissive of market share. SpiceJet currently ranks number four in the Indian skies.

"I can't use market share to pay salaries or to pay fuel bills, so it's not something other than a headline number - actually (it does not) give us anything particularly at all," he says.

And he does not mince words about rival firms, when reminded about the underperformance of his stock.

"Currently our market capitalization is 50% less than that of Kingfisher. Kingfisher hasn't made a profit in living memory. Kingfisher has enormous debts with no real way of how they are going to fund it in future. How can we possibly be worse ?," he says. 

Mills started his career in the low cost carrier segment with easyJet, where he was the procurement director. After spending more than a decade at easyJet, where he played a key role in turning around the airliner, he had a brief stint at FlyDubai, another low cost player, as chief financial officer.  

Below is the verbatim transcript of Neil Mills' interview with Moneycontrol's Shaheen Mansuri. Also watch the accompanying video. 

Q. How is the current financial year looking up for SpiceJet and if you could also tell us about the April-June quarter? 

We don't tend to give forward-looking statements, particularly in this industry which is very volatile. And with the oil price where it is at the moment, it's very hard for us to predict where we will end up for the 12 months. We are confident about the year going forward but we don't tend to give you absolute numbers. Thanks for asking but we won't be able to give you an absolute answer to where the year will end up. Where the first quarter will end up? Which is obviously something we are almost sure of now, it has been a tough quarter, there is a lot of competition, with higher fuel price it won't be a good result for this quarter but it's pretty much what we expected it to be considering where the oil price has been for the last 12 months. I certainly expect that for the financial year, we will be successful, but for the quarter it may be a bit more of a challenge.  

Q. Despite SpiceJet being profitable than many of its rivals, its market share is low. Do you plan to improve it or will you focus on absolute profits?

Market share is not something that really drives us. I can't do anything with market share. I can't use market share to pay salaries or to pay fuel bills, so it's not something other than a headline number - actually (it does not) give us anything particularly at all. It's an output; it's not something that we strive to deliver. Market share doesn't give me anything. What we will actually do? Load factor and passenger perspective that will continue to grow. Load factor will be around 80-82% for 12 months and that's where we expect it to be despite the fact that we are going to be growing by in excess of 30%. So we will grow as a business by over 30% and the load factor will stay pretty constant even though additional volume goes into the business. 

Q.Typically, airlines prefer borrowing overseas to avail softer interest rates. It's understood that SpiceJet is in talks with Export Development Canada?

We haven't officially announced that we have asked for this financing but it has been leaked anyway. We have applied for RBI approval for USD 270 million of financing from Export Development Canada (EDC) and yes it is softer interest rates, much softer than you would get here, particularly as this is coming from an export support agency rather than a pure commercial bank. So this gives us a real advantage going forward and real access to cheap money.

Q. But will it not be a challenge to raise funds at a time when the promoter is embroiled in a controversy over the 2G scam?

There is no probe on the majority shareholders of the company but we have been through all of this already. We are comfortable with where we are now. ETC of Canada have just done due diligence on us now. They are comfortable to take a risk with SpiceJet for USD 270 million. They have given us a concrete offer for that money. So yes, maybe domestically because of what's written in the media, it's become challenging, but overseas we are still seen as a credible company that can deliver. May be it's time India aligns their views a little bit more with reality rather than what the media just writes. 

Q. SpiceJet shares have fallen sharply over the past couple of months. Does that worry you?

Actually in the past month it has dropped significantly and it dropped down to a low of Rs 27 but it also recovered. It doesn't mean there isn't room for improvement but shows how much of an exaggeration the market is. Currently our market capitalization is 50% less than that of Kingfisher. Kingfisher hasn't made a profit in living memory. Kingfisher has enormous debts with no real way of how they are going to fund it in future. How can we possibly be worse ? 50% less than Kingfisher?. One-third of Jet (Airways)... they (Jet) may be three times the size of us but they don't make any money. So I think there has been a huge over correction in the share price. I do actually think for braver investors there is a real buy opportunity in the SpiceJet shares at the moment.

Q. Which local destinations are you looking to add to your routemap this year?

The number of destinations for us in the next 12 months will grow significantly because of the regional operations. We will have lot more local destinations coming in. We have already announced that it will be places like Vijayawada, Rajahmundry and Tirupati which is close to Hyderabad but there will be a lot more that we will announce because each new regional aircraft probably needs two destinations to keep it busy and we are going to add 11 aircrafts in the regional operation between now and the end of March. So you can do the numbers yourself as to how many we will need. 11 aircraft probably needs 17-18 new destination points in India alone.

Q. Will you go in for a brand enhancement exercise like most low cost airlines did last year?

 I don't think there is anything wrong with our brand, so if it's not broken, don't fix it, is an old philosophy but actually quite good. SpiceJet brand is fine; there is nothing wrong with it at all. We are not going to change our brand; we are not going to do a makeover or anything like that.