India’s second largest low-cost carrier by passengers flown, SpiceJet Ltd, has applied for permission to fly abroad and hopes to land in one of four neighbouring nations it has shortlisted for expansion by July this year.
Analysts, however, say SpiceJet should focus on stabilizing its domestic operations before venturing into the highly competitive foreign market.
SpiceJet is already taking the first steps towards running international flights—including registering with a global distribution system of ticketing and seeking the membership of the International Air Transport Association (Iata), the global lobby for airlines.
“We will have 21 planes when we go international. We are looking at a June-July time frame,” said chief executive Sanjay Aggarwal.
Any carrier requires a fleet of at least 20 aircraft before it can be considered for an international licence. Aggarwal said SpiceJet would meet the requirement by March. “We are working with the (aviation) ministry and the DGCA (directorate general of civil aviation) to get everything going. That’s where we are until we get the approvals,” he added.
DGCA is checking SpiceJet’s international preparedness, including the capability and maintenance of its aircraft and the training levels of its pilots and engineers, an aviation ministry official said on condition of anonymity.
SpiceJet wants to fly to Sri Lanka, Bangladesh, Nepal and the Maldives in the first phase of its international operations. If approved, SpiceJet will become only the fourth Indian carrier to fly internationally—after National Aviation Co. of India Ltd-run Air India, Jet Airways (India) Ltd and Kingfisher Airlines Ltd.
It will also be the first domestic budget airline to do so, and will compete with regional giants such as Air Asia, Tiger Airways, Air Arabia, Jazeera Airways, and FlyDubai.
The Gurgaon-based airline, known as ModiLuft when it closed down in 1996, was relaunched in 2005. It currently has a 12.4% market share and a fleet of 19 Boeing 737 aircraft capable of flying to South-East Asia and West Asia.
Four new Boeing 737s will join its fleet starting March under an earlier order. Aggarwal said the carrier was not looking at placing a fresh order, but considering leasing new aircraft depending on how its market grew.
“Our initial interest has been in four countries. And then, we may choose to go to one or all four. We have not decided on the point from which cities in India we will connect them to,” said Aggarwal, who took over SpiceJet in 2008 after an equity infusion by US-based private equity investor Wilbur Ross.
Aggarwal said 98% of the carrier’s ticket sales came from India. Until late last year, the firm was in two minds about flying abroad. International operations take longer to break even, and SpiceJet seemed to be concentrating on becoming profitable domestically.
“The carrier has indicated plans to take up this opportunity (to fly abroad),” said consulting firm Centre for Asia Pacific Aviation (Capa) in a recent outlook report for 2010. “However, it may be better advised to concentrate on stabilizing its domestic operations first before embarking on international (routes), which can be extremely complex and place additional pressure on management.”
But SpiceJet has been moving determinedly towards becoming an international carrier. For instance, it has appointed general sales agents in regional countries, including Sri Lanka, to sell its tickets to locals. Aggarwal added: “We are now participating in the Sabre GDS (global distribution system of ticketing), but it is only for point of sale outside India. Our low-cost model sells in domestic market and you have to have a presence there. I think we will be pretty soon on Sabre now.”
Participating in the GDS makes international carriers more easily noticeable to foreign flyers. But it comes at a price. The head of a domestic travel portal, which sells SpiceJet tickets, said this meant “for agents outside the country, SpiceJet will be available just like Jet, Kingfisher, Air India”, but it will increase running costs for the carrier.
“The cost per ticket goes up and leads to more dependence on indirect versus direct sales thereafter,” said the portal head, who requested anonymity as he deals with the carrier. Most low-cost carriers, therefore, abstain from the GDS route. Another senior domestic airline official, who also asked not to be named, said ticket sales through the GDS will cost an additional $4 (around Rs182), even though the cost of joining a GDS was not steep.
Besides, SpiceJet will also undergo the Iata Operational Safety Audit (Iosa), which assesses the operational management and control systems of an airline and is considered to be a key requirement for entering code-sharing alliances with international carriers. The Iosa audit will also allow SpiceJet to become a member of Iata. “We are working on Iosa (audit) as it is a perquisite for Iata membership,” said Aggarwal. “We would like to be on it prior to that (going international).”
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