Introduction:

SpiceJet is a low-cost airline based in Delhi. It began service in 2005. By

2008, it was India's second-largest low-cost airline in terms of market share.
It is promoted by Ajay Singh and the Kansagra family. SpiceJet marked its
entry in service with Rs.99 fares for the first 99 days, with 9,000 seats
available at this rate. This deal was followed it up with a Rs.999 promotional
scheme on select routes. Their aim is to compete with the Indian Railways
passengers travelling in air conditioned coaches. On 15 July 2008 Billionaire
Wilbur Ross suggested he would invest $80 million (about Rs 345 crore) in the
low cost airline. The board of directors of SpiceJet accepted an offer inprinciple from the US-based PE firm that would make available about Rs 345
crore to SpiceJet, a joint statement issued by SpiceJet and WL Ross & Co.
SpiceJet operates 19 Boeing 737-800 aircraft (as of Feb 2009) and has a 12%
share of the Indian market. The airlines new fleet of aircraft is backed by
cutting edge technology, and infrastructure. It has maintenance support from
KLM and state-of-the-art technology from world leaders like Star Navigation,
Russel Adams and Tech Log. SpiceJet has a partnership with Navitaire, the
worlds renowned low-cost support system for reservations and revenue
management for providing e-booking and e-ticketing services.
Main Revenue Generating Activities
Spice jet tries to maximize its revenue by segmenting customers into groups
willing to pay different prices for the same resource. The price of each seat
varies inversely with the number of seats reserved, that is, the more seats
that are reserved for a particular category, the lower the price of each seat.
This will continue till the price of seat in the premium class equals that of
those in the concession class. Depending on this, a floor price (lower price)
for the next seat to be sold is set. Besides this, the airline had identified
various advertising opportunities at a lucrative price package on its website,
which would help generate additional revenues of Rs. 8000000 by FY 2010
for the company. Ancillary revenue streams: SpiceJet is looking to looking to
bring in an additional Rs 100 per passenger though this route to support
yields. The carrier started selling food on board. It also takes courier on
board, an effort that mopped up Rs 1.5 crore in the first month since
introduction.
The seat design and materials used in the aircrafts allows SpiceJet to fit at
least 10-15 seats more than other single-class airlines using similar aircrafts.
This further reduces cost along with increasing revenue potential. SpiceJets
aircraft are configured in a single economy class having 189 seats, which is
among the highest in the industry. This is possible as the airline focuses on
maximum space utilization for generating more revenue per aircraft. SpiceJet
accommodates 21% more seats than a dual (business and economy)

configuration. With costs like fuel, lease, maintenance remaining same per
aircraft, its per-seat costs comes down by around 20%. Better flight and
ground staff: From aircraft to crew and ground staff the focus is on
performance.
SpiceJet also actively finalizes pre-ordered (and obviously pre-paid) sandwich
and snacks. This eliminates wastage of food and jet fuel which rather
surprisingly, costs as much as Rs. 1,000 ($20) per meal.
To expand fleet, SpiceJet had unveiled a phased capacity expansion over
FY08-FY12. From a fleet of 11 aircrafts at the end of FY07, it added 15 by
FY10, and another 8 in FY11-12E, which took its total fleet size to 34. In
December 2005, it raised US$ 80 million through an FCCB (foreign currency
convertible bonds) issue, proceeds of which are being utilised for the PreDelivery Payments (PDP) of first ten aircrafts. The company also had a sale
and lease back arrangement with Babcock & Brown Aircraft Management and
Nomura Babcock & Brown, for all 16 aircrafts to be purchased during 200709. The deal is valued at over US$ 1.1 billion based on the manufacturers list
prices. Further, in January 2007, the company raised US$ 67 million (Rs 297
crore) through preferential equity allotment to strategic investors like the Tata
Group, Istithmar, KBC Financial Products (UK) and BNP Paribas. Equity funding
Investor US$ million Tata 18 Istithmar 31 KBC UK 3 BNP Paribas 15 Total 67
Source: Company, ICICIdirect Research Support Resources Required
Availability of skilled personnel Rapid growth in the industry has led to a
sustained shortage of pilots and other trained personnel in the industry. This
is aggravated by the high gestation period (more than 3 years) required for
acquiring a commercial pilots license. The training period for a cabin crew
ranges from 6 months to one year. This shortage is driving the cost of highskilled staff. Also, the limited availability of the required ground &
maintenance staff could adversely affect growth plans of the company.

7. Main Planning and Scheduling Activities Focus on profitable routes SpiceJet

operates most of its flights between profitable metro routes to optimize its
load and yield (average revenue per passenger). It currently operates from 16
destinations with more than 700 flights a week. 56% of these flights originate
from Delhi, Mumbai, Hyderabad and Bangalore. During FY07, Delhi and
Mumbai accounted for around 40% of the total domestic air traffic in the
country. Airport Number of Flights/Week Delhi 136 Mumbai 98 Hyderabad 83
Bangalore 77 Ahmedabad 57 Chennai 56 Phased capacity expansion SpiceJet
has unveiled a phased capacity expansion plan to meet its growth objectives.
It started operations with a fleet of 3 aircrafts, which it has now increased to
14. It plans to add another 12 by FY10E, which will take the total to 26.
During the time when the domestic market was mired by over capacity and
fierce competition, SpiceJet was able to increase its market share, while
maintaining its load factor. With an average age of 2 years, its fleet is also

among the youngest in the country. Brand Building SpiceJet's "Get more when
you fly" campaign, launched mid 2009, and received a fresh thrust with the
appointment of i-Vista Digital Solutions. Online reputation management
programme continuously tracks consumer sentiments and provides constant
creative and technology solutions. This has increased their online presence
and helped to drive customers to SpiceJet website which is the most cost
effective distribution channel for them.

8. Critical Applications for success Direct distribution of tickets The airline

sells its tickets via the Internet or call centre route. This helps it bypass travel
agents who work on commissions, and expensive GDS (global distribution
system) employed by FSC for ticket reservations. The mechanism also helps
in reducing working capital requirements as the company receives the money
in advance prior to travel. There are no receivables, and also controls bad
debts. Overall it helps the company cut its distribution costs by 10% of the
revenues. High aircraft utilization A carrier aiming for the lowest possible cost
of operation has to develop a schedule that would give a high annual
utilization of each aircraft in its fleet. Such a policy will lower cost as the fixed
costs of the aircraft ownership or lease rentals can be spread over higher
quantity of output (ASKM). SpiceJet has been consistently reporting high
aircraft utilization (around 12 hours a day), in line with international
benchmarks. This is possible because of its high on-time performance (82%
within 15 minutes) and a low turnaround time of 20-25 minutes as compared
to 40-45 minutes takes by FSC. No loading of meals or complex cargo and
faster check-in system helps in reducing turn around time. Overall it reduces
fixed cost absorption by 15-20%. Customer Preference In a recent consumer
survey (released on December 23, 2009) conducted by a leading national
newspaper, SpiceJet was recognized as India's best low- fare airline. SpiceJet
was rated the best overall airline operating from New Delhi and Chennai.
They received highest satisfaction rating on key factors covering the
efficiency and friendliness of the ground and the in-flight services. While
SpiceJet occupied the first position in all major categories among its direct
competitors, it ranked higher than leading full service airlines in Arrival
Service, Approach to Customer and Airport Baggage Service.

9. Performance Metrics On Time Performance and Cancellations During OctDec 2009, SpiceJet consistently recorded the lowest cancellations amongst
comparable airlines. SpiceJet's performance has remained in the top tier on
these two parameters over the last few months. Their Technical Dispatch
Reliability is at an very high 99.38 %. Market Share SpiceJet's market share
has seen a significant increase despite no major capacity induction during
this period, moving up to 12.5% during Oct-Dec 2009 from 10.5% during the
same period last year. This has been possible due to better aircraft utilization.
SpiceJet has consistently carried more passengers per departure than any of

our competitors during this period, clearly indicating customer preference in

their favour. Other Operational highlights for the quarter ended December 31,
2009: 55 % growth in number of passengers. 28% growth of Available
Seat 14 point improvement in load factor.

10. Role of Information Technology Online Ticketing An e-ticket offers many

advantages for both travelers and airlines, including security, flexibility, cost
and convenience. At the same time, it also provides the standard assurances
of the traditional paper ticket, such as seating choice, travel time options and
other flexibilities. Dealing with e-tickets is much less costly to airlines, which
makes it possible for airlines to offer more competitive fares to passengers.
The tickets also are booked and processed in a more timely way, saving labor
hours and cutting down on traveler frustration. SpiceJet is a ticket less airline.
An itinerary does not constitute a document of carriage. The Booking in the
SpiceJet database is the primary record of carriage and in the event of any
differences between the itinerary and the Booking in the SpiceJet database,
the Booking will prevail. The website of SpiceJet airlines offers many options
for flight reservations. The available option also includes last minute
reservation of tickets. Other Advantages One can see the flight schedules
online and book the tickets according to the convenience. The online SpiceJet
also looks after the traveler's amenities and privileges which include flight
updates, web check-in, PNR lookup and enormous discounts.