It now looks like SpiceJet may go belly up and the Aircel-Maxis alleged money-laundering case might blow up on the Marans. Probably their drawing room discussions are about how to source working capital to keep their jet flying and on the other to avert the threat from Enforcement Directorate attaching assets worth Rs 700 crore.
Even as the low cost carrier showed huge debts of over Rs 1000 crore in its balance sheet and struggled with working capital financing,the DGCA came out with a string of admonitions. It withdrew 186 flight spots, barred the airline from issuing tickets for travel beginning January, asked the airline to clear salary dues of employees, asked them to file a convincing schedule to clear its dues to various stake-holders including airports and oil companies.
Interestingly only in late November, the monarch of stock markets Rakesh Jhunjhunwala, bought 75 lakh shares of Spicejet for Rs 13.4 crore in the market sending the share shooting by 18.4 per cent. But soon they began to plummet. Even a rookie wouldn’t have touched the stock with a barge pole given that Spice Jet wasn’t keeping well for quite some time. Continued complaints of not meeting schedules, poor service, and inattentive staff have been on the run in the social media. The star investor counted on the falling crude oil prices but didn’t expect the company to slip before that.
Unusually, since the time the bad news broke out, the stock prices of Jet Airways and IndiGo have been on the rise. It is business and elimination of a competitor means additional breathing space but with the entry of AirAsia the competition has stiffened and low-cost-carriers are further drawn into the race to have the larger piece of the cake. The domestic sector is promising a good growth potential of 16 per cent.
The facts of the case of Spicejet are very close to that of Kingfisher and there are not many options open to Maran but for infusion of more capital. It is a pity that despite bringing in Rs 5 billion as equity in the recent quarters it has come to this. The CFO of Spicejet has admitted to a cash crisis but has sought time to arrange for cash and has assured to clear all the dues.
LCC – a cheap, costly alternative
Do we blame it on the business model of operating as a low cost airline? If it was that risky why do we have new players venturing into it?
Since the game is entirely played on the lines of cost, it is crucial to keep cost in check
ALWAYS in ALL-WAYS. Keep controllable cost under control and plan sufficiently for uncontrollable costs like buying aircraft in the future.
Frequent regulatory issues, changes in taxes and fuel price fluctuations are all to be kept under constant monitoring apart from delivering the best. Part of the Sun-Group family with Kalanithi Maran as the Head of the Family, spicejet has had the most of domestic passenger share. We can only hope with all our heart for a white knight to come by to keep the skies spicy. In a competitive market you win accolades if you do, no one sheds a tear if you die.