Spice Jet has been one of the leading low-cost airlines in India. The Industrialist S K

Modi, in a partnership with the German flag carrier Lufthansa, endorsed the company

in year 1996. In year 2002, the company had changed its name from ModiLuft Ltd to

Royal Airways and started domestic air flights. In year 1996, the airline halted its

operations but after eight years, in 2004, the company raised new funds and

resurrected its operations as SpiceJet. In the same year, the company also signed a

contract with Boeing to purchase Boeing 737-800 aircrafts. In year 2010, the

company got Directorate General of Civil Aviation (DGCA) node to operate on a few

selected international routes like Dubai and Singapore.

Since commencement, the SpiceJet’s has been following its strategy to offer secure,

unfailing travel at low cost from one point to other. It has been efficiently utilizing all

its resources, keeping all processes simple. SpiceJet has been avoiding spending on

factors that are not related to the elementary purpose of travel. The airline has been

offering the dynamic fares to its customers, keeping the safety and comfort of its

passengers at a standard level.

SpiceJet has been one of the intensive low-cost carriers in the airline industry. It has

been positioned to make profits even in a fluctuating industry scenario. It has been

revising its fleet size in order to manage costs in efficient manner. It has been using

Boeing 737-800 and Boeing 737-900ER for domestic routes and international

destinations respectively. In year 2011, it added Bombardier Q400 aircrafts to its fleet

group to increase connectivity to Tier II and Tier III cities. In year 2014, it added

Muscat as for its international route and Dharmashala for its domestic route.

According to Market Line report, currently SpiceJet has a fleet size of 58 aircrafts that

operates across 51 destinations. It has been showing a phased size expansion of

capacity from FY 05 to FY 15 [Exhibit 1].

As per SpiceJet’s annual report, its operating revenue has grown at 12.56 per cent

[Exhibit 2] from the financial year (FY) 13-14 to FY 14-15, which is predominantly

driven by 6.2 per cent [Exhibit 4] surge in overall passenger traffic. The increase in

passenger traffic includes domestic passenger traffic and international passenger

traffic that has been growing by 3 percent and 98 percent respectively.

The available seat kilometer (million) and flights operated has been increasing from

FY 2011 to FY 14. According to SpiceJet’s annual report, These two components

have been growing at an average rate of 22.15 percent and 32.16 percent [Exhibit 3]

respectively because of the introduction of latest Boeing 737 aircraft.

According to company, ICICIdirect.com Research, SpiceJet’s passenger traffic has

grown with a CAGR of 23.3 [Exhibit 4] percent during FY 09-14 as compared to

overall industry passenger traffic CAGR of 9.17 [Exhibit 4] percent during the same

period.

According to Crisil research report, the domestic market share of SpiceJet has been

varying between 17 to 19 percent [Exhibit 2] from the FY 2010-11 to Q1 FY 2014-

2015. The market share of its international operations has increased from 1.9 percent

in FY 2012-13 to 4.5 percent in FY 2013-14 [Exhibit 2] because of the addition of

few international destinations like Hong Kong and Dhaka. However, the market share

has decreased to 2.7 percent in Quarter 1 FY 2014-2015 [Exhibit 2]

The operating expenses for the company have been increasing over the years. As per

company’s annual report, the total operating expenses has increased by 25 percent

from FY 13 to FY 14 [Exhibit 5]. Operating expenses components like Aircraft

delivery, maintenance, and lease rental-aircraft have seen maximum surge in the cost.

Also, the net profit of SpiceJet has declined to a negative 424.9 percent in FY 14 from

FY 13 according to company’s annual report. However, the operating margin had

impacted by the week passenger load factor (PLFs), around 8 percent surge in

aviation turbine fuel (ATF) prices, and weakening of currency by 12 percent in FY

2013-2014 from FY 2012-2013. All these factors have been accountable for higher

expenses of fuel and other structural costs.

SpiceJet has been implementing best internal and external exercises for improving

productivity in work performance. Also, the company has a strong relationship

between employees and internal control in processes but the company is

unsatisfactory in terms of net profit and in the course of strengthening its spot in the

market.

Exhibits

Exhibit 1

Number of fleet

Year FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

Fleet

Count 3 6 11 17 23 26 30 34  42  58

Exhibit 2

Operating Revenue and Market share

Year FY 11 FY 12 FY 13 FY 14 Average

Operating

Revenue (INR

million) 10467 39433 56007 63042

% Increase276.73 42.03 12.56 110.44

Market

share

(pax-km)

Domestic 17 20 19 19 18.75

International 1.9 4.5 2.7 3.03

Exhibit 3

Available seat kilometer and Flight operated per year

Year FY 11 FY 12 FY 13 FY 14 Average

Available seat

kilometer

(million)

10467 13717 16338 19003

Percentage change

31.04 19.10 16.31 22.15

Flight operated 53963 81139 109267 121788

Percentage

change

50.36 34.66 11.45 32.16

Exhibit 4

Passenger traffic

 Year FY 9 FY 10 FY 11 FY 12 FY 13 FY 14P CAGR

Overall

industry 396 452.8 543.1 616 604.5 614.4 9.17%

SpiceJet 41.1 57 72.8 92.7 112 116.9 23.30%

Exhibit 5

Operating Expenses

Operating

Expense

FY 2014 (Rs

Million)

FY 2013 (Rs

Million)

Percentage

change

Aircraft fuel and

oil32,526.60 28,033.15 16%

Lease rental-

aircraft,10,531.74 8,081.02 30%

Aircraft

maintenance cost9,932.53 6,737.56 47%

Landing,

navigation &

airport charges

4,740.10 3,540.11 34%

Operating

software charges741.84 571.03 30%

Aircraft delivery

and re-delivery

costs

291.48 80.04 264%

Other operating

expenses453.91 215.67 110%

Exhibit 6

Comparison of net profits

Year FY 11 FY 12 FY 13 FY 14

Net Profit 1012 -6058 -1911 -10032

Percentage

change -698.60 -68.45 424.96