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Treading carefully

After Kingfisher, India’s ultra-competitive aviation industry is on the verge of claiming its second scalp in three years. SpiceJet has informed the government’s premier aviation regulator about its inability to continue operations without the government’s financial support. As per media reports, the airline requires anywhere between Rs 1,4000-2,000 crore from the government, following heavy losses over the past three years. Although, fuel costs in the aviation market alone contribute up to 50 per cent of operational, SpiceJet has been culpable of a sustained mismatch in projecting their costs and revenues.

Consequently, the Chennai-based airline, owned by the Sun Group, had to cancel as many as 1,861 flights scheduled for December, a peak holiday season, besides shutting down its in-flight meal service. Despite projecting a negative net-worth of Rs 1,019 crore in March, SpiceJet had continued to offer tickets at prices as low as Rs 2,000 across various flash sales through the year, forcing other low-cost airlines to cut fares too.

It is also imperative to note that SpiceJet’s founders, Kalanithi Maran and wife Kavery Kalanithi, are currently the highest paid business executives in India, drawing a combined annual salary of Rs 120 crore in the last fiscal. Clearly such imprudent business practices, allied with rising fuel prices earlier this year, has left the airline seriously indebted to airport authorities, vendors and oil companies. The government, meanwhile, must tread very carefully because SpiceJet does occupy 17.3 per cent of the market share in domestic aviation services. If the government had shut down SpiceJet’s operations, it would have caused a massive disruption in the travel plans of thousands of vacationers during peak holiday season.

In lieu of the these concerns, the airline received a temporary reprieve from the government, which has allowed it to offer tickets till 31 March, 2015. The government’s other concern is the direct impact such a shutdown would have on its 5,000 employees. Although the government must not bail out the airline for poor business practices, it must tread very carefully.
MPost

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