Were rumours of SpiceJet's demise greatly exaggerated?

Moneycontrol Bureau

After teetering on the edge, aviation firm SpiceJet is showing early signs of revival.

The company, which posted a record Rs 1003 crore loss in FY14 and entered the new financial year with only Rs 5 crore in cash on its hands, has witnessed several pieces of incremental good news recently that suggest the airline may save itself from what was said to be certain collapse.

The carrier has offered a 10 percent salary hike to its staff after a gap of three years, the Economic Times reported today quoting sources.

This, along with a bevy of good news on the market share and occupancy front, point to an ongoing turnaround at the ailing company.

Over the past few months, the Kalanithi Maran-owned airline has reeled from one bad news to another. The aviation regulator recently launched an audit of the firm after one of its flights was grounded for over five hours owing to what was reported as lack of proper equipment needed for take-off.

This, along with the carrier failing to provide Form 16 to its employees even as the July 31 deadline for filing income-tax returns neared recently (indicating that the firm might have not passed on tax deducted at source from employees' salaries to the tax department), hinted to an acute financial crunch.

Then, investors continued to wait for that unnamed foreign investor -- which has for long been reported as wanting to pick up stake in company -- forever.

But, as they say, the worst of the times sometimes bring out the best. In what would later not just capture market share but also would have succeeded in putting some much-need working capital in its hands, the company all through the year bombarded the market with one flash sale after another .

In flash sales, airlines offer tickets at extremely-discounted rates – often at par with train fare -- for those willing to book early. Done well, these achieve several goals: increase occupancy on flights that would have anyway flown empty seats, improve liquidity, help boost brand recall as well as provide free publicity.

The sense of urgency the company appears to have paid off handsomely: according to the most recent numbers, SpiceJet was able to topple Air India as India's second-largest airline after IndiGo, with a market share of 19 percent, and logged a load factor of 81.4 percent, only 0.1 percent behind leader GoAir.

The development was clearly attributed to the clear-minded and aggressive pricing campaign by analysts.

In a recent letter to employees, the carrier's chief operating officer was quoted by Mint as saying that SpiceJet "was no Kingfisher", adding that he was not going anywhere and that, quoting Mark Twain, "the rumours of my demise have been greatly exaggerated."

The company might have won the battle over bankruptcy for now. But with accumulated losses of Rs 2,194 crore since its inception, and Rs 1,738 crore in debt, Spice would need dollops of clever strategy, luck as well as investment if it is operate sustainably over the long run.