Thursday, May 02, 2013

Why everybody at SpiceJet loves Raymond

Two years back, Neil Raymond Mills took over as SpiceJet’s new chief. Then, the airline was unwell. He began by slashing costs. Strategies that didn’t make economic sense were forgotten. Today, the airline appears a turnaround tale. Reality is, the job isn’t over yet. Worse, harsh history could repeat itself

A simple analogy. If you drive a car at a constant speed minus stops, you burn less fuel. The gains don’t become apparent after each short drive. But in a quarter of a year, the reduction in fuel consumption starts to show. The results become more pronounced in a year. Much is saved in gas and cash. Common sense. But most airlines in India ignore such small money-saving acts. SpiceJet is not one of them. At the airline, this “constant speed” philosophy is communicated as a compulsory key message to each of its newly recruited pilots. These cockpit handlers are supposed to remember it every time they leave an air strip. The idea is to get the pilots to save anywhere between 0.5% to 1% of the airline’s fuel bill. A small chunk saved. But at SpiceJet, if a cost can be avoided, it is.

Cost-cutting doesn’t always help
The company’s hardheaded emphasis on lowering costs does affect its operational efficiency metrics. Unfavourably at times. In July 2012, SpiceJet’s On-Time Performance (OTP) on domestic routes was 84.3%. That meant, about 16 of every 100 flights were delayed beyond 15 minutes. Much of this is can be blamed on the constant speed norm that is in place at the airline. This makes the airline’s record only better than the havoc-stricken Air India’s (OTP of 81.2%) and now-stripped-to-the-bone Kingfisher Airlines’ (81%). All other airlines recorded OTPs in the 90%-plus range [IndiGo: 95.3%, GoAir: 90.3%, and Jet: 91.6%]. The company isn’t one to worry about offloading passengers to peer carriers (and cancelling flights) either, when load factors don’t justify economics. The carrier strives to maintain an average load factor (LF) of over 75%, and plans to increase it over the quarters to come [in Q1, FY2012-13, LF was 80.8%]. Result: SpiceJet’s flight cancellation record (2%) is only better than those of Air India (3.2%) and Kingfisher (8.2%). Others boast of a lower figure (IndiGo: 0.1%, Jet:1.4%, GoAir: 1.6%).

Mills... a number-loving turnaround guy
But CEO Neil Mills, who has turned around the airline in the past two years, knows that these numbers only tell a part of the SpiceJet story. He is familiar with how budget airlines work. An industry veteran of over 20 years, this former CFO of Middle-Eastern LCC Flydubai knows his numbers fall on the rational side. He measures every paragraph in the book by weighing data. That is exactly how he helped build Flydubai from scratch. He plugged cost holes at the company, and improved its balance sheet, helping the airline grow from a drawing on the whiteboard to a fleet of nine operating aircraft in just a year-and-a-half. Before Flydubai, he was at easyJet for 12 long years. Under him, the company grew from 4 to 174 aircraft, and became one of the biggest, most profitable airlines in Europe.

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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