Indian LCCs, global narrow-body ambitions: Part 2

The first part of this three-part series looked at International ambitions of Indian LCCs with narrow-body aircraft and the basis for selecting its hub. This part looks at SpiceJet’s recent announcement about its hub at Ras Al Khaimah (RAK), the long overdue codeshare and what really is Spicejet looking at in the long term.

SpiceJet commenced operations in 2005 and has changed ownership in 2010 with the Marans of Sun Group acquiring controlling stake, only to be sold back to Ajay Singh after a near death experience in December 2014.

Its moment of glory was when Jet Airways suspended operations and the airline became the biggest beneficiary of the aircraft and slots left behind by Jet Airways. However, the rapid expansion and ambitions are not in sync with its balance sheet and cash in hand. On this backdrop, a look at what the airline plans to do on the international front.

SpiceJet’s survival strategy

With nearly 50% domestic market share with IndiGo, one needs a strategy different than that of IndiGo to attract passengers. With IndiGo modelled around On-Time Performance, Cleanliness and Hassle-free experience, one cannot compete with IndiGo with the same three pillars. If twitter is anything to go by, and that is a very small sample size to be honest, the interiors of the SpiceJet aircraft are not up to the mark. Time and again, the upkeep is being neglected. The airline has not particularly been high on the On-Time rankings either and a lot of its ancillary trials have failed with just the SpiceMAX being a constant.

The airline looked for other ways to survive. One was the ambitious Regional Connectivity Scheme (RCS) – UDAN (Ude Desh ka Aam Nagrik), where an airline operator was promised monopoly for a limited period. However, as IndiGo joined in with turboprops, SpiceJet couldn’t win as many routes as it would have planned, and the later phases took away the monopoly clause with reverse bidding leading to routes being operated without subsidy in most cases. There have been examples of routes which the airline won, not being commercially viable and thus forcing the airline to pull out – like one from Chennai to Hubli or the first route under international UDAN – Guwahati to Dhaka.

While selective monopoly routes and similar international operations have been helping Spicejet hold on to competition, when it comes to fending off IndiGo, the going gets tough with a barrage of frequencies, better connections and perceived service by competition.

What next?

While IndiGo may have saturated the domestic routes to a large extent, the same may not be said about SpiceJet. But starting new routes on domestic means taking on IndiGo and that’s where the challenge lies. So where does one fly instead? International!

And why is international different? Unlike domestic, International is governed by Air services agreement between countries and that means there is a cap on either seat deployed or frequencies to most countries. While competition might still chase you, it may not be able to chase you with double or triple of the flights which you operate.

Spicejet has in the past filed for slots in the UK where it intended to operate the A330. With the suspension of Jet Airways, it may find the proposal lucrative, but it is certainly not as lucrative as it may sound! Contrary to this, the proposition may be loss making. The wide body fleet has its own challenges, including maintenance, operating costs and the inability to get rid of the plane quickly or find a route to deploy it, in-case the route doesn’t do very well.

The airline did a coup of sorts by announcing a codeshare deal with Emirates. But it has taken eternity to get this deal into operation, and after repeated statements of getting the deal operationalized “tonight” the flights are still not available for sale.

Will the RAK idea work? What will the airline do going forward? It is interesting to see how the RAK hub of SpiceJet will span out, if at all it does!

Spicejet’s RAK hub

While the airline’s chairman has been ecstatic about the plan of starting flights to RKT and setting up a carrier there, what needs a detailed inspection is the air services agreement. India has signed separate ASAs with different emirates in the United Arab Emirates and India to Ras Al Khaimah / Al Ain is capped at 1400 seats per week. Currently, Air India Express operates bi-weekly flights consuming 378 seats and hence any mass addition of flights would require a change in bilateral agreement. This comes at a time when Dubai has been asking for additional seats and hasn’t received any for over five years.

Range & routes.PNG
Possible SpiceJet network. Inner circle shows range of B737-800, outer shows range of B737 MAX8. Image: http://www.gcmap.com

Having a hub in Mumbai or Delhi is cumbersome. The change of terminals requiring additional connection time and airlines offering a better option one stop via a hub in the Gulf or Europe could weigh against SpiceJet. The option of a foreign hub, (like Jet Airways’ Amsterdam one) makes the transfer relatively easier with passengers coming from Mumbai, Delhi and a couple of more places from the country and having flights operate to major airports in Europe. The airline could also take the benefit of seasonality, connecting destinations in Russia to Goa or adjust frequency and have more destinations instead.

However, hubs are based at destinations which have inherent traffic and demand. A good example of this is how Jet Airways move to Amsterdam gave the airline more passengers than while it was at Brussels. In the case of Spicejet, how many and who goes to Ras Al Khaimah? Will the airline purely depend on traffic coming from India?

Benefits

  • Availability of slots and terminal infrastructure
  • Catering to multiple cities in India with faster connections

Challenges

  • Any disruption could be costly because the passengers must be accommodated for a night or more in a foreign country
  • Crew and engineering exigencies
  • Passenger experience for airport transit and low cost long haul with narrow body

Why Ras Al Khaimah?

The airport at Ras Al Khaimah was built in 1976 and while Dubai developed to become a huge international hub, RAK did not even live up to regional ambitions. The entire gulf region is flooded with airlines – Emirates, Etihad, Air Arabia, Fly Dubai, Qatar Airways, Gulf Air, Oman Air.

Today the airport sees scheduled operations by three airlines. Air Arabia which has a hub at RAK after RAK Airways went down, Pegasus – an airline from Turkey and Air India Express (2x weekly flight to Calicut). RAK is one of the seven Emirates that make up the United Arab Emirates (UAE). With a population of just over 4,00,000 the emirate cannot sustain air traffic on its own.

Current RKT network.PNG
Current connections from RAK airport. Image: http://www.gcmap.com

RAK Airways was formed in 2006 and became the national airline of Ras Al Khaimah, however it could not sustain and shut in 2009. It restarted in 2010 but in 2014 ceased operations permanently. It operated a small fleet of A320s but never expanded in true sense and paled in front of other carriers in the region. Air Arabia is a low-cost carrier and based out of Sharjah, another of the seven emirates of UAE. Founded in 2003, the airline is close to 50 aircraft now with two subsidiaries – Morocco and Egypt. RKT airport is 229 kms by road from Abu Dhabi, 102 kms from Dubai Airport and 75 kms from Sharjah.

What will Spicejet do?

Every move of Spicejet should be taken with a pinch of salt. The airline has announced much but has seen little movement on ground. From the sea plane for which it had grand plans and holds routes under Regional Connectivity Scheme (RCS) – UDAN (Ude Desh ka Aam Nagrik) to the Emirates code-share which was promised to be live by October 2019 (Winter Schedule) – a lot has been said but little has moved on ground. Will the RAK hub idea be a non-mover or something which will move fast?

If and when SpiceJet moves towards the RAK hub idea, it would look to feed the hub from a minimum of four places in India with another four destinations in Europe, thus having four aircraft stationed in RAK, which make the trip to India for maintenance as and when required. The MoU signed with Gulf Air should also be taken into consideration for more penetration in the middle eastern region.

A narrow body international plan is less risky than a wide body international plan, but none the less it remains risky!

Network Thoughts

It is extremely expensive to operate the wide body aircraft compared to the A320/B737 series. There aren’t many destinations where an airline can operate non-stop yearlong service from multiple points in India. A look at Air India’s network in Europe shows how the airline has adjusted frequency to operate to Frankfurt, Paris, Vienna, Milan, Rome, Madrid, Stockholm and more.

Some of the top routes from India to Europe on a pure Origin – Destination basis are London, Paris, Rome, Milan, Frankfurt, Zurich, Amsterdam, Brussels, Vienna, Madrid, Prague and a few more, not necessarily in this order. All of these will require a one-stop approach on the narrow body or will need a widebody for non-stop flights. Some of these could be possible with the A321XLR when it enters service.

Fly Dubai, though now partners with Emirates, started with a lot of feed from Indian sub-continent to feed its European ambitions. Air Arabia is no different. A list of their destinations in India and Europe – Eastern and Western, shows the potential but these airlines took time to develop this traffic flow, investing millions in the process. SpiceJet – either does not have those millions or if it does, it needs them for the battle of domestic skies – its core market.

Tail Note

For every new adventure, one requires deep pockets. Going by news articles – SpiceJet is low on cash and thus implementing such a risky proposition could be difficult or push the airline back to 2014 levels.

However, could this be a ploy to get investments? There have been limited statements in the public, but few have talked about stake in a new airline based at Ras Al Khaimah with a local entity, will that unknown entity invest in Spicejet? Time will answer a lot of questions but going the history in Indian aviation – this is a risky time. Kingfisher and Jet Airways came up with big plans from re-configuration to network stabilization to new routes being planned and then suddenly went kaput!

The airline could look at this opportunity with ways to see cash flow into its Indian venture. The details about the airline based in RAK are sketchy but if I try to join the dots, I feel that Spicejet could partner with someone to form an airline in RAK which will invest in SpiceJet’s Indian operations to solve the cash problems for the airline. This will be followed up with compensation from Boeing for the grounding of B737MAX8 which will give the airline some much needed cash to sustain and then expand.

India can ill afford the fall of another airline. The airline has to decide if it wants to do this because IndiGo is going it or is it chasing this dream with independent analysis!

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