Cargo to spice up SpiceJet’s growth menu

Low-cost carrier SpiceJet, which had planned the closure a year back, has now come with a bang. It has plans to ramp up its cargo business and introduce door-to-door delivery service for its corporate customers. Jasleen Kaur writes.

With an eye on steady revenue flow, SpiceJet has planned to ramp up its cargo business and introduce door-to-door delivery service for its corporate customers, effective from March 2016.

As fares decline, the airline is looking at various means to improve its topline and cargo business.

“Cargo and logistics is a growing business for us. Earlier, we used to outsource the business but, now we are handling it ourselves. We have tied up with courier firms and hiring extra staff for door-to-door cargo delivery. Initially, the service will be only for corporate clients but later we might extend it for retail customers as well,” said Ajay Singh, SpiceJet’s Managing Director.

The airline, which was on the verge of closure in December 2014, managed a comeback not only on the back of passenger revenues but also on the ancillary business front. In the beginning of 2015, SpiceJet’s revenues from the ancillary business stood at 6 percent, which subsequently increased to 16 percent of total revenues at the end of the October-December quarter of the current fiscal. As a result, the management wants to look for other sources of income in order to maintain growth in coming years.

Singh took over the airline in early 2015 and has invested Rs 850 crore since then, along with investment banking firm JPMorgan Chase.

SpiceJet posted fourth consecutive profitable result with Rs 232 crore profit in Q3. The airline is in discussions with aircraft manufacturers and is looking to add 100-150 narrow body and turboprop aircraft. Singh expects to finalise the order this year.

The airline currently has 43 aircraft which includes a mix of Boeing 737, Airbus A-320 and Bombardier Q-400 aircraft. “We plan to add ten aircraft this year on dry lease and these will be both replacements for seven wet lease aircraft and new additions,” Singh said. He added there are several untapped routes and markets which have potential for growth. “I do not see significant revenue challenges but airlines will need to think beyond Mumbai and Delhi.”

In order to recover lost ground, SpiceJet also recruited 70-80 pilots and is planning to invest in a pilot training academy.

SpiceJet has initiated talks with several ecommerce firms for tie-ups. “At SpiceJet, we are looking at getting into an exclusive agreement with ecommerce and other companies as we expect the use of airlines to deliver products to pick up further once the festive season approaches,” said Singh, adding, “Ecommerce firms need airlines to deliver their goods to their customers as well as get deliveries from various suppliers across the country. They want us to provide them air connectivity in the northeast.”

SpiceJet also became the first airline in India to deploy cloud-based air cargo management solution, SmartKargo, for its in-house and international cargo operations. The SmartKargo system is built on cloud computing instead of dedicated hardware and software and offers mobile platforms and data analytics. The deployment of the system comes as the airline looks to capitalise on the fast-growing Indian economy.

“India will be Asia’s second fastest-growing market with a compound annual growth rate of 6.8 percent, and SpiceJet is poised to play a leading role in the freight-delivery chapter of the India growth story. With advanced booking and handling tools like SmartKargo, SpiceJet will not only replace a legacy system, but will also deliver a much higher standard of customer satisfaction,” said Amit Srivastava, vice president, business development, SpiceJet about the partnership with SmartKargo.

The SmartKargo has the distinct combination of rich air cargo knowledge and deep technology skills. They possess decades of experience in designing software products and deploying large-scale enterprise solutions. SmartKargo is part of QuantumID Technologies, Inc., a software and solutions company based in Cambridge, Massachusetts, USA, and locations around the world.

SpiceJet is keen on setting up more Common User Terminals (CUTs) across various airports in the country as it enhances movement of domestic cargo and standardises costs. “We are keen in setting up more CUTs in places like Tiruchirapalli and Coimbatore,” shared Singh. The company has set up similar CUTs at Mumbai and Delhi airports. “Setting up such CUTs would facilitate movement of cargo in airports as there has been an increase in cargo every year,” he added.

To sum up, Manish Agarwal, partner and leader for capital projects and infrastructure at consulting firm PwC, said, “I expect some airlines to probably focus on cargo services this year and that would be a big turning point for the Indian market; and SpiceJet is one of them.”