Tatas offered seat on Spicejet management board

The SpiceJet management has invited the Tata group to take a seat on the board of the Delhi-based low cost airline. The Tata group company Ewart Investments had taken a 7% stake in the company with an investment of about $17 million, which does not entitle a board seat. However, the SpiceJet management says the company’s experience will bring value to the board. The Tata group has said the investment in the airline is purely financial and has nothing to do with their earlier ambitions in the aviation business. The Dubai-based investment group Isthitmar, already has one director on the SpiceJet board and will have one more, once the share allotment is complete. SpiceJet has decided to issue $70 million worth of stock to investors like the Tatas, Isthithmar, Goldman Sachs group and BNP Paribas. The 50 million new shares are being issued at Rs 52 each, resulting in an equity dilution of 23-24%, SpiceJet CEO Siddhanta Sharma said. The move is aimed at raising funds for fleet expansion.

The airline made losses of Rs 50 crore on revenues of Rs 700 crore in the nine months ended November 2006. The airline’s average fare during the December quarter was Rs 2,600, he added. SpiceJet currently sells about 55% of its tickets online, about 22% are sold by travel agents, 20% through call centres and the rest through online travel portals. The airline plans to increase its night flight frequencies to make it a 24-hour operation, Mr Sharma said. It already operates a Delhi-Ahmedabad-Pune flight that completes its return at 5am. The response for night flights is good and more frequencies will be added on the night operations, said Sanjay Kumar, vice-president sales and marketing for the airline. The low cost carrier currently has an aircraft utilisation of 12.5 to 13 hours a day, he added. It will acquire its 11th aircraft in February and aims to more than double its fleet to 28 over the next two years.

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Low cost carriers go all out to attract rail passengers

Low-cost airlines are stepping up efforts to woo rail passengers by taking the battle to the trains, but a clearly bemused railways is already crafting a counter strategy. In their bid to lure ‘chic’ train commuters, budget players like Air Deccan, SpiceJet, GoAir and IndiGo are all set to advertise in Rajdhanis and Shatabdis. They have also begun to offer incentives to rail ticket agents to draw the top 3% of rail passengers to the skies. On its part, Rail Bhawan has taken note of the development its counter plan will roll out via the forthcoming rail budget. According to sources, the budget may see “rationalisation” of Shatabdi and Rajdhani fares, introduction of more low-cost AC trains and revamp of catering services. The airlines, however, have their game plan clear-cut. SpiceJet plans to advertise inside Rajdhani and Shatabdi while rival IndiGo has already rolled out a campaign comprising pamphlets, posters and billboards at railway stations. Air Deccan too plans to kick off a similar campaign soon. About 3% of railway travellers are high-paying commuters, who can easily afford to fly a low-cost carrier (LCC).

Even if 1% of them start using airlines, the aviation sector could grow at about 35%,” said a senior Air India official. “We have tied up with specific travel agents selling rail tickets, which has resulted in many passengers shifting from railways to airlines. We are also planning to advertise inside Rajdhani and Shatabdi trains,” said SpiceJet VP (marketing & planning) Sanjay Kumar. Added IndiGo president & CEO Bruce Ashby, “We are using pamphlets, posters and billboards to lure railway passengers to airlines. We don’t know how effective this marketing strategy will be, but there is a conscious attempt to attract upper class rail passengers.” Air Deccan‘s campaign will be aimed at railway passengers and first-time travellers. “We want to take people out of villages, off the trains and into the planes,” said Air Deccan COO Warwick Brady. According to an ICICI Securities aviation sector study, LCCs plan to target the 49 million upper class rail trips against the 19.4 million air trips seen last year.

The study estimates that by 2008, the air-to-upper class rail passenger ratio will increase to more 75% from the present 40%. This will be driven by conversions and the overall increase in air travel, which, in turn, will largely be due to cheaper fares. But Indian Railways has its own plans. According to Rail Bhawan sources, besides the cost rationalisation in Rajdhani and Shatabdi fares, the ministry intends to roll out 35 air-conditioned (AC) low-cost trains to wean away passengers from LCCs. All AC train fares, expected to connect all important Indian cities, will be 40% cheaper than the present AC three-tier tariffs. That’s not all. Rajdhani’s catering services will also be improved. “Stringent quality control will be implemented in catering. We hope to spend about Rs 2 crore in improving food and services in trains between Delhi, Mumbai and Kolkata,” Indian Railways Catering and Tourism Corp CMD PK Goel said. But airline companies argue that low fares and lesser travel time, coupled with extra comfort, will ensure speedy migration of railway passengers to the skies.

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