This story has been updated.
At the end of last year, SpiceJet—once India’s second largest airline by market share—was on the verge of shutting shop.
All its aircrafts were grounded by December 17. Lessors and debtors were knocking on the company’s doors for repayment; and oil companies refused to refuel any of its aircrafts.
The situation was so dire that some predicted the airline was going belly-up, like Kingfisher Airlines, once India’s second largest airline, that shut down business in 2013 after it was unable to repay its debt.
But SpiceJet has survived—and how.
Seven months after that December scare, the airline is India’s fourth largest by market share—it controls 12.1% of the market—and manages to fly at almost 93% of its capacity, the highest for any airline in the country. It currently operates 34 aircrafts, flying to 41 destinations and plans to raise its fleet size to 50 by March 2016.
The Gurgaon-headquartered airline also returned to profitability this year and posted net profits of Rs22.5 crore ($3.5 million) in the January-March quarter, the first time in almost two years. During the April-June quarter, the company’s net profit grew to Rs71.8 crore ($11.3 million) compared to a loss of Rs124 crore ($19 million) a year ago.
Much of that success is the handiwork of 50-year-old Ajay Singh, an Indian Institute of Technology, Delhi- and Cornell-educated businessman, who returned in early 2015 to the helm of the company he had built.
Back in 2004, Singh had founded SpiceJet along with Bhupendra S. Kansagra—a London-based businessman—and ran it for almost six years before selling his stake to Chennai-based billionaire Kalanithi Maran in 2010.
Singh couldn’t have asked for a more challenging time to regain control of SpiceJet. But the risk seems to have paid off.
“All the uncertainty about SpiceJet has almost been put to rest now,” Jitender Bhargava, who was an executive director at state-run Air India between 1997-2010, told Quartz. “Singh’s experience in running a low-cost airline along with some help from the government is largely responsible for that turnaround. Singh was at the right place with the right team at the right time.”
The turnaround of SpiceJet
By August last year, SpiceJet had registered its fourth consecutive quarter of mounting losses.
SpiceJet’s then promoter, Maran’s KAL Airways, was looking to rope in an external investor to bring fresh capital into the company. But it failed to attract any suitors—and by December, it was struggling to pay staff salaries.
That’s when Singh emerged as SpiceJet’s white knight.
Fresh from his role in Narendra Modi’s wildly successful prime ministerial campaign—he was widely credited with coining the slogan, Ab ki baar, Modi sarkar (This time, Modi’s government)—Singh swiftly purchased Maran’s stake in the company in January 2015 for an estimated Rs350 crore.
Since then, he appears to have pulled the low-cost carrier out of a rut.
“We stuck to the very basics of operating a low-cost carrier—a two-pronged strategy of reducing cost and maximising revenues,” a SpiceJet spokesperson told Quartz over email.
The company cut down on non-profitable flying routes while increasing frequency to routes that it identified as viable and lucrative. In addition, it also managed to renegotiate engineering and maintenance contracts for its aircrafts to bring down costs. “We laid considerable focus to ensure all the flights were on time,” the spokesperson added.
The Bharatiya Janata Party (BJP)-led government—where Singh reportedly has a number of good friends—also extended a helping hand to the beleaguered carrier.
“His good relations with the current government helped him secure the support of PMO (prime minister’s office), MoCA (ministry of civil aviation) and DGCA (directorate general of civil aviation), something that Dr Vijay Mallya of Kingfisher didn’t get in his times of trouble,” Amber Dubey, a partner and the India head of aerospace and defence at consultancy firm KPMG, told Quartz by email. “The government has done well to support SpiceJet’s revival without pumping in any taxpayers’ money.”
The government, well aware about the impact of another airline going bust, gave SpiceJet enough time to clear its dues to public sector companies such as the Airport Authority of India and the oil firms. It also allowed the company to book tickets beyond 90 days, which is crucial to raising money.
This, however, isn’t Singh’s first such corporate turnaround.
“Singh is a non-conventional, street-smart investor,” Amitabh Malhotra, managing director of investment banking firm NM Rothschild and Sons in India, told the Mint newspaper. “He does not have an institutional approach to things but very hands-on like a typical Indian promoter. He was there to take calls even at 4am when a deal was in the making.”
As a young, 30-something MBA, also armed with a degree in law, Singh started out as a director of the Delhi Transport Corporation (DTC). The public bus transport authority of India’s capital had 300 buses, 40,000 employees and was running heavy losses in 1995.
“The task was to significantly increase the numbers of buses, find a way to pay for them, and more importantly, find a way to lift the gloom and motivate the employees to deliver,” Singh said in 2013. After about 30 months in office, DTC was operating 6,000 buses and managed to break-even.
Singh eventually went to work as an advisor to the late Pramod Mahajan, India’s telecommunication minister and a rising star within the BJP in the late 1990’s. The period also coincided with a time when India was laying its foundation and policies for the eventual telecommunication boom.
“While I was working in the ministry of telecommunication, I had found that Indian consumers were very price sensitive but once the price was right, there was a very large untapped demand,” Singh explained. ”We had reduced the cost of making phone calls and that had led to a nearly 40-fold increase in the number of phones. I felt that there was a similar opportunity in aviation.”
SpiceJet started out as a low-cost airline in 2005 after Singh and Kansagra joined hands to purchase a defunct airline that was registered between the SK Modi group and the Lufthansa group. The airline, ModiLuft, flew for a few years before the partners had disagreements. But it had all the necessary flying licences in place, and the duo renamed the company as SpiceJet.
Singh invested Rs10 crore and upon starting operations offered tickets at a base price of Rs99.
With a growing economy—India’s economy expanded at an annual average of 8% between 2004 and 2014—the airline business was only beginning to take off. First-time flyers were being lured by plummeting fares, and upstart carriers including SpiceJet, IndiGo and Air Deccan were challenging existing players such as Air India and Jet Airways with their low-cost model.
By 2010, when Singh decided to leave SpiceJet, the company had more than Rs800 crore in cash reserves. But an impending global economic crisis, coupled with sky high oil prices and competition in the Indian airspace, meant that the aviation business was becoming a costly affair.
But SpiceJet managed to reverse its downward spiral by 2015.
Back at the helm
Singh and his team are once again taking the battle to the skies. SpiceJet is handing out heavily discounted tickets to lure customers and to regain its market share. Last week, the company offered 100,000 tickets at Re1, forcing many other airlines to slash fares.
Unlike in the past, SpiceJet can afford to do that now. The price of air turbine fuel—which makes up for more than 40% of an aircraft’s cost—is almost 31% lower than what it was in 2013. During the April-June quarter in 2015, SpiceJet’s fuel cost dropped 54% compared to the earlier year.
“Banks and investors aren’t putting money into airlines. For most airlines in India, money will have to come from foreign companies who see India as a potential (destination),” said former Air India executive director Bhargava. “And when they look for partnerships, it’s always better to have a strong market share and SpiceJet’s offers are now aimed at improving their market share.”
That money from foreign airlines might become a reality pretty soon. On July 24, The Economic Times reported that SpiceJet is in early-stage talks with Qatar Airways. According to the report, the Gulf carrier is interested in picking up a 24% stake in SpiceJet. Quartz has not been able to verify this news from SpiceJet yet.
“We are working hard to build a world class airline again,” Ajay Singh said on July 28 after the company posted its remarkable quarterly results.