SpiceJet Decides To Layoff 1400 Employees In A Bid To Avoid Further Financial Woes

SpiceJet finds itself at a crossroads of financial turbulence and investor apprehension – faced with the tough choice of either trimming its workforce or plunging deeper into crisis, the airline has opted for the former, signalling a significant shift in its operational strategy.

 

The decision to layoff 1,400 employees, constituting nearly 15% of its workforce, spotlights the severity of SpiceJet’s financial predicament. With mounting operational costs and delayed salary payments, the airline has been compelled to streamline its resources to remain afloat in an increasingly competitive market.

At its zenith in 2019, SpiceJet boasted a fleet of 118 planes and employed over 16,000 individuals. However, the current scenario paints a sharply different picture, with the airline operating a modest fleet of around 33 planes and a reduced workforce of approximately 9,000 employees.

Thus, the decision to downsize, while painful, is indicative of SpiceJet’s challenge to rationalize its operations and realign costs with operational requirements.

The root of SpiceJet’s challenges lies in its ambitious expansion plans and subsequent financial strain. The airline’s bold move to procure 100 Boeing 737-MAX planes in 2017 was intended to bolster its market position and modernize its fleet.

However, unforeseen setbacks, including regulatory hurdles and the grounding of the 737-MAX fleet following safety concerns, have derailed SpiceJet’s growth trajectory.

No Funds
Despite ongoing efforts to secure a fund infusion of ₹2,200 crore, SpiceJet’s financial woes persist, with reports of investor reluctance casting a shadow over its future prospects.

While the airline remains optimistic about the funding process, uncertainty looms large, necessitating decisive measures to restore investor confidence and ensure long-term sustainability.

This, SpiceJet’s decision to cut its workforce is aimed at aligning its staffing levels with the current fleet size and operational demands; SpiceJet aims to optimize resource utilization and mitigate escalating costs.

The Rough Skies
Even as SpiceJet aims to tackle the turbulent skies, the road ahead remains fraught with challenges and uncertainties.

As SpiceJet braces for the impact of its workforce reduction strategy, the intricacies of its challenges come into sharper focus. With approximately 1,400 employees expected to bear the brunt of the 15% cut, the airline still has many challenges to address in its quest for financial viability and operational efficiency.

Firstly, among the many challenges that SpiceJet has to address is its elevated Cost per Available Seat Kilometer (CASK), which stands at approximately INR6, significantly higher than industry leader IndiGo’s INR4.5.

The disparity is attributed not only to a bloated workforce but also to the operation of older Boeing 737s, in contrast to IndiGo’s modern A320neo fleet and Akasa Air’s fleet of new Boeing MAX planes.

Hence, the resultant cost disadvantage places SpiceJet at a significant competitive disadvantage, eroding its profitability and market position.

Secondly, legal troubles beseech the airline, including an ongoing conflict with its former promoter, Kalanithi Maran, over disputed dues amounting to INR250 crore.

The looming deadline to settle a substantial portion of this claim adds further pressure on the airline’s financial resources and managerial bandwidth, diverting attention from core operational priorities.

Thirdly, intensified competition; in addition to contending with industry giants like IndiGo, SpiceJet faces formidable competition from emerging players such as Akasa Air and Air India Express.

These rivals, equipped with modern Boeing aircraft and fueled by ambitious expansion plans, pose a significant threat to SpiceJet’s market share and talent acquisition efforts.

The heightened competition for key technical talent, including pilots and crew members, aggravates SpiceJet’s operational challenges and stresses the urgency of strategic recalibration.

Against this backdrop of adversity, SpiceJet’s Chairman, Mr. Singh, is said to have issued a stark directive to the airline’s department heads: the status quo is untenable.

Expressing Discontent
Last week, Mr. Singh is said to have expressed his dissatisfaction, questioning the rationale behind maintaining numerous staff solely for customer email correspondence and the failure to execute planned aircraft leasing for expansion.

There’s a pressing need to rationalize costs, he emphasized.

In contrast to some competitors, SpiceJet retains extensive in-house operations, including ground handling and customer care, a departure from the industry norm of outsourcing such functions.

Operating across various facilities in Udyog Vihar, Gurugram, SpiceJet is contemplating relinquishing certain leased properties to streamline operations and consolidate its workspace.

In a significant development in December 2023, SpiceJet disclosed a fund infusion of approximately INR 2,200 crore from multiple investors; while an initial tranche of INR 500-750 crore has been secured, concerns have surfaced regarding investor hesitation.

Still, SpiceJet remains optimistic about the fund infusion, assuring stakeholders of its progress and emphasizing the majority of investors’ subscription to the initiative.

Recent communication from SpiceJet indicates its decision to discontinue raising funds from travel agents, a practice common among financially strained carriers. This move aims to mitigate the adverse impact on airline profitability resulting from discounted bookings offered to agents.

Market Response
Meanwhile, in what could be seen as a small positive, SpiceJet’s stock witnessed a surge following these announcements, nearly doubling in value to around INR 74 per share over the past year.

However, recent investor uncertainty led to a decline to approximately INR 68 per share, and the airline’s valuation stands at around INR 5,000 crore, notably lower than IndiGo’s valuation of over INR 1 lakh crore.

The urgency for the second tranche of funding is stressed by the need for stabilization before expansion, especially considering the competitive threat posed by newcomers like Akasa Air.

Likewise, the status of SpiceJet’s ambitious aircraft order announced in 2017 remains uncertain and negotiations with Boeing are critical to leveraging potential cost reductions and upfront cash from selling and leasing back planes, akin to strategies employed by competitors.

The Last Bit, while the workforce reduction marks a crucial step in SpiceJet’s quest for financial sustainability, it is merely one facet of a broader strategy to navigate the complexities of the aviation landscape.

As a result, tensions have reached a boiling point within SpiceJet’s corridors as officials grapple with mounting concerns over operational inefficiencies.

Unlike its counterparts, SpiceJet has traditionally handled many internal functions in-house, including ground handling and customer care, contributing to a unique operational scenario.

Hence, in a bid to streamline operations and reduce overheads, the airline is contemplating relinquishing some leased properties and consolidating its workspace, particularly across its multiple buildings in Udyog Vihar, Gurugram.

The recent announcement of a substantial fund infusion of approximately INR 2,200 crore in December 2023 brought a glimmer of hope to SpiceJet’s precarious financial situation.

However, despite an initial injection of INR 500-750 crore, concerns linger as reports emerge of investor hesitancy; still, SpiceJet remains optimistic, affirming progress in the fund infusion process and reassuring stakeholders of forthcoming announcements.

Amidst these financial tribulations, SpiceJet’s grand plans for fleet expansion, as announced in 2017, remain in limbo. The airline faces significant hurdles in fulfilling its ambitious aircraft order with Boeing, necessitating urgent negotiations to unlock potential cost reductions and cash inflows.

As the airline navigates these turbulent skies, the road ahead remains fraught with challenges and uncertainties, emphasising the need for decisive action and strategic recalibration.