Spicejet To Retail Goods On Board

NEW DELHI: Betting big on ancillary revenues, SpiceJet has entered into a joint venture with UK-based online retailer Under Five Pounds to sell jewellery, watches and other merchandise on board. Earlier, the airline won a government tender to carry mail and will carry post from next month.

The low-cost carrier expects to be close to break-even by the end of this fiscal year. “Our cost is lowest in the industry. That is why we will be the first LCC to break even. We are also looking at profits by end of next year,” SpiceJet CFO Partha Sarathi Basu told ET. According to an ICICIdirect Research report, SpiceJet’s per unit (seat) cost is 20% lower than other airlines in the LCC segment and 40% lower than players in the full-service carrier segment.

Ancillary revenues include revenue from excess baggage, on board food sales, advertisement and contests on board, among others. “Next year, around 9-10% of our revenue will be generated from the ancillary sources, consistently,” said Mr Basu.

At present, around 7-7.5% of the revenue comes from these sources. The airline earns around Rs 1.5 crore per month from courier on board. The revenue is set to increase once the new JV company launches on board merchandise sales from next month. After 4-6 months, the airline’s website will also be selling these items.

SpiceJet registered a net profit of Rs 18.5 crore during the first quarter (April-June) of 2007-08, on account of sale-and-lease back of aircraft and rupee appreciation. However, the carrier recorded a net loss of Rs 37.8 crore in Q2 (July-September).

It’s expecting an improved yield in October to December period. “Next year, we are expecting operating profits, and not just a healthy balance sheet, on account of sale and lease back. The worst period for the industry is over. Till four months, back the average fare that airlines earned was Rs 2,500 whereas now it is around Rs 3,000. We will continue to cut costs to earn profits,” added Mr Basu.

Rupee appreciation has also given cost benefit to the airline as 40% of it’s cost that includes lease rentals, expat salaries and maintenance cost, is in dollars.