Spicejet Crisis Case Study

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SPICEJET IN CRISIS- HOW AN AIRLINE LOST ITS SPICE It all started in June,2014 when SpiceJet, which was voted as India’s top low cost carrier and 2nd most popular budget airline, reported a record loss of Rs 1003 crore in the year ended 31st March. Cut to December and the cash strapped airline announces that it plans to cut its fleet and operate 22-24 Boeing Planes until mid next year. SO WHAT WENT WRONG FOR SPICEJET? Poor Decisions This can be traced back to 2010 when SpiceJet decided to place orders for 15 Bombardier Q400 aircrafts. At that time, all the other airlines had Airbuses or Boeings. The 15 Bombardier Q400s came at a hefty cost of $450 million and the first of these aircrafts joined the fleet in 2011. The rationale behind this was to increase the presence of SpiceJet in smaller towns i.e. tier 2 and tier 3 cities. However, this had an adverse effect on the financial statements of the airline as the total debt soared from Rs 55 crore in 2010-11 to Rs 855 crore in 2011-12. The debt further increased to Rs 1678 crore in 2012-13. This plummeted the networth of the company from Rs 321 crore in 2010-11 to minus Rs 147 crore in 2011-12. Two years hence, when the aircrafts were introduced in the fleet, the maintenance costs of SpiceJet rose by over 50%. The reason for this was the lack of support centres in India for the aircraft…show more content…
Even the current promoter Mr Kalanithi Maran, who bought a 37.75% (Rs 750 crore) stake in the airline in 2010 did not infuse any funds in the airline’s account since the money went to the Wilbur Ross and Kansagra family from whom the stake was bought. Only when Mr Kalanithi Maran increased his stake by another 5% (Rs 130 crore), did the money go to the airline. Recently, Mr Rakesh Jhunjhunwala bought shares of SpiceJet. However, this resulted in the share prices of SpiceJet dropping by 12% instead of increasing, which came as a surpise to many in the

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