SpiceJet Ltd Management Discussions.

1. Economy and Prospects

(a) Indian economy

I ndias Gross Domestic Product (GDP) slowed down to 4.2% in FY 2019-20 as against 6.1% growth clocked in FY 2018-19. Primary factors responsible for the deceleration in growth included global economic slowdown, subdued consumption and private investment, and liquidity constraints in the non-banking finance sector. The unexpected outbreak of Covid-19 pandemic in the last quarter of FY 2019-20 created unprecedented challenges for the Indian economy. Growing spread of the virus, social distancing measures and fears among consumers and businesses rose dramatically in India. Steps taken to contain the spread, such as the nationwide lockdown stalled economic activity and are expected to impact both consumption and investment. Inflation remained majorly under control with CPI averaging 4.8%, though it was higher than the 3.4% achieved in the previous year. Foreign exchange reserves increased by USD 62 billion to USD 476.2 billion.

With the pandemic significantly impacting economic activity, the IMF has forecasted the Indian economy to contract by 4.5% in FY 2020-21 with potential downsides. Growth is, however, expected to rebound to 6% in FY 2021-22 supported by fiscal and monetary stimulus to limit the economic fallout.

(b) Support measures

Policymakers have been implementing substantial fiscal and monetary measures to support the economy in a post-Covid-19 scenario. On the fiscal front, the government rolled out a mammoth 20 lakh crore special economic and comprehensive package, equivalent to 10% of Indias GDP This includes 1.7 trillion relief package to support the marginalised population in tackling the challenges caused by the pandemic though any relief package for the aviation sector is yet to be awarded. Further, the Government also announced the ‘Atmanirbhar Bharat Abhiyan focussed on promoting and supporting domestic product and services to help local companies tide over the crisis.

The Reserve Bank of India, too, slashed the key repo rate by a cumulative 115 bps to 4.0% and reverse repo rate by 155 bps to 3.35% since the beginning of the crisis to maintain financial stability. In addition, it allowed commercial banks and non-bank finance companies to offer their customers a three-month moratorium on loan instalments. Further, in May 2020, it allowed further extension of the moratorium period by another three months to August 31,2020.

These supportive measures are in line with those taken in major economies across the globe, most of which are facing an imminent slowdown with the pandemic triggering a recessionary scenario. The IMF forecasts the global economy to contract 4.4% in 2020 amidst decline in economic activities and job losses.

(c) Future outlook

The long-term growth outlook of the country continues to remain positive. Key reformative policies including Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), Foreign Direct Investment (FDI) liberalisation, among others, have amplified the fundamentals of the Indian economy. Recent measures such as corporate tax rate cuts, front-loaded infrastructure investment programmes, and bank recapitalisation are likely to drive growth. Particularly, reduced tax rates for individuals, forecast of a normal monsoon, along with prospects of a bumper crop output will propel spending and consumption.

2. Indian Aviation

(a) Industry overview

India has the third largest domestic aviation market globally. It is expected to overtake United Kingdom (UK) to become the third largest air passenger market (domestic and international) by 2024 as rising incomes, tourism, and a shift to air from rail increases air travel penetration. Based on the customer experience and operating models, the operating airlines are categorised into Full Service Carriers (FSC) and Low Cost Carriers (lCc). LCCs has been the most successful airline industry model in India over the long term. With faster turnarounds and lower unit costs, LCCs dominate the domestic market and have been steadily gaining share in international routes.

Indian aviation landscape

Airline Promoter Market Share (Domestic)1 Service Type2 Fleet Size3 Aircraft Type3
Air Asia Air Asia, Tata Sons 7.7% LCC 30 A320
Air India Govt. of India 10.5% FSC 171 A319, A320, A320N, A321, B737, B747, B777, B787, ATR42/72
GoAir Wadia Group 9.9% LCC 56 A320, A320N
Indigo InterGlobe Enterprises 49.0% LCC 260 A320, A320N, A321, ATR
SpiceJet Ajay Singh 16.1% LCC 114 B737, Q400, B737Max
Vistara Tata Group 5.9% FSC 41 A320

Source: 1 DGCA

2 Service Type (FSC/LCC) is a term assigned by various analysts to these airlines.

3 Company website and internet search. Data as on March 31,2020

FY 2019-20 was a challenging year for the Indian aviation sector. The year started with the closure of Jet Airways operations, Indias largest international and second largest domestic carrier. This, combined with the subdued demand due to economic slowdown led to a muted growth in air traffic over the year. Furthermore, the sector experienced several operational difficulties in addition to increased operational expenses, including the worldwide grounding of Boeing 737 Max; continuing issues with Pratt & Whitney engines on NEO aircraft; and towering debt issues in Air India.

Adding significantly to industry headwinds, the Covid-19 pandemic hit the aviation industry in Q4 FY 2020 as passenger count started declining from January 2020 onwards and finally the lockdowns across countries. In India, the Government banned international and domestic flights with effect from March 22, 2020 and March 25, 2020 respectively. This had a major impact on the financial performance of the Indian carriers. Even after the gradual reopening of economies across most countries, airlines around the world are confronting the challenge of a sharp decline in demand due to passenger apprehensions. The fall in demand has forced major global airlines to take drastic cost-cutting measures, grounding of fleet, and cessation of operations.

Given the global emergence situation, it is expected to take passenger air travel demand several months to recover to pre-Covid-19 levels. It will be essential for the government to undertake commensurate response to support the revival of the sector. The return to normalcy in airline travel will also depend on multiple factors including the speed of virus containment, lifting of country border closures, restoration of confidence in air travel, and normalcy in economic activities.

Indian aviation performance in FY 2019-20

(b) Growth prospects

With sustained strong performance and rising traffic, India has emerged as the seventh largest civil aviation market in the world (domestic and international). The four Indian LCCs - Indigo, SpiceJet, GoAir, and Air Asia command a market share of over 82% and have been pivotal in driving air passenger traffic growth over the years.

I n terms of air cargo operations, the aviation industry is presently largely dependent on foreign carriers. However, the lockdown period during pandemic has unleashed an urgent need to build national air cargo capacity. India, with its favourable geographical location, is likely to be in an advantageous position for movement of cargo globally. An Indian network would further contribute to reduction in traffic directional difference and lower operational costs.

While the short-term demand outlook for Indian aviation industry is challenging, the medium to long term outlook remains strong, driven by under-penetration, rise in working population, expansion of middle class, and rapid proliferation of online channels. Further, the rise in trade and tourism is also likely to boost the industry. As per Airports Authority of India (AAI), India is projected to have 480 million flyers by 2036, which will be more than that of Japan (just under 225 million) and Germany (just over 200 million) combined.

Further, cargo has also been seeing increasing demand over the last few years. Growth in trade will be the key driver for growth in freight traffic as 30% of total trade is undertaken via airways. In this context, aviation is considered the fastest and most reliable mode to deliver humanitarian aid during extreme conditions. Various Indian airlines have been instrumental in helping the country in times of Covid-19 outbreak by transporting essential supplies. As per AAI, by 2023, total freight traffic is expected to touch 4.1 million tonnes, exhibiting a CAGR of 7.3% between FY 2015-16 and FY 2022-23.

(c) Government initiatives

Over the past few years, the Government has been enforcing conducive policies to boost the growth of the sector. The clearance of National Civil Aviation Policy 2016 has contributed to progress in enhancing connectivity and widening network for domestic carriers. Increasing investments on infrastructure development and modernisation and upgradation of existing airports will further drive growth of Indias aviation sector.

Major initiatives implemented by the Government include:

• Plan to develop 100 new airports in India by 2024 to cater to the rising air traffic. Airport Authority of India (AAI) has planned to invest 25,000 crore (USD 3.58 billion) over the next five years to augment facilities and infrastructure at the airports

• Plan to develop over 20 airports in Tier II and III cities over the next five years

• Opening of the airport sector to private participation, resulting in six airports across major cities being developed under PPP mode

• Permitting 100% FDI under automatic route for greenfield projects and 74% for brownfield airport projects

• Exemption to Indian aircraft manufacture, repair, and overhaul (MRO) service providers from customs and countervailing duties which will ensure development of MRO services in India and thus airline can avail it domestically

• Promotion of aircraft financing and leasing activities to make Indias aviation market self-reliant

• Approval of policy on biometric digital processing of passengers at airports named ‘Digi Yatra to enhance service quality and passenger experience

• Proposal of increasing FDI limit in domestic carriers from the existing 49%

• Introduction of ‘Lifeline Udan flights to transport essential medical cargo to remote parts of the country to support Indias war against Covid-19

The airline sector was faced with challenging environment at the outbreak of Covid-19 and there have been some initiatives taken by the Government during these times including:

• Reserve Bank of India allowing commercial banks to restructure loans.

• Civil airspace ratioanlisation to allow civil aircraft to utilize shorter and straight routes thereby saving on fuel burn.

• Fare band introduced by the Government post lock-down to prevent pradatory as well and excessive pricing.

(d) Input costs

The aviation industry is highly susceptible to fluctuations in international crude oil prices and exchange rates. FY 2019-20 saw significant increase in global crude oil prices, leading to a spike in aviation turbine fuel (ATF) prices. However, crude oil prices have fallen significantly since January 2020, largely driven by economic contraction caused by Covid-19 and a sudden increase in oil supply following the suspension of previously agreed upon production cuts. This led to a substantial decline in aviation turbine fuel prices during the period. However, LCCs with their lean cost structures are well equipped to navigate the challenges in the operating environment. For the coming two years - 2020 and 2021, the ATF prices are likely to be at sustainable levels with EIA predicting the global crude oil prices to average USD 41.42 and USD 49.53 respectively in these years. This is comparatively lower to the average prices of USD 64.37 in 2018.

3. Developments at SpiceJet

During the year under review, the Company continued to focus on enhancing customer experience, improving selling and distribution, revenue management, fleet rationalisation, optimal utilisation, and effective redeployment in key focus markets. The Company also undertook several renegotiations of contracts along with other cost control measures to sustain consistent profitable operations. Major initiatives undertaken during the year include:

(a) Financial performance

The FY 2019-20 posed unprecedented challenges starting with worldwide grounding of the Boeing 737 Max on account of technical reasons. This resulted in sudden grounding of SpiceJets 13 Boeing 737 Max fleet, thus leading to several flight cancellations and throwing open the challenge of accommodating passengers in other flights. Despite grounding, the Company continued to incur various costs on these aircraft impacting its bottomline. The year ended with Covid-19 pandemic which significantly reduced passenger travel from mid-February and then finally complete suspension of operations due to lockdown in March 2020. These factors adversely impacted the performance and bottom line of the Company. For the full year, SpiceJet posted a loss of 9,347.61 million, which includes a non-cash loss of 6,970.19 million due to foreign exchange loss on restatement of lease liability. With this, the Companys net worth turned negative and stood at 15,792.65 million as on March 31,2020.

(b) Fleet and network augmentation

During FY 2019-20, the Company added more destinations to its network and expanded its fleet of passenger and freighter aircraft. During the year, as one of the full service carrier suspended operations leading to vacation of slots, SpiceJet was allotted 74 major slots. The airline additionally inducted 31 aircraft to its fleet in a short span which were made available due to suspension of operations of said full service carrier. These capacity additions helped the Company to offset some of the capacity constraints it faced with the grounding of the Boeing 737 Max fleet. In May 2019, SpiceJet celebrated the big milestone of inducting its 100th aircraft.

During the extraordinary times of the Covid-19 pandemic, the Company has been contributing positively to ensure well-being of the people of India. In April 2020, SpiceJet leveraged its SpiceXpress cargo operations to run Indias first cargo-on-seat flight carrying vital supplies in passenger cabin and belly space. Since then, it has deployed B737 and Q400 passenger aircraft to carry cargo in the passenger cabin.

In terms of market position, SpiceJet is the 2nd largest airline (domestic passenger market share) and the largest regional operator in India. In FY 2019-20, the average domestic load factor was 92%, and was able to maintain 90% plus load factor for 59 successive months (a feat unparalleled globally) till February 2020.

Since the announcement of the nationwide lockdown in March 2020 and until October 2020, it transported around 76,500 tonnes of cargo on nearly 9,930 flights, thus becoming Indias largest air cargo company. This included surgical supplies, sanitisers, face masks, coronavirus rapid test kits, IR thermometers, along with providing doorstep deliveries of essential supplies and medical equipment to various cities in India. The airline also helped Indian farmers maintain continuity of supply chains by operating special cargo flights to take farm produce, fresh fruits, and vegetables to various domestic and international destinations. SpiceXpress cargo network now spans over 63 domestic and 44 international destinations including Almaty, Abu Dhabi, Baghdad, Bahrain, Bangkok, Bishkek, Cambodia, Cairo, Cebu, Chad, Colombo, Dhaka, Doha, Dubai, Guangzhou, Ho Chi Minh, Hong Kong, Huangzhou, Incheon, Jakarta, Kabul, Kathmandu, Khartoum, Kyrgyzstan, Kuala Lumpur, Kuwait, Male, Myanmar, Shanghai, Singapore, Sharjah, Sulaymaniyah, Tashkent, Ukraine, among others. The airline has been actively using Ras Al-Khaimah airport as a hub for its cargo operations.

As of October 2020, SpiceJet has operated over 1,100 charter flights under the Vande Bharat Mission (VBM) to repatriate over 2,00,000 stranded Indian nationals stranded from countries such as Canada, The Netherlands, Philippines, Kyrgyzstan, Turkmenistan, UAE, Saudi Arabia, Oman, Qatar, Lebanon, Bangladesh, Maldives, Kuwait, Kabul, South Korea, Kazakhstan, Russia, Georgia, Hong

Kong, Uzbekistan and Sri Lanka. The airline has also been designated as an Indian scheduled carrier to operate to the US and UK as well as operate its first long-haul flight from Amsterdam. The airline also operated around 148 special flights carrying ~11,000 Hajj pilgrims from Srinagar to Medina and Jeddah and back for the great religious gathering in Mecca.

The year also saw SpiceJet entering into a Memorandum of Understanding (MoU) with Ras Al Khaimah International Airport L.L.C. to co-operate, develop, and promote tourism in Ras Al Khaimah, U.A.E. and also work towards developing it into an aviation hub. By making this airport in the northernmost Emirate of UAE, the airline aims to extend its connectivity to the Gulf and European destinations.

As part of its international expansion strategy, SpiceJet signed a codeshare and interline agreement with Emirates, one of the worlds largest airlines, to give travellers to and from India seamless access to a wider and stronger network route. It will enable SpiceJet passengers from India to enjoy seamless connectivity leveraging Emirates extensive network across Europe, Africa, America, and the Middle East. Further, SpiceJet signed a Memorandum of Understanding with Gulf Air, the national carrier of the Kingdom of Bahrain, to explore greater cooperation between the two airlines including an interline and codeshare agreement.

During FY 2019-20, SpiceJet added 93 routes to its network including 30 UDAN routes. The airline launched a number of new flights and enhanced frequencies on its international network from the key metros of Mumbai, Delhi, and Hyderabad to global hotspots such as Jeddah, Bangkok, Colombo, Hong Kong, Dubai, and Dhaka. Besides, SpiceJet also announced the launch of flight services from Mumbai to the Saudi capital city of Riyadh which earmarks the airlines 10th international destination. In another important milestone, the airline also launched its Guwahati-Dhaka flight under the International Air Connectivity Scheme (IACS), which makes it the countrys first IACS flight.

During the year, SpiceJet added Rajkot as its 54th domestic destination. The domestic network expansion was laid out with a special focus on regional connectivity besides enhancing connectivity between metros and non-metros. SpiceJet became the first and only carrier in the country to launch non-stop flight services on the Ahmedabad-Aurangabad, Pune-Jodhpur, and Chennai- Durgapur sectors. It also introduced new flights on the Mumbai-Jodhpur, Chennai-Vishakhapatnam, Vijayawada-Vishakhapatnam, Hyderabad-Aurangabad, Surat-Kolkata, and Surat-Udaipur sectors. It also enhanced operations on Bengaluru-Chennai-Bengaluru, Bengaluru-Vijayawada-Bengaluru, and Mumbai-Mangalore-Mumbai sectors.

(c) Revenue enhancement and new ancillary streams Passenger revenue

SpiceJet undertakes sustained efforts towards detailed and close flight monitoring with proper coordination between network and revenue teams which enables it to take timely action to maximise revenue and increase load factors. Further, the Company continues to enhance its routes, aircraft fleet, and daily flights to maximise revenues.

Ancillary revenue

The Company constantly works towards offering innovative and pioneering products and services by leveraging technology to augment its ancillary revenue streams.

Its new-age, graded loyalty programme - SpiceClub - offers huge benefits to its customers. The programme is aimed at delighting the customers and building a loyal customer base focussed on increasing direct flight bookings and boost ancillary sales. In addition, SpicEngage - the in-flight entertainment system offers a fascinating range of entertainment content onboard to enhance the flying experience of customers. Its niche products and services such as YouFirst (priority check-in, priority baggage), combo products like seat + meal, Visa, Gift Cards, MyFlexi Plan have received impressive response from customers. Its dedicated air cargo network SpiceXpress has been instrumental in offering efficient and seamless cargo connectivity across India and on international routes with the Company intending to ramp-up freighter capacity in the coming years.

The Companys all-new complimentary in-flight entertainment system - SpiceScreen offers passengers seamless access to the latest blockbuster content on their personal devices through the Wi-Fi network. This indigenous technology is developed by SpiceJets team in collaboration with a local startup and is backed by the strong belief of Make in India.

SpiceVacations.com is a comprehensive travel solutions platform, offering customised travel packages for both business and leisure travellers at competitive prices. Spice Experiences is the activities portal platform on Spice Vacations to offer a wide range of destination specific fun-filled activities, airport transfers and local transport to customers for their convenience.

Further, the Company engages in the business of selling consumer merchandise and goods which operated through its subsidiary SpiceJet Merchandise Private Limited. These products are offered to passengers onboard at attractive prices.

(d) Cost reduction measures

Cost reduction has always been one of the key focus areas for SpiceJet so as to maintain an optimal cost structure in a price sensitive industry. The Company continued its focus towards automation, fleet rationalisation, efficient aircraft utilisation, and improving efficiencies to reduce costs. During the year, SpiceJet consolidated its position at Mumbai Airport by shifting its operations from the Domestic Terminal (T1) to the state-of-the-art Terminal 2 (T2) at Chhatrapati Shivaji International Airport. Consolidation of operations at one terminal in Mumbai will enhance customer convenience and result in substantial savings for the airline.

The Covid-19 pandemic posed unprecedented new challenges for the airline. In continuation of its cost ratonalisation initiates, the Company early terminated certain aircraft leases and returned aircraft without any cost implications. It also restructured aircraft leases by introduction of power by hour structures leading to rent reduction. Further, with the significant decline in demand due to Covid-l9 pandemic, the Company has rationalised and restructured its workforce cost in proportion with the reduced operational requirement while keeping basic minimum threshold for employees thereby ensuring no retrenchment on account of Covid-19.

(e) Brand consolidation

The Company has developed a unique product namely SpiceMax for maximising flying experience of its passengers. It offers a range of bundled services and priority privileges to provide an exceptional flying experience. This includes a welcome drink and refreshing towel (on international flight), ergonomic seat with extra leg-room, complimentary meal with beverage, priority services (check-in, boarding, baggage delivery), comfortable 4-way adjustable headrest, pillow and blanket (on international flight).

The Company introduced ‘SpiceJet Extra Seats across its domestic network, allowing passengers to book two seats or even a full row to make their travel more comfortable and hassle-free. In a pioneering initiative, SpiceJet introduced Ms Pepper, its 24*7 automated customer service agent on WhatsApp, in addition to its website and mobile app, to allow passengers check-in through it. At a time when travellers seek extensive support with minimum physical intervention, Ms Pepper offers a seamless customer service experience by resolving queries and ensuring access to important travel information through a simple conversation on one of the most preferred messaging platforms. WhatsApp servicing will also prove useful in enabling passengers get services in areas with slow and intermittent internet connections.

SpiceJet also became the first and only airline in the country to offer a comprehensive Covid-19 insurance cover for its passengers, which includes tests, medication, and consultations. This insurance cover is available at a low premium and covers all pre- and post-hospitalisation expenses.

SpiceJet undertook several promotional initiatives during the year, heralding a new era in brand marketing. In a one-of-its-kind campaign Spice Democracy, the airline ensured interested voters to participate in the democratic process irrespective of geographical boundaries In line with this, it gave free tickets to those wanting to fly back to Delhi to cast their vote in the Delhi Assembly Elections. Further, SpiceJet joined hands with Khelo India, a world-class sports experience for the young sports stars, as their official travel partner. Under the initiative, it provided a unique flying experience to over 1,000 participating athletes at the third edition of the 2020 Khelo India Youth Games held in Guwahati. To celebrate Childrens Day, the airline took 118 underprivileged children and cancer patients on a specially designated aircraft ‘joy-flight flown for them.

In another industry-first initiative, SpiceJet hosted the launch of Tamil superstar Suriyas song ‘Veyyon Silli from his upcoming movie ‘Soorarai Pottru (Hail the Brave) inside the aircraft at Chennai International Airport. It converted one of its aircraft into a flying billboard with movie poster giving a unique and unmatched visibility to the music launch. In addition, leading brands like Paytm, Nestle, Panasonic, Amazon, FlipKart, Netflix, among others have also partnered with SpiceJet. This positions the Company as one of the most preferred brands for marketing associations with renowned celebrities and corporates.

4. Operational and Financial Highlights

(a) Operational Highlights

(b) Financial Highlights

(c) Revenues

SpiceJets total revenues increased by 43% to 131,360 million in FY 2019-20 from 91,715 million in FY 2018-19.

Revenue from operations increased by 36% to 123,586 million in FY 2019-20 from 91,133 million in FY 2018-19 as the Company expended its fleet capacity and operated more flights.

Other income increased by 1,233% to 7,773 million in FY 2019-20 from 589 million in FY 2018-19 as the Company recognised 6,718 million reimbursement towards aircraft and supplemental lease rentals and other identified expenses of its grounded Boeing 737 Max fleet.

(d) Expenses

Total expenses for FY 2019-20 increased by 30% to 118,621 million from 91,231 million in FY 2018-19.

i. Aircraft Fuel and Oil

Expenditure on aircraft fuel increased by 34% to 46,162 million in FY 2019-20 from 34,453 million in FY 2018-19. The increase is on account of fleet capacity addition and increase in aviation turbine fuel costs with surging oil prices.

ii. Lease-Rental Aircraft and Engines

Expenditure on lease rental aircraft and engines decreased by 72% to 3,630 million in FY 2019-20 from 12,967 million in FY 2018-19. The decrease is on account of implementation of Ind AS 116 effective April 1,2019.

iii. Aircraft Maintenance Cost

Expenditure on aircraft maintenance cost increased by 44% to 21,717 million in FY 2019-20 from 15,043 million in FY 2018-19. The increase in maintenance and repair costs was due to capacity and aircraft maintenance.

iv. Employee Benefit/Expenses

Employee remuneration and benefits expenses increased by 44% to 15,258 million in FY 2019-20 from 10,570 million in FY 2018-19. This was primarily due to increase in manpower to support the additional fleet capacity.

v. Selling expenses

Selling expenses increased by 9% to 2,270 million for FY 2019-20 from 2,074 million for FY 2018-19.

vi. Other expenses

Other expenses increased by 138% largely due to increase in capacity.

vii. Finance Cost

Finance Cost increased by 315% to 5,450 million in FY 2019-20 from 1,313 million in FY 2018-19. The increase is on account of implementation of Ind AS 116 effective April 1,2019.

viii. Depreciation and amortisation

Depreciation and amortisation increased by 577% to 17,339 million in FY 2019-20 from 2,562 million in FY 2018-19. The increase is on account of implementation of Ind AS 116 effective April 1,2019.

Key Financial Ratios

Particulars FY 2019-20 FY 2018-19
Debtors Turnover Ratio 6.48 4.65
Inventory Turnover Ratio 78.49 69.65
Interest Coverage Ratio (0.72) (0.92)
Current Ratio 0.33 0.38
Debt Equity Ratio (0.69) (3.16)
Operating Profit Margin 4.02% (0.11%)
Net Profit Margin (7.56%) (3.47%)

5. Opportunities, Risks, Concerns and Threats

The short-term outlook of the global aviation industry remains challenging due to the pandemic related restrictions on travel. However, the industry is expected to gradually recover and grow at a strong pace in the long term. Increasing middle-class population, a favourable demography, along with the continuation of economic development and growth in household incomes support the positive outlook. Growth will be further spurred by strong growth in tourism, increased aircraft penetration from current levels, and the expansion of aviation infrastructure.

The potential risks and challenges which may further impact business and profitability include continued subdued demand due to pandemic and related restrictions, adverse movement in fuel prices and foreign exchange; high competition; talent crunch; airport infrastructure constraints. Fuel costs can be mitigated through adequate hedging and direct import which will be taken at appropriate time. Additionally, adverse government regulations, irrational pricing behaviour, uncontrolled capacity infusion, and overconcentration in certain markets by incumbents pose significant threat.

Introduction and availability of Covid-19 vaccine in the near term will provide the much required impetus to mobilise travel and return to normalcy, while scepticism related to travel will continue to depress demand.

6. Future Outlook

SpiceJet remains confident of a strong recovery in the future on the back of availability of Covid-19 vaccine, relaxations in travel restrictions, fleet expansion and strong cargo operations and expansion.

Going forward, the Company intends to emerge from the crisis stronger than ever and has been giving particular attention on cost control, revenue management, and brand value. At the same time, SpiceJet has been constantly adapting to the changing environment and new norms of flying. The airline, in these unprecedented times, is focussed on profitability and managing cash and liquidity by making its fleet more efficient, ensuring that the capacity is right sized to the market, and reducing costs further.

SpiceJet sees tremendous potential in its cargo business in post-Covid-19 environment. Even during the lockdown, SpiceJet utilised its cargo capacity to carry essential suppliers, which places it well to augment the operations in the months ahead. Currently, the airlines fleet consists of 11 freighters (five Boeing and six Q400) and three wide body aircraft (the first Indian budget airline to induct such aircraft). In the near and mid term, SpiceJet plans to add more cargo aircraft to scale up SpiceXpress existing capacity and transform into a full- scale freighter cargo service.

At present, SpiceJet operates to 47 domestic and 10 international destinations including newly received permission to operate flights to Jeddah, UK, US, and Amsterdam. It is the largest regional player in the country with 53 UdAn flights (currently 39 flying) operating in 10 destinations under the regional connectivity scheme. The Company has planned a phased ramp-up of operations to ensure that it adheres to all safety and social distancing norms and at the same time is able to cater to the available demand. SpiceJet has sufficient aircraft, crew and other operating staff available to resume and scale operations rapidly. Further, its highly skilled and energised workforce, strong fleet size, robust network, seamless cargo connectivity, and pioneering innovations will enable it to tide over the challenges and meet new customer expectations in this changed environment.

Overall, the Companys management is undertaking various steps to further maximise revenue and profit, optimise costs, enhance brand prominence, and achieve highest levels of customer satisfaction in its endeavour to sustain a world-class airline.

7. Internal Control

The Companys internal control systems are commensurate with the size and complexity of its operations and have been designed to provide reasonable assurance regarding the following:

• Effectiveness and efficiency of operations

• Adequacy of safeguarding of assets

• Prevention and detection of frauds and errors

• Accuracy and completeness of the accounting records

• Timely preparation of reliable financial information

An independent internal audit is carried out to ensure the adequacy of the internal control system and adherence to policies and practices. The scope of internal audit activity is guided by the internal annual audit plan, which is approved by the Audit Committee of the Board. The Audit Committee reviews reports submitted by the independent internal auditor and monitors follow up and takes corrective action.

8. Human Resources

SpiceJet considers human resources as a principal driver of growth and change. As the Company works towards transcending to the next level of excellence and achievement by creating a digitally empowered and future-ready organisation, the upskilling, empowering and unleashing talent are key. Therefore, it is focussed on ensuring individual development and growth in a professional work culture that enables innovation, high performance and is empowering.

Talent management is an important agenda for the Company. It is committed to hiring and retaining the best talent and being among the industrys leading employers. For this, it promotes a collaborative, transparent and participative organisation culture, and rewarding individual contribution and innovation. This will motivate the employees to raise the bar, not just for customers but also for themselves.

SpiceJet encourages learning on-the-job and facilitates various training programmes anchored around the competency framework. The leadership competency framework for the organisation has been fully integrated with various HR processes like recruitment and people review process. The Company worked towards accelerating employee career development in several ways, besides creating an environment where people feel valued and included.

In FY 2018-19, while the Companys focus was on expansion due to the induction of new aircraft, FY 2019-20 was more about consolidation. It continued progress in all key areas of human resources management, reinforcing its reputation as an employer of choice through numerous initiatives and programmes both for attracting new talent and retaining the best ones. The Company undertook various strategic learning programmes, employee engagement and health management initiatives to aid overall professional and personal development of its employees.

SpiceJet implemented a robust behavioural training calendar to address the training needs of employees across departments in the areas like - Communication Skills, Team Building, Time and Stress Management, E-mail Etiquette, Conflict Management and Emotional Intelligence.

In a special educational tie-up with UPES University, the Company fulfilled higher educational aspirations of 18 distant learning specialised graduate, post graduate and diploma programs employees. Special corporate discounts on fees was also extended to employees family members. The employees continue to reap benefits of the corporate collaboration with other professional universities of previous years tie-ups.

SpiceJet prides itself in being an equal opportunity and women-friendly organisation. It has zero tolerance for sexual harassment. It ensures a safe and secure work environment for the women employees by regularly training employees on the Prevention of Sexual Harassment policy.

The Company also encourages employees to participate in CSR initiatives (done in collaboration with renowned NGOs) for the underprivileged and the environment. In an effort to drive cohesiveness among employees, SpiceJet, for the first time ever organised a sporting event ‘SpiceJet Khelotsav. Received with a lot of fanfare, the event saw participation of all employees in six sports categories.

As on March 2020, the Companys overall employee strength stood at 11,675 as compared to 8,556 in March 2019. It continues to maintain its record on industrial relations without any interruption in work.

9. Information Technology

SpiceJet has been at the forefront in investing in technology to strengthen its competitive positioning. During FY 2019-20, the airline introduced new technologies, processes and innovation, paving the way for more competent, efficient and profitable business operations. Since the announcement of lockdown due to the Covid-19 pandemic and subsequent unlocking in phases, the airline has witnessed zero passenger operations. During this phase, the airline focussed on introducing new contactless processes to ensure safe and comfortable journey for flyers once operations resume. This necessitated several changes in the IT infrastructure.

Airports: The airline launched a new mishandled baggage application at all airports. This enables passengers to enter mishandled baggage information electronically rather paper forms and retrieve information on left behind baggage at the destination airports on arrival. The airline also initiated passenger reconciliation system whereby scanning machines is used at aircraft entry, thus doing away with the process of tearing boarding passes. A new windows-based user interface was launched at the check-in counters to move away from the old teletext-based check-in systems.

Keeping customer delight in mind, the airline launched an in-flight entertainment system which delivers high quality movies and TV shows, free of cost, directly on the customers mobile device while on board. Plans are on anvil to expand this to all flights. A completely revamped customer loyalty program was launched which enables customers to get points for all their travel which can be used to purchase tickets on the SpiceJet network or to reduce the cost of tickets.