Spicejet Turnaround

The Turnaround Framework

The turnaround framework has seven essential ingredients namely,

• Crisis Stabilization
• New Leadership
• Stakeholder management
• Strategic Focus
• Organizational change
• Critical Process Improvement
• Financial Restructuring

Now we shall evaluate the SpiceJet turnaround using the turnaround framework, emphasizing on how SpiceJet has adopted the turnaround strategy to revamp its position in the industry and  come out of the downward spiral it was progressing on.

CRISIS STABILIZATION

A company needs to first stabilize the crisis it has at hand mainly due to these reasons:

Cash Conservation: During a crisis the company usually is on the verge of a bankruptcy or is in dire need of cash. The company needs to conserve cash and cut down on excess spending through attrition of extra employees or cutting down on bonuses.

Buying time: Essentially the crisis stabilization phase is to buy time by planning a short term strategy so that the company’s top management can devise a long term strategy to turnaround the company.

Regaining stakeholder confidence: During crisis situation the stakeholders need to be assured of the fact that top management shall be able to bring back the company out of the problem. They should trust the company to become profitable again and not sell their stake in the company.

The crisis faced by the company occurred mainly due to the rise of jet fuel prices which contribute to around 40-45% of the operational costs of the airlines.

The build up of the crisis was over the years as Spicejet was unable to make profits and its operational costs kept on increasing, also being a low fare airline it couldn’t hike its prices much. This led to SpiceJet recording huge losses. The promoter infused a lot of money into the operations but was unable to pull the company out of its loss making streak. The high maintenance cost had been hurting the business. Kalinithi Maran had been taking one of the highest salaries in the company. Spicejet reduced its fleet from 58 to 48 to cut down on maintenance costs and returned 10 Boeing 737’s. 40 pilots quit in 6 months. Spicejet tries to seek fresh investment and Rakesh Jhunjhunwala buys 1.4% stake in the company. Around 71 pilots get grounded by DGCA (Directorate General of Civil Aviation). The company is supposed to be spiraling down a path laden with losses ultimately ending in the closure of the company. AAI (Airport Authority of India) withdrew its credit facility from SpiceJet and this led to a fall in its stock prices. AAI cited the inability to pay dues as the reason of putting SpiceJet on a ‘cash and carry’ mode for using airport facilities. In December 14 the low cost airline cuts down its fleet again. We can observe the various  measures that were being taken by the airline to somehow sustain itself.