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Can budget airline SpiceJet’s e-commerce venture fly high?

14 June, 2017

Low-cost carrier SpiceJet Ltd has floated an online venture to sell fashion and lifestyle products, entering a highly competitive segment where even deep-pocketed companies are struggling to turn a profit.

The airline has invested around Rs 15 crore to set up e-commerce platform SpiceStyle.com, a company executive told VCCircle on the condition of anonymity.

SpiceStyle.com will offer products from 17 categories. It has roped in fashion designer Rohit Bal to run a curated section on the portal and has tied up with Amazon to offer its entire portfolio of brands on the US e-commerce giant’s ‘Prime’ section, the company said in a statement. These products can also be ordered on board its flights.

The company said the new venture will boost its ancillary revenue, whose share in total revenue has grown from 6% to around 17% in the past two years.

The executive cited above said SpiceStyle aims to generate revenue of Rs 150 crore in the first year and increase the share of ancillary revenue to 19%.

SpiceJet posted operating revenue of Rs 6,191 crore for 2016-17 and a net profit of Rs 430 crore. However, the company had been struggling to survive a couple of years ago, before chairman Ajay Singh turned it around.

Taking off?
SpiceJet becomes the first Indian airline to sell branded merchandise on online marketplaces. But it’s not the first company in the broader travel sector to do so. Indian Railway Catering and Tourism Corporation, the state-run company that operates a railway ticket booking portal which is the country’s largest e-commerce platform, had also flirted with a broader online retail venture a couple of years ago when it tied up with Amazon. That tie-up appears to have ended now.

No doubt, there is potential in online retailing. India Brand Equity Foundation, a think tank, expects e-commerce sales in India to reach $120 billion by 2020 from $30 billion in 2015-16.

But making the new business succeed won’t be easy for SpiceJet.

The e-commerce sector is going through a difficult time. Some e-tailers have shut down or scaled back, many have laid off employees and most have seen their losses mount and valuations fall. Snapdeal, once India’s second-largest online retailer, is set to be merged with bigger rival Flipkart. And Flipkart itself has been struggling.

The bigger question is if it really makes sense for an airline to enter the e-commerce sector.

“The problem is that a lot of people try to oversimplify the e-commerce business. It’s not just having a dotcom and opening an e-commerce store,” said Sanchit Vir Gogia, founder and chief analyst, Greyhound Research. “Technology is the least of the worries in this business. The biggest worries are how do you get the customer, how do you get them to trust in you and spend time on the platform increasingly.”

Gogia said SpiceStyle requires a huge amount of investment and highly specialised skill sets. “There is no money in this sector by being a small- or medium-ticket business. You have to play in large volumes. Unless the airline is committed to invest $1 billion, I would worry about the future of any such venture,” he added.

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Can budget airline SpiceJet’s e-commerce venture fly high?

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