Business Economics & Services Team (BEST)
The Indian Clouded Sky
The Indian airline companies are falling on the way side one
after the other. It was Kingfisher a couple of years back and now it is
Spicejet. Indian Airlines is in the ventilator and is kept alive with massive infusion
of tax payers money. What are the reasons for the widespread sickness? Is it
because the way in which these airlines were run was faulty or the aviation
industry itself is beset with problems and complexities.
Before, we get into the brass tacks, let us agree on a couple
points: aviation industry is a high risk area. Even during the best of the
days, its profit margins are razor thin and a small downward swing either of
the operating cost or traveling public can make or break the industry. Two,
busting of airlines is not a new phenomenon. It has happened in the US in the
late 1990’s and in an equally forceful manner had happened in India. Many of
the airlines, who had made their presence in India in the late 90’s have become
extinct. Indian sky was crowded at that point of time. The arrival of private aircrafts was when the archaic law air traffic law
enacted in 1885 or so was amended by
late Madhav Rao Scindia, when he was the aviation minister. A lot of airlines
like ModiLuft, East West, UP Air, Jackson Air what have you have sprung up taking advantage
of the relaxed policy and also on the anticipation that aviation carried in its
fold both aura and moolaha (money). But the former was in abundance and the
latter was scarce. That had driven many out of business.
Unfortunately, nobody seems to have learnt from the past
lessons. People are still betting on the airlines and many new airlines have
been pressed into the service and one or two are waiting in the wings. Why they
are biting the dust? Has Directorate General of Civil Aviation had undertaken a
study on the industry to ferret out the reasons so that such things will never happen
hereafter?
Undoubtedly, aviation is a capital intensive industry. Cost
of aircraft is prohibitively high. Acquisition of aircrafts goes up every year
so also the operating cost including cost of fuel, salaries, ground handling cost
etc. Also, the cyclical fluctuations in the industry are well known. During the
slowdown days, most of the airlines were doing badly on account of the low pick
up of passengers and freight cargo. But the operating cost and ground handling
charges remained the same. Once, the industry picks up, airlines will have to acquire
new aircrafts to meet up with the expected demand. Then again the downward
cycles hit bleeding the industry further.
Many error and trail have been conducted in the industry and many
suggestion shave been put forward to induct dynamism in the industry. Many in
the aviation scene believed that foreign equity by an another airline, which
was prohibited earlier, would help revive the bottom lines of the industry and
accordingly 26 per cent FDI equity was permitted. But it did not help
bolstering the Indian aviation scene. No one has come forward to invest in the
airlines. Earlier to that, we have pressed into service budget airlines to make
the sector scalable on the presumption that volume of travelers would go up
once the tickets are priced reasonably. They thought there would be diversion
of traffic from rail to air. But it
might have worked for some time but the opaque nature of pricing of tickets and
often the exploitative tactics kept the passengers away from the aviation scene.
It is time that we come out with some out of box solutions
to salvage the airline industry from its slumber. I feel that there should be some new models to be tested now. One such
model is participation of the aircraft manufacturers in the actual running of
an airline. Boeing and Airbus are two large airline manufacturers in the world.
The aircraft engines are manufactured by companies like Rolls Royce, Raytheon (aviation
equipment) Pratt & Whitney etc. Could we think of a grand alliance among
airline companies, aircraft and engine manufacturers, airport managing
companies etc. for running the aircraft? This will help not only in bringing
some stability in the aviation industry but also help expand each others’
operations. Also, importantly, it will ensure some backward and forward
linkages, which are critical for industry to survive.
