The Indian Clouded Sky

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.