Indian Aviation in Turmoil

By M H Ahssan

For over forty years after independence, the aviation industry in India was a virtual state monopoly - both Air India and Indian Airlines are 100% government owned companies. When the liberalization process started in 1991 and an open skies policy was announced, Jet Airways was among the first to commence operations. Other players entered the fray but could not develop a sustainable business model due to high entry barriers and regulations on routes.

The low-cost airline model was also tried with the advent of Air Deccan. The vision of its founder was to enable every Indian to fly. A laudable goal but one that missed the point about poor infrastructure, appalling ground handling conditions, and a regulated price for aviation turbine fuel that rendered the low-cost model meaningless. The last entrant was Kingfisher, whose founder has been compared to the CEO of Virgin Airlines. Both are flamboyant and perhaps the similarity ends there.

The first signs that none of the players had the ability to survive in the long-term became evident when Kingfisher managed to gobble up Air Deccan. With the acquisition, the low-cost model also went through the window. Kingfisher went to great lengths to highlight its service - to the point of providing individual monitors even on a one-hour flight. The perils of unrelated diversification became evident.

On Monday (October 13), Kingfisher and Jet Air announced an alliance that included code-sharing, rationalization, and some undisclosed arrangements for cutting costs. Together, they would have a 60% market-share. The fact that this was a desperate attempt to stay afloat given the huge losses each was suffering every day was not highlighted.

The next day, Jet Air gave the pink slip to over 800 of its employees, mostly cabin crew who were on probation. Today, it has decided to sack another 1000 employees, this time including flight crew as well. Kingfisher is likely to follow suit - cut the flab, to quote the airline's founder. Both airlines have decided to return the aircraft they have on lease.

The Federal Minister for Civil Aviation has asked for a bailout package for the airline industry, adding that in its absence, the industry was doomed to failure. The minister, not surprisingly, has found support from industry circles and captains of business. It is even being argued that if the two airlines are not rescued on the lines of AIG in the US, India would come to a grinding halt.

Ordinary citizens, like their counterparts in the US, are outraged. Who invited or asked Kingfisher to enter the airline industry in the first place? Did they not know the costs, risks, and long gestation periods of the airline industry? Why should the taxpayer be made to feel the brunt of a bailout for the acts of omission and commission of the government and the promoters? If the Federal Railway Minister, once a synonym for corruption, could turn around the Indian Railways into one of the most profitable enterprises in the country, surely there was a lesson or two that the capitalists could learn from him?

A larger question is what if another infrastructure company was to declare tomorrow that it was closing down, would the government rescue it as well? Where and when would this circus end?

Lean structures, operational efficiency, service innovation, timeliness, and a caring attitude toward the customer should have been the buzzwords for these businesses if they were at all serious about creating value. Instead, they indulged in unbridled profligacy and are paying the price for it. It is time the state got out of the business of rescuing ailing companies. Be efficient, be accountable, or perish. That alone can save us from the kind of meltdown we are witnessing across the world. At the least, we need not replicate failed strategies.