Bailout for private business that is a casualty of inadequate professional management would not only be unjustifiable, but also set an unhealthy precedent

Not all strikes can deliver the desired blow. Yet, the intent to strike almost invariably never fails to draw attention to the extreme circumstances that prompted it. So when July-end the Federation of Indian Airlines (FIA)—comprising Kingfisher, Jet Airways, Indigo, SpiceJet and GoAir—announced its decision to suspend domestic operations on August 18, the unprecedented move shocked the nation, yes, but also drew attention to the desperation stalking the private airlines and the manifestation of their cumulative financial mess. Driving home the point was a veiled threat that if losses continued to mount, it would not be possible to run the airlines unless the government came to their rescue. Evidently, the intention was to press the government to accede to their long standing demand pertaining to tax relief on aviation turbine fuel (ATF) and downward revision of the various charges payable by airlines to the government.

Since their very inception, the nine airlines in the private sector in India have been confronted with an array of hostile factors. One closed down within months of launch and two others, Deccan and Air Sahara, opted to quit while the going was good. The remaining six continued to sink further in the financial quicksand. Today, their collective dues to the Airports Authority of India (AAI) run into hundreds of crores of rupees and those to the oil companies, several times more. In India, airport charges are the highest in the world and ATF is priced at 50 per cent higher than international levels owing to a combination of high central and state taxes as also inefficiency of the oil refining and marketing companies. As fuel constitutes high percentage of operating costs rising in tandem with the international price of oil, the adverse impact of high taxes on ATF on the financial health of airlines should be obvious. Airlines have slipped further into distress as they have lost credibility in the money market as banks and other financiers are in no mood to run the risk of bad investments.

Undoubtedly, the private airlines too are partly to blame for the current quagmire. At hindsight, it is apparent these airlines often adopted business models quite out of sync with ground realities, thus creating an illusionary boom in the airline industry. Instead of a calibrated growth strategy, airlines indulged in unbridled expansion of capacity placing orders for hundreds of aircraft, employed prohibitively expensive expatriate commanders in large numbers, were generally overstaffed, placed undue reliance on foreign expertise in top levels of management and engaged in unhealthy competition. Airlines structured on the low-cost model offered unsustainable fares to enlarge clientele leaving little option for the full service carriers but to drop fares to retain market share. In a relentless pursuit of brandbuilding, some carriers focused more on style than substance with little concern for efficiency and on-time performance. The problem was definitely compounded by inadequate airport infrastructure and archaic air traffic management that served to escalate operating costs. As a result, the cumulative losses amounting to staggering figures have begun to cast ominous shadows on the viability of the industry and the survival of private airlines on the Indian scene.

Grappling with problems with its own ailing enterprise, Air India, the government does not appear to be unduly perturbed by the new crisis. With the possible solutions lying in the domain of three different ministries of the government that are insulated by impenetrable bureaucratic barriers, the notice period of 17 days is much too short for any meaningful action. The response from the government so far has been a combination of non-committal invitation to dialogue and armtwisting by way of threat of hauling the offending airlines over the coals should they refuse to call off their agitation. Options before the government are severely limited. Bailout for private business that is a casualty of inadequate professional management would not only be unjustifiable, but also set an unhealthy precedent. The private carriers are also disunited. The low-cost carriers who had already restructured to meet new challenges have good chance of survival and hence may not find it expedient to join the movement. Paramount Airways has not been part of the demarche. Indigo and GoAir have opted to withdraw from the strike. Meanwhile, SpiceJet has recorded profit and has also opted out for good reason.