It might be ok for the Indian government to bail out loss-ridden national carrier Air India, but it is preposterous that private airlines in which the government has no stake should scream "me too."
India's airline industry has totted up losses of about $2 billion in the fiscal year that ended March 31, 2009 of which Air India accounts for more than half. Of course, private airlines account for the rest of the losses.
Despite bowing low, Air India's mustachioed Maharaja mascot has not been able to welcome enough passengers on board. Falling passenger traffic is a reality that the global airline industry has to face amid the current economic recession. But as far as fuel costs are concerned, India's private domestic airlines have a genuine grievance.
India prices jet fuel higher for domestic airlines compared with international ones because of the hefty taxes imposed by the states. Most domestic airlines fly Boeing or Airbus aircraft which attract the higher end of the sales tax on jet fuel, which ranges between 4% and 30%. However, none of this has changed much recently.
Though jet fuel prices have gone up in the last few weeks, they are about half of the levels seen a year ago. On July 3, 2008, jet fuel in the Asian benchmark market of Singapore peaked at $181.60/b, while on August 4 this year, they had slid to $78.37/b, also well below the four-year running average of $89/b.
Yet, the private airlines have been losing big -- but this is because of faulty thinking, not high fuel charges or fees.
The airlines were riding a wave of euphoria the last couple of years, assuming that the 30-40% annual growth in passenger traffic would continue forever. The growth rate was forecast to hit a mind-boggling 400% by 2020. So they went on an aircraft-buying spree, only to be hit by the recession.
Interestingly, low-cost and regional airlines such as SpiceJet, IndiGo and Paramount are weathering the storm much better, and even making profits, while full-service airlines such as Kingfisher and Jet Airways are facing substantial losses.
Meanwhile, Air India's debts of more than $3 billion prompted the government to come to its rescue. A committee of senior officials appointed by Prime Minister Manmohan Singh was told earlier this month that apart from pumping in $450 million-650 million cash immediately, Air India would need a financial bailout package of $4 billion spread out over five years. But this could be money down the drain if the airline continues to be overstaffed and poorly managed.
The government is certainly justified in putting its foot down and refusing to bail out private airlines, which threatened to ground all flights on August 18, a threat they later withdrew. The government might be able to dictate how the bailout package is used by Air India, but it would have little say in the case of private airlines.
What the private airlines need is a reality check. They should take some tough decisions such as increasing fares and even grounding some flights. Disciplined cost-cutting is the answer, not a bailout.
Agree with Ms. Nair. The way forward for the Airlines is to address the issues internally. A lot can be achieved by cleaning their houses. Look for ways and means on cutting costs. Trim the gilt edged services which some Airlines still indulge in for their A class passengers.
However in times of over-capacity, fares need to be reduced on select routes to generate volumes. Flights to unprofitable sectors are to be curbed altogether.
It is also time for Airlines to consolidate their services,on ground and air.They must flock together, at this time of crisis to bail themselves out, instead of flocking together for holding the government to ransom.
It is only a matter of time before they would be able to branch out individually again.