INDIAN AVIATION - 'SICKENING' TURBULENCE

By Ruma Dubey

This must be the season for sickness, afflicting only one section of the population – the pilots. And even in that there exists a subset - pilots of Air India and Kingfisher Airlines.  

Today, it is the third day where Air India pilots, over 200 of them have not reported for work, all of them are apparently sick. They are ‘sick’ of the airlines not meeting their demands. And learning from the elderly, some Kingfisher pilots too have reported sick today and they are also ‘sick’ with Mallya not paying up their salaries. The only decency which was seen was that Kingfisher pilots have threatened to stop flying from tonight; unlike Air India pilots who pulled the plug without any notice.

So what is this ‘sick’ syndrome which has affected the Indian aviation sector? It is frustrating to see the pilots of Air India holding the country to ransom and the Govt squandering away our hard owned money collected from taxes on such sick needs.  The story of Kingfisher is only different in the sense that it is owned by the private sector but both suffer from one big sickness – mismanagement. In both cases, there is complete recklessness when it comes to money. Air India is a white elephant and its employee costs itself is eating away the company hollow, not to mention the largess doled out to VIPs and politicians. The Govt is running Air India like a socialist organization but wants it to generate capitalist benefits. How is that possible?  Kingfisher is thanks to Mallya and his art of living. Kingfisher is a company not hit by any scam but more about poor management, leading to perennial losses. It is facing insolvency and there are reports that its license could get cancelled. Its accounts are frozen, flights are grounded, salaries are not paid, bills for fuel are unpaid and it is a tax defaulter too.

Today, 5 out of the 6 airline companies are in the red. But there was a time, in 2005 when all airline companies, including Air India also managed to post a profit. Well, Kingfisher since its inception in 2001 has never ever posted gains.

The Centre for Asia Pacific Aviation (CAPA) has forecast a record US$2.5-US$3 billion loss for Indian airlines for FY12 of which 50% loss will be of Air India alone. And all this news is in the background of news from IATA that domestic air traffic in Feb 2012 from India experienced the second strongest growth among the major domestic markets at 12.3%. We recorded the second highest growth in domestic market in the world, Brazil being the first.  So on one hand, air traffic is going up; more and more people are travelling by plane; air fares are noticeably higher than last year. And yet, despite the macro factors being so optimistic, airline companies are in deep red.

So what is wrong with the sector? Topline of all airline companies is up but it is the operating costs which are eating away the companies. And high fuel cost, high interest costs are the prime reasons. That’s not all. Competition is up and airlines are cutting prices to ensure that they stay in the race thus making the business unviable.

The rupee depreciation has raised the cost of airplanes bought from overseas. These aircraft companies lease aircrafts from foreign companies at a debt taken in dollars and thus the rupee depreciation is eating away the earnings.

But on a macro level, are these just bad times or are we at cross roads, about to witness another bout of consolidation? Yes, to some extent consolidation will happen. Price rise is something we consumers will have to live with and with airport taxes hiked; fares will only go up further. The best solution would be to lower fuel taxes, lower interest rates, and have a stronger rupee and lower airport charges. But this is wishful thinking or rather day dreaming as none of the above could happen. And against this backdrop, with airlines cash strapped, those in the sector thus advocate allowing FDI in the aviation sector. If foreign carriers are allowed to buy stake in domestic airlines, their cash crunch to some extent could come under control. Now that is another story for another day…