FROM THE TELEGRAPH OF 20 OCTOBER 2006
An industry in
trouble
Jet Airways took
off just over a decade ago; soon it made a reputation as an airline of quality.
That did not seem such an achievement then, since the only competition came
from the aged, lumbering, offputting Indian Airlines. Some fuddy-duddies may
have remembered the smart service its staff used to give when it was still a
Tata airline, but decades as a government airline had wiped out the tradition
it had inherited. It was David against
Goliath; the outcome was not in doubt. Jet steadily took away passengers;
Indian Airlines was left carrying members of parliament, bureaucrats and other free
riders. Jet overtook Indian Airlines as the largest domestic airline.
Jet’s success
brought in imitators; new private airlines entered the field. The year 2005 saw
the largest aircraft acquisitions by Indian airline operators in history. And
with competition came differentiation. Deccan Airways started a barebones,
cut-price service at one end, while Kingfisher started a luxury service at the
other. At first it looked as if Jet was invincible. It made Sahara, its closest
private competitor, bleed, and nearly bought it up. But then Sahara lived to
wait for a better offer.
It now looks
unlikely that the offer will come soon. For in the meanwhile, the unthinkable
has happened: Jet has made its first-ever loss. A sizeable part of it is on
account of international operations; the limited overseas service Jet has
started simply does not pay. But domestic services have made an even bigger
loss. Jet, having become a public limited company, has to publish its accounts;
other private airlines do not have to. But they must be bleeding even worse.
Their distress
is palpable. They met Praful Patel, the aviation minister, to see if he would
restrict competition and give them relief. He will not license new airlines,
but he can do nothing to close down those that are already in the field. They
set up an industry association. It will no doubt act as a lobby in the
tradition of Indian industry bodies; in particular, it will lobby the
government to make aviation fuel cheaper. But it is doubtful that it will be
able to raise fares. The industry has surplus capacity at the present fares; at
higher fares, it will have even more.
In the battle to
come, those with the deepest pockets will survive; those with empty pockets
will go bankrupt. What this industry needs is capital. Indian businesses are
piling in cash; but they do not seem likely to take over bankrupt airlines. The
only way fresh capital can be infused into this industry is to open it to
foreign investors. This will be vehemently resisted by the current owners. There
will be voices against it in the government and amongst its allies. But in view of the impracticality of cartelization, foreign investment seems the only way of
stabilizing the industry.
