FROM BUSINESS WORLD OF 20 OCTOBER 2006
A wedding much
postponed
Air India has
again made news for old and wrong reasons – flights being cancelled, and booked
passengers being shabbily treated. This used to be par for the course when a
national monopoly and reciprocal landing rights gave Air India a secure market.
Then came the IT boom with Indians flying out in millions; Air India was not
equipped for the rapid expansion of services that became necessary, and
reciprocity had to be buried. First, the government negotiated more flights
with other governments, and as Air India could not use its rising landing
rights, foreign airlines filled the gap. Then came the congestion at the metro
airports, especially Bombay and Madras; since the government could not increase
their capacity in time, it allowed foreign airlines to fly to other airports. Then
came the opening to the east; in an effort to improve its ties with South-east
countries, the government removed landing right restrictions on their airlines.
Finally, the private airlines that had proved themselves in the domestic market
were allowed to fly abroad. Today, Air India is just a speck in the sky. It
finds no shelter from competition. Its staff is losing its esprit de corps, and
are looking after themselves. The story is not very different in Indian
Airlines. It made a loss in the first quarter of this financial year; a dozen
of its aircraft have been grounded – a strange achievement for an airline that
is inducting new and expensive planes.
There were two
things that were incongruous about the commissioning of Indian Airlines’ first
new plane in 12 years. Some time after independence, the bottle of champagne
that used to be used on such occasions was replaced by a coconut; but this time
the coconut was a part of an elaborate pooja. This was a custom brought in by
the previous BJP regime; it was surprising that a minister of a secular
Congress ministry succumbed to it. The other was the minister’s obvious
displeasure. He warned both Indian Airlines and Air India that the government
would not be a mute spectator to unspecified goings-on and would take corrective
action.
One measure that
the government is contemplating is merger of the two government airlines; it
has set up a ministerial committee to look at the issue. As it will find, it
has been looked at many times before – and shelved each time. The reason is
that the structure of staff, salaries and incentives in the two corporations is
very different. Air India being an international airline, its pilots drew
internationally comparable salaries. The staff did not; but they got such
handsome flying and outstation allowances that a man could retire after
marrying an Air India air hostess. Lifestyles came to match the incomes and
footloose habits. Air India staff were a cut above Indian Airlines staff, who
were confined to the country, got low salaries and still lower allowances. The
inequality caused intermittent labour trouble. To pacify its employees, the
government allowed Indian Airlines to fly to neighbouring countries. That
raised allowances and opportunities, but did not make them comparable with Air
India.
The arrival of
private airlines was traumatic at first for Indian Airlines, but proved a
blessing in disguise. It rapidly expanded the market; while Indian Airlines’
share fell, its business expanded manifold. Being a government airline, it
could not go bankrupt. It used this privilege to cut fares to such a level that
private airlines came to senses and began to match its fares.
Now that sunny
period is coming to an end for Indian Airlines. Domestic competition has
intensified so much that no airline can make a profit. There is overcapacity.
It will have to shrink; some airlines will have to close shutters. It will not
be Indian Airlines, whose owner can dip infinitely into taxpayers’ pockets. But
it is passing through turbulent weather, and that has unsettled Praful Patel. Being
a good businessman, he is looking for a way to improve the airlines’ finances;
a merger came naturally to his mind. It would enable them to pool routes,
eliminate duplication and raise resource utilization. It is such an obvious
solution.
But it will
founder on the same rocks as before. The trade unions in the two airlines can
never agree on harmonization of pay, incentives and work loads. The airlines
are already overmanned; elimination of inefficiency will make many people
surplus.
Hence the
minister does not need a ministerial committee. He needs to sit down with the
trade unions and knock some sense into them. He has an easier and more
permanent cure available to him – privatize the airlines. But this old-style
Congress government would rather resign than think of it.
