Airlines have no option but to charge realistic fares

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Airlines have no option but to charge realistic fares

Sindhu Bhattacharya/ DNA MONEY | 2008-06-30 10:13:23

Indian Airlines

The Indian aviation industry is passing through one of its worst phases, with all airlines reporting mounting losses, jet fuel prices climbing week-on week and load factors plummeting.

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While ATF price spike is by far the biggest culprit, airlines have been quick to point out that the government's apathy in putting an encouraging policy framework in place is also responsible for the current state of affairs.

Civil aviation secretary Ashok Chawla is not given to dramatic statements but in his own quiet yet assertive manner, he lays the blame squarely on the doorstep of the airlines. Excerpts from an exclusive chat with DNA Money's Sindhu Bhattacharya.

Is a misdirected policy or the virtual absence of any policy framework responsible for airlines losing money?

It is correct that we followed an open skies policy in the domestic sector by placing liberal entry barriers for airlines to start operations but you must also remember that the airlines complaining today are themselves the babies of this policy...they were left free to decide revenue model, capacity addition etc. Recently, fares were increased by 10-15% but the airlines have not seen any significant drop in traffic; they are also cutting down on excess capacity and have no option but to charge realistic fares.

Is the present scenario a result of unhindered capacity creation by domestic carriers–something the government did not check? Are criteria for operating commercial flights too lax?

The airlines themselves should have studied global trends before creating capacities. No one expected continued 35-40% growth; nowhere in the world is growth in aviation more than twice the GDP growth. Today, excess capacity is almost 20% which is pretty high. Then, growth also happened because of undercutting–fares were kept unrealistically low and everyone continued to lose money. And despite our efforts, not all state governments have agreed to cut taxes on ATF so airlines have to look at realistic pricing.

On the overseas front, has the government's over-zealousness in signing bilaterals given foreign carriers an undue advantage over domestic airlines for outbound traffic, hurting the industry more in the process?

Again, policy for bilaterals has been liberal too but then growth in international traffic has not been unrealistic (compared to the unrealistically high growth in domestic sector) and has stayed steady at 14-15%. I don't think we have done unnecessary bilaterals.

Recently, there has been a talk of your ministry favouring a removal of the current restrictions on Indian carriers flying abroad to help carriers in these tough times. Has such a recommendation been made to the GoM looking into the matter?

I am not sure if lifting the ban would help bring down costs of domestic carriers. But sure, the prescriptive ban on overseas flying is no longer in sync with global trends and needs to be reviewed. Our recommendation is that the cap (carriers must have completed five years of domestic flying) should not be so rigid and there are several possibilities that could work: reducing five year cap to 2 or 3 years, relaxing the mandatory number of aircraft needed to qualify etc.

Then, we could look at allowing narrow body aircraft for near destinations (Gulf and neighbouring countries) and wide body ones for long haul. This is the only way we can effectively use our bilateral rights.

Will the government also look at allowing foreign carriers to invest in India? This will bring in investment and help the domestic sector grow.