The Hindu Business Line : ‘Dropping load factors, a big concern’

The important thing is that we have a regulator with teeth. He has to be a tough, knowledgeable regulator, who can bring in greater efficiency in both the airlines and the airports.

GIOVANNI BISIGNANI, DIRECTOR-GENERAL, IATA

Ashwini Phadnis

During his recent visit to India, the Chief Executive Officer and Director-General of the Geneva-based International Air Transport Association (IATA), Mr Giovanni Bisignani, met with mediapersons from a select group of publications, including Business Line. At the meeting, the head of IATA, which represents, leads and serves the global aviation industry, outlined steps that need to be taken to revitalise the domestic industry.

Excerpts from the interaction:

You talk about a loss of $ 1.5 billion for the domestic aviation industry. What can be expected in the coming months?

Losing $1.5 billion is a massive number for a country like India. The domestic industry is at a fragile and delicate moment. That is why the situation has to be handled more carefully because a great start-up could go out of control. We have all seen the recent mergers between Jet Airways and Air Sahara and between Kingfisher and Air Deccan.

Logically, at the beginning of a merger you just see the negative parts — redundancies, and the like. The synergies start a bit later. The positive impact does not happen immediately. So you will have to try and live with this difficult situation during the following months when it will be more painful because in the industry the last quarter is always the slowest.

How slow should the capacity induction have been instead of the way it happened?

When I started to see hundreds of planes worth billions of dollars being ordered I initially felt that the industry was putting in too much capacity. But, on the other side, it was a growing moment for the aviation industry last year.

At that time (when the aircraft orders were placed) the domestic industry was growing at 30 per cent. However, logically, when you start seeing load factors (which is the number of passengers being carried) dropping to below 50 per cent (as is the case now), then it is a matter of big concern. The adoption of capacity to the market takes a certain amount of time.

What needs to be done to arrest the downslide in the sector?

We need some changes in the structure. Just look at fuel. In Mumbai it is 58 per cent more expensive for domestic airlines to pick up fuel than what airlines pay, for example, in Singapore. You can put a fuel surcharge when the economy is growing but when the traffic is not growing, how do you do it? At the same time, you also have to take away capacity (in light of market developments and the slowdown in traffic).

The increase in fuel costs is an enormous amount. We are speaking of $50 billion on fuel. However, this is not offset when you have big mergers around the world. I am not speaking about India because the mergers here are small. Consolidation is useful as it will bring a bit more efficiency but this is nothing compared to the bill that the industry has on top of itself.

What is your opinion on the Airport Economic Regulatory Authority Bill?

The important thing is that we have a regulator with teeth. It has to be a tough regulator, both for airlines and airports.

This is a country where you have many famous economists and this is exactly the role for an independent professor of a university.

Say, such a person is put there for three years because he is a reliable and respected person and he handles the situation in an effective way.

But one of the questions I will ask is: what is efficiency? Ask the airports to match the efficiency of the airlines.

So, if an airline has achieved 10 per cent efficiency in cutting down its costs, the same efficiency should be expected from the airport.

We have seen that this is not happening too many times because the regulator coming in is a senior civil servant who is nice and on a pleasant retirement party. He is respected, but he has no teeth.

What is needed is an independent, knowledgeable person who holds the office for a reasonable period of time. Bureaucrats and airline managers need to be taken away.

A respected professor of economics in a field related to the sector who understands the business is what is needed.

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