The Hindu Business Line : Smooth flight, rough landing

This when, after spiralling to Rs 71.02 a litre in New Delhi, ATF prices are today down to what they were in 2005 — a year after the United Progressive Alliance (UPA) Government came to power. Ironic as it may sound, a customer pays more for a litre of petrol than an airline does for a litre of ATF.

Despite their costs coming down (ATF constitutes about 45-50 per cent of operating costs) airlines have not reduced fares, though some have cut fuel surcharges. The Minister also suggested that the private players lower fares but they did not follow his advice.

However, since ATF prices in India, as elsewhere in the world, are determined by fluctuating international prices, the Government alone cannot be blamed for this mess.

The Ministry of Civil Aviation did take up the issue of according declared goods status to ATF, which would ensure that the States cannot charge sales tax of more than 4 per cent on the fuel. But with the global price of crude falling, the initiative died a natural death. The consumer got the rough end of the stick even in infrastructure development. The Government carried forward the process of modernising airports in New Delhi and Mumbai through the Public Private Partnership (PPP) route. But it is the consumer who is now being made to pay for these facilities.

Winds of change

For instance, Delhi airport is charging Rs 200 for domestic departures and Rs 1,300 for international departures from the city. Mumbai, too, is going to start charging an Airport Development Fee (ADF) from next month.

In a related move, the Minister has also stated that the state-owned Airports Authority of India, which is developing airports to a particular size, too would charge ADF. Much of this mess has been created in the recent past and it would have been difficult to predict this state of affairs when the UPA Government took office in 2004.

The winds of change had started blowing through the sector. And within days of coming to power, the UPA Government allowed private sector domestic airlines, which were already posing competition to the state-owned Indian Airlines in the Indian skies, to also fly abroad.

The first to take the lead was the now defunct Air Sahara, which started flying between Chennai and Colombo, followed hours later by Jet Airways on the same route.

This further opening of the skies was followed by bidding for the modernisation of the Delhi and Mumbai airports, for which private players — the GMR and GVK groups respectively — were short-listed. The government also signed liberal air services agreements with key source countries, including the UK, the US and the UAE.

The industry as a whole welcomed this move as the exchange of liberal bilaterals saw the number of seats on offer between India and Dubai, and India and the UK increase, and also saw fares on these international sectors dip.

Consolidation

In a sector which was taking off, it was but natural for mergers and acquisitions to take place for the consolidation of the market. So Jet Airways bought out Air Sahara, Indian Airlines merged with Air India and finally Kingfisher Airlines purchased low-cost airline Air Deccan.

These mergers and acquisitions, coupled with a downturn in the economy, however, created their own problems. In a bid to keep down costs, the promoters of the merged private airlines opted for downsizing their workforces.

The issue of downsizing, which saw Jet Airways attempting to sack close to 2,000 personnel, led to a huge hue and cry in the public domain. Though Jet Airways ultimately did not sack any personnel, the issue of downsizing still remains important.

The UPA Government’s five-year term also marked a flip-flop on some other issues.

While in the beginning, the Minister for Civil Aviation, Mr Praful Patel, emphasised the need for Indian aviation to grow to a particular size before allowing foreign airlines to pick up stakes in domestic airlines, this stance changed towards the end of his tenure.

At the fag end of its innings the Ministry moved a Cabinet note to allow foreign airlines to acquire a minority stake in domestic airlines.

Wider reach

Further, despite talking about making India a hub for aviation, the Government was unable to dissuade Jet Airways and Air India from opening their hubs abroad. While Jet Airways chose Brussels as its hub in 2007, Air India is to open its hub in Frankfurt later this month.

But there could still be a ray of hope. With the number of civilian aircraft and the number of people flying increasing, and almost all economic pundits predicting that the economy will bounce back, the launching pad created by the UPA Government can be used not only to make flying more affordable but also to expand the reach of airlines so that more people are able to fly.

This is fourth in the series of articles assessing the UPA Government.

More Stories on : Airlines | Insight | Politics | Petroleum

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Industrial churn

Smooth flight, rough landing

Why Doha Round conclusion is even more crucial now

Rakesh Mohan conducts the Basel symphony orchestra

Service delivery in TN

Communication tools

Accounting for profit

Unlimited overs

Nomination facility