‘FDI in domestic airlines will not solve Indian aviation issues’

Ashwini Phadnis
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If an airline is losing money and its owners get more capital into it that is simply spent in subsidising operating losses, then you have not solved the problem.

After regaling the global media with songs over a traditional European meal, the newly appointed Director General of the International Air Transport Association (IATA), Tony Tyler took time off to speak to the Business Line on issues connected with Indian aviation in his office in Geneva.

The Indian Government is looking to lower Airport Development Fee (ADF) but the period of levy will increase. What are IATA’s views on this?

We are very much against this whole airport development fee. We do welcome the fact that the Ministry of Civil Aviation is getting involved in this area and instructing the Airports Authority of India not to seek ADF in Chennai and Kolkata and also to reduce ADF in Mumbai and Delhi.

These are significant steps for reducing the cost for passengers in Delhi and Mumbai. But we are concerned that it will go from one hand into the other. The revenue shortfall from one will somehow be offset by the other by increasing airline charges somewhere else. So, we will have to make sure that does not happen. The Ministry has listened to the industry but we wish it would listen a bit more.

Your predecessor had something called the ‘Wall of Shame’ where Indian airports would invariably figure…

I do not have a wall of shame. There is a time when you need to shout publicly but I prefer to shout privately. If you take an industry body like ours and you take a very strong public position it can tie the hands of the other side that seems to be making concessions to industry pressures.

I think it is better to go see the Minister, as I have done, and explain to him and the officials what the real problem is in strong terms but behind close doors so that they get more room to move. I am new at this game. But I think we have had a few successes. India is one. It seems to be an approach that seems to be working for me.

However, let us not kid ourselves because the Indian airport costs remain a big problem. These are standing in the way of economic growth and development, which is surely what the country wants and needs.

Domestic traffic has been in decline recently. High airport costs have to have something to do with it.

Is the decline in passenger numbers a cause of worry for IATA? What steps, apart from lowering airport charges, will you suggest?

I do not want to comment on what fares should or should not be. If you have higher costs, which they are because of airport charges, fuel taxes and other problems, then you are not going to get an industry that can serve the market as efficiently. If the costs were lower, fares could be lower and the airlines could still make the money that they need for investing in their products and services and for future growth. Costs are definitely a problem.

When you visited Delhi you mentioned that Government aid to Air India (AI) is distorting the market. Given that the market is bouncing back and AI is doing better, is there a change in IATA’s approach?

State aid is a fact of life. It happens. And it can be used very successfully. But it has to be tied to performance targets and it has to be used to restructure an airline. If an airline is losing money and its owners, whether private shareholders or Governments, get more capital into it that is simply spent in subsidising operating losses, then you have not solved the problem. And sooner or later it will have to come back for more. Meanwhile, other competitors have to deal with a company that is not charging an economic rate because its costs are higher than its revenues. And that is a problem whether it is a State or private-owned airline.

If State aid is given, then there should be clear targets and accountability. It has happened very successfully in Japan with Japan Airline Ltd (JAL) where the Government put in a lot of money, which was used to restructure JAL and within two years or so it was re-floated. And the Government got all its money back.

Foreign direct investment has been allowed into domestic airlines. Does IATA feel it is a game changer?

No, I do not think it is a game changer but it is a good thing. However, it will not solve the problems of Indian aviation. It certainly is a step in the right direction but it is not the panacea that some believe it to be.

(This article was published on December 23, 2012)
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